Eskom proposed price hike will adversely affect mining sector

Mine worker
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Four in 10 mining companies could shut down if Eskom’s demand for a 15% tariff hike is met, that’s according to the Minerals Council South Africa.

Mines are vulnerable due to the current economic slump, high production costs and increasing power tariffs. Loadshedding has also had a dire effect on the mining sector.

The great electricity tariff hike conundrum has has pitted Eskom against consumers and industry. Those in the mining sector say a 15% tariff increase would lead to a collapse of almost half the sector.

Henk Langenhoven, Mining Council Of SA Chief Economist, says the proposed tariff increase is not viable.

“Remember its 15 % over three years so it becomes in the order of 70%. It shows that it is unviable. There will be so many companies not surviving. There are about 1000 companies in mining and smelting and refining and the analysis shows that about 40% of them won’t make it and that means Eskom won’t get the income that they bargaining on.”

While on average electricity bills for the mining industry increased by at least 12.5% since 2010, commodity prices for gold and platinum only increased by 10.2% in rand terms, making it increasingly difficult for mining companies to balance production costs and income.

“Of course we would want no increases, but what would we be able to handle? It looks as if it’s roughly around the consumer price index, so about 5-6%, then we will not have the losses that much in that companies will go under. And that will then, instead of Eskom having a R30 billion shortfall in what they think they will be getting from mining, it will only be a R20 billion shortfall, but it’s still massive numbers. The total that they thought they would get is R50 billion by the end of the three years,” Langenhoven said.

According to the Minerals Council, over 50 000 jobs have been lost in the mining sector since 2007 and the beginning of the electricity crisis.