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| COEGA ELECTRICITY - WHO WILL PAY? |
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| Written by INGELA RICHARDSON |
| Monday, 24 May 2010 22:21 |
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WHILE SA is facing an energy crunch, the government is scrambling to secure an industrial project for its Coega Industrial Development Zone whose very essence is defined by its massive requirement for electricity. As news about aluminium giant Alcoa’s hostile takeover bid for Alcan hit the headlines this week, officials close to negotiations to bring smelting capacity to Eastern Cape shores moved to allay concerns that the project would be delayed or even halted. The smelter has become something of a pet project with the government. And it is no small wonder. The deal has been a marathon six years in the making. Furthermore, the government has spent R7,5bn to develop the Coega zone, which doomsayers predict could turn out to be a dud without a key tenant — the smelter. But the government’s dogged determination to save the project does not receive applause all round. Negotiations on the project started long before the alarm bells were raised on the electricity supply crisis in SA. Making aluminium requires a massive amount of power. The 720000 tons of aluminium the Alcan smelter will produce in a year will demand 1180MW of electricity — enough to power a city. The attraction of SA as a destination for the giant investment — R21bn at the last count — is precisely because SA’s electricity is the cheapest in the world. But the power situation has changed fundamentally and the price of power is likely to spike. To address SA’s power shortage, Eskom will spend R150bn over the next five years and South Africans will have to cough up to fund that massive capital outlay. A price hike to the tune of 18% has been mooted. But Alcan, for the 25-year duration of the project, will get its electricity at a special, much cheaper, rate than ordinary South Africans or even other industries. Eskom is not divulging the price Alcan will pay for power. Some say this is because its terms would be too unpalatable for long-suffering South Africans, who have to put up with power failures and with the hefty price increases to bring about the additional capacity. But the aluminium smelter also appears inordinately out of touch with changing global priorities that have seen the impact of human activity on climate change come under intense scrutiny. Concerns about global warming have sparked a flurry of activity to introduce renewable energy into the energy mix to mitigate that impact. However, as SA rolls out its grand electricity expansion plans, it will rely ever more on dirty coal, with the smelting capacity at Coega inevitably supported by coal-fired power. Worldwide Fund for Nature (WWF) trade and investor adviser Peet du Plooy points out that aluminium produced in countries such as Canada and New Zealand predominantly uses hydro-power. The introduction of carbon labelling to measure the impact of goods on the environment is becoming a reality and South African products, manufactured by using dirty electricity, are likely to be penalised in the global market, he says. But the smelter project also appears to be curiously out of touch with the suggested aims of the new national industrial policy framework, drafted in support of the Accelerated and Shared Growth Initiative for SA (Asgi-SA). The policy in principle rests on two pillars: to grow jobs and to boost downstream industries. However, the Alcan smelter is unlikely to contribute meaningfully to either of these aims. Alcan will get its cheap electricity in terms of the new Developmental Electricity Pricing Programme, and the trade and industry department, which administers the programme, has built in a reciprocity clause that puts an onus on beneficiaries of the programme to help develop domestic downstream demand. However, Alcan spokesman Anik Michaud says the proportion of production earmarked for domestic use has not been finalised and, despite commitments to the contrary, it is likely the bulk of the aluminium will be destined for the export market. Essentially, the project will be a handsome earner of foreign exchange for SA, but will not necessarily help develop downstream industries, says Du Plooy. In terms of alleviating joblessness, the smelter’s contribution would be even more negligible, with creation of a paltry 1000 jobs. Du Plooy says the large-scale roll-out of solar panel heating in SA could create 80000-120000 jobs and 500000 indirect jobs. It could also help shrink SA’s massive carbon footprint. |
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