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Viewing cable 08PRETORIA214, ESKOM AND MINES: AIMING FOR THE LIGHT AT THE END OF THE

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Reference ID Created Released Classification Origin
08PRETORIA214 2008-02-01 12:00 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Pretoria
VZCZCXRO7217
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #0214/01 0321200
ZNR UUUUU ZZH
R 011200Z FEB 08 ZDS ZDK
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 3339
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0727
RUEHRL/AMEMBASSY BERLIN 0581
RUEHBY/AMEMBASSY CANBERRA 0604
RUEHLO/AMEMBASSY LONDON 1401
RUEHMO/AMEMBASSY MOSCOW 0727
RUEHOT/AMEMBASSY OTTAWA 0557
RUEHFR/AMEMBASSY PARIS 1260
UNCLAS SECTION 01 OF 03 PRETORIA 000214 
 
SIPDIS 
 
C O R R E C T E D  C O P Y (SENSITIVE CAPTION) 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DEPT FOR AF/S, ISN, EEB/ESC AND CBA 
DOE FOR T.SPERL, G.PERSON, A.BIENAWSKI, M.SCOTT, L.PARKER 
 
E.O. 12958: N/A 
TAGS: ENRG EMIN EPET SENV BEXP MGMT SF MZ BC
SUBJECT: ESKOM AND MINES: AIMING FOR THE LIGHT AT THE END OF THE 
TUNNEL 
 
REF: A) Pretoria 168 
B) Pretoria 132 and previous 
 
PRETORIA 00000214  001.2 OF 003 
 
 
1.  (SBU) SUMMARY: South Africa's electricity crisis continues 
unabated.  Economists debated the costs of most of the country's 
mines being shut down for almost one week, as they started to move 
back into partial production on January 30-31.  The government has 
announced a stabilization plan to achieve reduced demand to bridge 
the five-year gap to new supply, but Eskom was already not reaching 
agreed targets.  The mixed message from the government and Eskom 
raises uncertainty for large investors.  The SAG and Eskom stress 
the importance of maintaining exports and imports with neighbors. 
End Summary. 
 
--------------------------------------------- --- 
Mines Slowly Reopen After Unprecedented Closures 
--------------------------------------------- --- 
 
2.  (SBU) South Africa struggles with the consequences of the 
unprecedented closure of its mines in response to the electricity 
supply crisis that came to a head on January 24 when Eskom told 
mining companies it could no longer guarantee supply (Refs).  The 
mines remained closed for four days, but began reopening on January 
30.  Eskom has been widely quoted that during the mine closures, 
10,000 MW - or about one-quarter of its approximate 40,000 MW total 
capacity - was off-line due to planned and unplanned maintenance and 
problems with coal supply and quality.  The "wet coal" excuse was 
debunked at the start of the episodic load-shedding at the end of 
2007 with respect to coal combustion, but it has resurfaced with 
respect to wet coal negatively impacting its handling inside and 
outside the plant.  A 60-Minutes-style "Carte Blanche" television 
expose showed that many plants' coal stock-piles were at extremely 
low levels and there had been problems with tendering of coal 
delivery contracts.  Two General Electric officials told Energy 
Officer on January 29 that Black Economic Empowerment (BEE) 
affirmative action contracts for coal deliveries had been delivered 
in some instances to inexperienced firms who were unable to deliver 
coal to stock-piles. 
 
3.  (SBU) South Africa's top three gold producers began to ramp up 
production on January 30 with Eskom's assurance that it would 
provide 80 percent of normal supply, and then 90 percent by the end 
of January 31.  Coal suppliers promised to boost supplies to Eskom. 
AngloGold Ashanti said that all of its underground mines were moving 
toward full production, and it hoped for resumption of normal 
operations the first week in February.  An official at AngloGold 
Ashanti's Mponeng mine (where Economic officers visited just prior 
to the outage) confirmed to Energy Specialist that production shifts 
were working on January 31.  A Chamber of Mines official told Energy 
Specialist on January 31 that it may still be difficult to assure 
Eskom providing substantially more than 80 percent.  In fact, late 
on January 31, Eskom withdrew the authorization to ramp up to 90 
percent "owing to system instability" and announced that mining 
Qpercent "owing to system instability" and announced that mining 
companies and iron/steel producers would have to maintain usage at 
80 percent. The Chamber of Mines official said that mines may have 
to organize some sort of sequencing of production and operations. 
The Gold Fields CEO complained in a series of interviews that this 
would result in a 20 percent production decline with "profound 
results".  Local smelter Hernic Ferrochrome said that 10 percent 
less electricity means 10 percent less production. 
 
--------------------------------------------- -- 
The Government Has a Plan - But Eskom Struggles 
--------------------------------------------- -- 
 
4.  (SBU) Public Enterprises Minister Alec Erwin announced agreement 
on a stabilization action plan for mitigating the electricity crisis 
on January 29, which would allow mines to begin operating again by 
January 31 with 90 percent of their normal electricity (already in 
question two days later).  In phase one between February 1 and the 
beginning of March, the SAG would cut 4,000 MW, initially through 
load-shedding, then through "preemptive load curtailment" and 
targeted reduction from specific customer categories.  In the second 
phase from March to July, the SAG would introduce power rationing 
(learning from experience in Brazil), power conservation, 
incentives/penalties, and supply-side responses, saving a sustained 
 
PRETORIA 00000214  002.2 OF 003 
 
 
3,000 MW through 2012 when new coal-fired units start to come on 
line (Refs).  Minister Erwin also sought to counter claims that 
large investments were at risk - as earlier announced by Eskom; he 
claimed that the power shortage was not a long-term problem.  Press 
reports indicate that Rio Tinto is rethinking its investment for a 
significant aluminum smelter at Coega on the coast, for which it has 
a long-term contract with Eskom. 
 
5.  (SBU) Ministers repeated apologies for the electricity crisis in 
a special session of Parliament in Cape Town on January 30, but 
stopped short of offering any firings or resignations to satisfy the 
blame game.  Energy Minister Sonjica Buyelwa unveiled a ten-point 
plan to encourage South Africans to change the way they use 
electricity: "We are confident that we have the ability to turn 
around the situation.  We reassure South Africans and the world that 
all our projects will be on course and that the 2010 FIFA World Cup 
is not under any threat."  Amid jeering from opposition MPs, she 
advised: "Go to sleep earlier so that you can grow and be cleverer." 
 In addition, she blamed the power crisis on the "country being part 
of the global village."  "There have been black-outs in the U.S. and 
Europe, and Brazil has gone through the same experience," she said. 
 
 
6.  (SBU) General Electric CEO Jeffrey Immmelt told Economic 
Officers on January 29 that his company was offering to help South 
Africa with 4,000 MW of gas-fired capacity in two years.  He said 
that he was going to make this offer personally to President Mbeki 
later that day. 
 
---------------------------- 
Links to Neighbors Important 
---------------------------- 
 
7.  (SBU)  In frequent interviews, Minister Erwin has stressed the 
importance of the Southern African Power Pool and the relationship 
with international partners with whom South Africa has contracts to 
supply electricity.  Eskom's Managing Director emphasized that South 
Africa exports and imports electricity, citing a "huge amount of 
power" from Mozambique, a limited amount from Zambia, and a limited 
amount from as far away as the DRC.  As of January 30, Eskom 
reported that about 300 MW was being exported primarily to Namibia 
and Botswana (with smaller amounts to Swaziland and Zimbabwe). 
Eskom has cited that it imports about 1400 MW from the Cahora Bassa 
hydroelectric dam on the Zambezi in Mozambique, and in turn it 
exports 950 MW of that to the Mozal smelter.  South Africa is 
looking to its neighbors to provide additional electricity in the 
future.  The proposed Mmamabula 2100+ MW coal-fired plant in 
Botswana is negotiating with Eskom on an off-take agreement to gain 
financing.  An IFC official told Energy Officer that Eskom "plays 
hard ball" with this and other potential projects given its 
monopsony power. 
 
8.  (SBU)  Speaking at a Chinese investment in Africa conference at 
the University of Pretoria Business School, Anglo American 
strategist Clem Sumter cautioned that South Africa's power crisis 
Qstrategist Clem Sumter cautioned that South Africa's power crisis 
demoted the country to the "relegation box" of the "first division" 
(soccer league).  Failing timely resolution of the crisis, he 
warned, the country could slip to the "second division", negatively 
affecting its status as "gateway to Africa" (although there is no 
clear alternative to South Africa). 
 
9.  (SBU) COMMENT: The loss of almost a week of mining production is 
unprecedented and will likely have a significant effect on South 
Africa's economy and investment environment (mining represents 16 
percent of direct and indirect GDP and significant amounts of 
exports and jobs.)  Mining companies will now not be able to rely on 
an "uninterruptible contract" and this will weigh heavily on the 
minds of boards of directors who are considering the approval of 
major projects, especially energy intensive ones.  In addition, 
mines are also grappling with the vexing challenge of safety.  The 
AngloGold Ashanti Mponeng Gold Mine General Manager told Energy 
Officer on January 24 the mine's year-on-year production declined in 
2007 because of the SAG "over-reacting" and shutting down production 
for one week because of a fatality.  Now this mine and others are 
grappling with the uncertainty of comparable or greater closures 
because of electricity disruptions in 2008. 
 
PRETORIA 00000214  003.2 OF 003 
 
 
 
10.  (SBU) Eskom and the government need to have a plan, including 
implementing more effective planning for and mitigation of 
electricity shortfalls.  Because they have not had a viable plan to 
date, they have resorted to last-minute improvisation.  Significant 
"unplanned maintenance" is the real challenge and shows the risks 
and uncertainty of running aging plant at peak loads for prolonged 
periods.  Both the initial improvised measure of emphasizing 
load-shedding on residents and small businesses and the later 
approach of focusing the burden of power cuts on the mining sector 
are both measures that are not sustainable from a political or 
economic perspective. 
 
TEITELBAUM