Load shedding sparks growing fears in steel industry

Seifsa's chief economist says the power cuts are stifling growth.

FILE: Seifsa says the manufacturing industry contracted by 2.5 percent last year as a result of power cuts by Eskom. Picture: Free Images.

JOHANNESBURG - The Steel and Engineering Industries Federation of South Africa ( Seifsa) says the manufacturing industry contracted by 2.5 percent last year as a result of power cuts by Eskom.

Eskom has experienced major supply problems since last year when a coal silo collapsed at the Majuba Power Station in Mpumalanga which reduced supply by about 1,800 megawatts.

Stage one load shedding was implemented on Friday for the first time this year when generators suddenly broke down, forcing the power giant to cut electricity without notice.

Seifsa says the disrupted power supply led to a contraction of between five and 13 percent in the rubber, structured steel and general purpose machinery sub industries.

Last year, the metals industry was hit by a five-month long strike in the platinum sector and a further month long strike by National Union of Metalworkers of South Africa ( Numsa) before load shedding started in November.

Seifsa's members represent about 34 percent of the manufacturing sector and its chief economist says the power cuts are stifling growth.

The federation's chief economist Henk Langenhoven says the steel and engineering sector make up a significant portion of Eskom's business clients.

"We are a large proportion of the energy users. I mean without that we can't produce. If you look at electricity as a percentage of the cost of inputs it isn't that high. But if you compare that with the fact that if you don't have energy you can't produce and secondly, with profit margins, it becomes quite serious."

Eskom has warned that without additional funding to buy diesel, load shedding will be continuous and ongoing because the utility won't be able to operate its open gas turbines.

The utility says the power grid remains vulnerable and any technical issues or generator problems may force it to implement rolling blackouts at a moment's notice.

Eskom says it will run out of money to buy diesel by the middle of next month and it's waiting for feedback from government on whether it will receive funds to keep the lights on.

The utility has been running open gas turbines extensively in the last few months to keep up with electricity demands but at the same time spending billions of rands to buy diesel to operate them.

Eskom's Andrew Etzinger says by February, the parastatal will simply not have the money.

"If we are not able to secure the additional funding, it would mean quite a big risk of load shedding on an ongoing basis."

A government meeting on the power supply issues and how to help Eskom will take place soon.

At the same time, energy experts and economists have warned a government bailout will not help Eskom in the long-term to deal with the electricity crisis.

The parastatal has said it's expecting about R20 billion from government to help it continue buying diesel.

Energy expert Chris Yelland says Eskom needs to look at the fundamental business problems.

"Throwing money at this is not the solution. It will become like a black hole if you don't address the underlying issues it simply means that in a period of time they will need more money."

Economist Iraj Abedian says a coherent national energy policy is needed.

"The government has failed to come up with a credible and sustainable national energy policy and therefore it has placed extraordinary pressures on Eskom."

The company, which supplies 95 percent of South Africa's power supply, said the grid can change at any time.

The utility has also been battling with ageing infrastructure and limited generating capacity.

It has warned South Africans to be prepared for load shedding at all times.