Johannesburg – Rio Tinto Group, the world’s third-biggest mining company, scrapped a plan to build an aluminium smelter in South Africa after electricity shortages and a plan to raise tariffs, news service Bloomberg.com reported on Thursday.

According to two people familiar with the plan, Rio sent a termination letter to power utility Eskom, informing it that the proposed project has been called off.

Rio acquired the $2.6bn, 588 000 metric-ton-a-year Coega project on South Africa’s east coast after the London-based company purchased Canadian aluminum producer Alcan in 2007. Rio said in October last year Coega’s development was on hold until at least 2015 because of political uncertainty and a lack of electricity.

Eskom, which supplies about 95% of South Africa’s power, says it will triple prices as it faces a shortfall in funding a R385bn expansion project.
Source: Fin24

ESKOM’s announcement last week that it seeks a 45% annual increase in electricity prices over the next three years was bad enough. But the fact that the resulting rise in inflation will affect interest rates is enough to enrage the average consumer.

Past and future electricity price hikes were one of the reasons mentioned in the Reserve Bank’s most recent monetary policy committee (MPC) statement for keeping interest rates unchanged.

The bank has cut interest rates by five percentage points since December 2008, bringing the prime overdraft rate to 10.5%, but disappointed consumers hoping for another last cut when it met in September. This week sees another MPC meeting – the last chaired by governor Tito Mboweni – but he has already indicated he’s in no mood for further easing.

Interest rates are used as a tool to encourage or discourage demand in the economy. The question that immediately comes to mind is why should electricity prices, which have nothing to do with demand in the economy, have an effect on interest rates?
Source: Fin24

Pretoria – In the next few months the National Energy Regulator of South Africa (Nersa) has to come to a crucial decision for the South African economy regarding Eskom’s request to raise electricity tariffs countrywide by 45% a year for three successive years.

The entity however muddled cents and rands when on its website it announced the Tshwane Metro Council’s power tariffs that apply from July 1.

According to the Nersa website, the electricity tariff for a middle-class household in Tshwane is R74.20. The unit to which this tariff applies is not made clear.

If it is 1 kWh, the unit in which other municipalities’ electricity tariffs are quoted, a household of four consuming 800 kWh a month would be billed R59 360. This before the addition of VAT.

In response to enquiry, however, Nersa admitted its error to Sake24. The correct tariff is 74.2c/kWh, giving the consumer an account for R593.60 (VAT excluded).
Source: Fin24

Johannesburg – The Reserve Bank could struggle to contain inflation in 2010 if Eskom is granted the 45% tariff hike it has asked for, according to outgoing Reserve Bank governor Tito Mboweni.

The bank forecast the headlining consumer price index (CPI) inflation measure to return within the 3% to 6% target band by the middle of 2010; this is when a 25% electricity tariff increase is factored into projections.

“No adjustment has been made for a further electricity increase,” said Mboweni, addressing media at his final monetary policy committee (MPC) statement.

The MPC chose to leave the key repo rate unchanged at 7% after it judged there had been no changes to the immediate inflation outlook. Further tariff hikes from the power utility pose the biggest risk to South Africa’s medium-term inflation outlook.

“If there’s a further 25% increase in energy rates, I have no doubt the outcome will be much worse,” he said.
Source: Fin24

IN THE coming months South Africa will be chatting about electricity more than ever before. Electricity prices, as we now know, will probably rise 45% a year for three successive years.

Trade federation Cosatu is likely to launch mass action – perhaps even call out a countrywide strike. Many interest groups will make submissions to Nersa about the proposed increases.

In February or March 2010 the National Energy Regulator of South Africa (Nersa) will be holding a public hearing on the matter. Many civil groups and organisations will object and testify as to how the proposed increases will impoverish their members.

“I am deeply convinced that we have to choose between much more expensive electricity or no longer having a reliable electricity supply,” said Eskom chairperson Bobby Godsell in an interview with Sake24 last week.
Source: Fin24