The long-awaited R21bn aluminium smelter investment
at Coega may not happen as soon as expected, after mining giant Rio Tinto Alcan
expressed doubt yesterday about the future of the project because electricity
supply was not guaranteed.
According to Bloomberg, Rio Tinto CE Tom Albanese said at a results presentation
the group would not give the green light for the smelter until new power plants
had been built.
The Coega project's local spokesman, Robert Valdmanis, maintained that
Albanese's stance was "nothing new" and that "from our point of view we are
continuing our work".
"We have confidence in ourselves and confidence in Eskom
*1, and that is our view on the ground," Valdmanis said.
But Albanese was resolute *2, saying SA must
"prove" it had a solution to the power crisis.
In the strongest indication yet that Rio Tinto might still
pull the plug on the mammoth project, Albanese reportedly said the group
would want to see "not just conceptually on paper these power generation assets
being talked about, but we want to see them actually being built on the ground
... before we were to commit to construction of Coega on the ground".
Doubts about the future of the project were first raised when Eskom's finance
director, Bongani Nqwababa, expressed concern last month about bringing new
energy-intensive investments on stream while the utility's reserve margins were
well below international benchmarks.
Eskom has been load- shedding daily to keep its systems running. The power
supply to large industrial users has been cut to 90% of actual requirement, in a
rationing drive expected to continue until the end of the year and beyond.
Despite Eskom's misgivings, state officials have
consistently maintained that the smelter project would go ahead *4.
The trade and industry department's chief director of industry policy, Nimrod
Zalk, said recently while the state would be more
circumspect *5 in future about offering preferential power price
agreements to lure electricity- intensive investments to SA,
contractual commitments prohibited such agreements from
being revisited retrospectively *6.
Minerals and Energy Minister Buyelwa Sonjica said last week the state would
persist with its developmental electricity programme,
giving cheap power to foreign investors, with power saved *7 through its
energy efficiency campaign earmarked for distribution to such investments.
If Eskom were unable to supply the Coega smelter with adequate power, it would
have to pay Rio Tinto heavy fines. But it appears that Rio Tinto itself is
considering walking away from the project.
The aluminium smelter at Coega would be SA's largest greenfield investment to
date. The project has been a marathon eight years in the
making *8.
Because of the vast amount of electricity
required for smelting 1355MW would be consumed at full capacity the project
hinged on Eskom's ability to guarantee sufficient power at a low price.
A pricing agreement was reached at the end of November, but Eskom has since run
critically short of power and is unable to fully supply existing industry in SA.
Gas turbines to be build by independent power producer *9
Ipsa at Coega have been mooted as a possible interim
source of power for the project until Eskom brings additional generating
capacity on stream.
However, the economics of such an arrangement are
extremely questionable *10. The gas turbines will run on diesel until
liquefied natural gas supplies are ensured which is understood to be several
years away.
At current diesel prices, it would cost upwards of
R1,50/kWh to generate power from the turbines, industry analysts have
confirmed.
Eskom is understood to have guaranteed the Coega project electricity at
14c/kWh.
With acknowledgements to Mathabo le Roux and Business
Day.
*1There is only one way that anyone
can have confidence in Eskom - that is if Eskom's standard customer's haul
hundreds of billions of Rands out of their pckets to pay for R1 300 billion of
new coal-fired and nuclear power station to increase the base-load capability
from 38 GW to 80 GW.
It's really easy using taxpayers' money.
*2wise guy.
*3This is the best news I've heard since Alec Erwin's nose
grew longer than Pinoccio's - and that's massive.
*4This is because Coega is a Pinoccio project, built by
Alec Erwin and fellow bumiputerian's out of the Arms Deal.
*5Don't be more circumspect - just do the simple
arithmetic.
*6Nonsense, the current power situation constitutes a
formal and full-blown national emergency. Anything is possible.
I have a power supply agreement, but it does not guarantee power at all times.
It does not guarantee power at any price.
What is sauce for the goose is sauce for the gander and I'm saying that 45
million taxpaying citizens constitute more than a collective gander to match the
DTI gooses at Rio Tinto Aluminium and Billiton Aluminium.
*7This is not the point. The country still has to build
extra base-load power stations which would not be required if Rio Tinto
Aluminium and Billiton Aluminium were not sucking the grid dry.
Aluminium is not a natural product of South Africa and it just does not make
economic sense to force it.
*8That is because the main anchor tenant transmogrified
from a corrupt Ferrostaat submarine NIP project (a stainless steel rolling mill)
to a French Pechiney aluminium smelter to a Canadian Alcan aluminium smelter to
a Rio Tinto aluminium smelter.
Now steel and stainless steel are natural South African products.
For interest, the latest thing at Coega is a 1 200 ha, 20 000 tonne/year,
biosecure prawn farm.
If this is truly "biosecure" and creates 11 000 permanent jobs, including those
for laboratory technicians, marine biologists, software specialists and
engineers, and up to 88 000 indirect jobs, then this is just perfect.
And the technology comes from the US and South Africa and not some corrupt
German or French armaments vendor.
*9It is thought that Eskom is going to be paying these
independent power producers up to 150 c/kWh and then selling it to the aluminium
smelters for 14 c/kWh.
Which kippies are going to be paying the difference?
*10Extremely questionable is the biggest understatement
since Benjamin Franklin flew a kite.
This project needs the highest level of transparency and critical analysis of
independent consultancy and analysis.
Eskom has proven itself to be incompetent, negligent, reckless and dishonest.
Eskom must never again be allowed simply to do its own thing.
Especially that Eskom's chairman is Valli Moosa who is also a member of the
ANC's fundraising committee and Eskom is embarking on a R1 300 billion expansion
programme.
I've said it before and I'll say it again :
a large component of Eskom's current load-dumping regime is the fear
factor of frightening every South African electricity user into accepting
anything it takes to build a further 42 GW of generating capacity.