Publication: Business Day Issued: Date: 2009-10-16 Reporter: Siseko Njobeni

Electricity woes sink Coega smelter

 

Publication 

Business Day
Date 2009-10-16
Reporter Siseko Njobeni
Web Link www.bday.co.za
 



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Jacob Maroga
Picture: Business Day


Aluminium producer Rio Tinto Alcan has scrapped plans to build a multibillion-rand aluminium smelter at Coega near Port Elizabeth due to concerns about security of electricity supply and Eskom’s proposed hefty tariff increases.

This is a blow to the government’s aspirations to locate heavy industry in Coega, which had been on the cards since 2001, and has often been cited as a catalyst for foreign direct investment.

The cancellation also raises doubt on whether the power-intensive project ­ proclaimed two years ago by the government as its largest single greenfield investment ­ will get off the ground.

The fate of the 720 000 ton smelter project, which would have provided a much-needed anchor tenant for Coega , hangs in the balance while SA faces serious electricity supply constraints.

A weak balance sheet and the demands of its multibillion-rand capital expansion programme have put Eskom under pressure to get out of electricity supply contracts struck when there was still overcapacity *1.

In a statement last night, the Department of Trade and Industry, Eskom, the Industrial Development Corporation (IDC) and Rio Tinto said the supply of electricity to the Coega smelter project was insufficient to proceed.

This had led to termination of the electricity supply agreement in accordance with its terms and conditions, the parties said.

Alcan, which later became Rio Tinto Alcan, entered into an electricity supply agreement with Eskom in November 2006 *2.

But after talks “over the past several months”, Eskom, Rio, IDC and the Trade and Industry Department had agreed to terminate the electricity supply agreement “as the current context regarding the supply of electricity has changed significantly” *3.

“The parties also concur that it is of utmost importance that a project like the Coega aluminium smelter come on stream when power is reliably available .”

Guy Larin, vice-president, business development for Africa at Rio Tinto Alcan, said that his group was “willing to pursue discussions” on a smelter in the Port Elizabeth area.

The group had spent about 130m on the project since November 2006, he said.

Last year, Rio said it would put the project on hold until about 2012, by when it was hoped SA would have sorted out its electricity problems *4.

Trade and Industry Minister Rob Davies , speaking at a function of the South African Chamber of Commerce and Industry, said last night that “unfortunately the reality of SA’s energy situation” had led to yesterday’s announcement.

“What this indicates is not that we won’t be able to sustain projects over the years, but during the short run for ultra-energy intensive projects we will be constrained.”

The government’s infrastructure spending programme would spur development in the motor , chemicals, forestry and agri industries . Davies said the focus would be on energy-saving technology and green technology such as solar *4 panels and water heating.

with Mariam Isa, Bloomberg and Bheki Mpofu

With acknowledgements to Siseko Njobeni and Business Day.


*1       Beware the spin.

There hasn't been over-capacity for 15 years.

And these deals have been signed or extended since then.


*2      This for example, is outrageous.

It was clearly and formally known in the 1996 to 1998 period that there would not only be no extra capacity, but a shortfall by 2005.

That's precisely what happened and small perturbations in primary generation capacity led to loadshedding soon after that.

So signing a long term supply contract in 2006 is criminal negligence.

It is criminal because it was wilfully done in the face of clear opposing evidence.

Pinnoccio - step up to the tree stump. My obedient Indian elephant would like a brief chat with you.

Or would you prefer the .38 special - which might be arranged in exchange for those PIN numbers of yours and Thabo's Malaysian wonga accounts.


*3      Litotes, litotes, litotes.

But more accurately, "changed a long time ago and has never looked up again".

Until Chancellor House found a way to become the BEE partner in a R100 billion mainstream coal-fired power station, Eskom's first in some decades.


*4      South Africa will not have sorted out its electricity problems for another decade at least.

Even if Rio Tinto Aluminium produced its own electricity it should not be welcome in this country because it would be burning this country's coal.

The coal and minerals of this country belong to all its citizens and not only preferred natural and juristic persons.

Now if Rio Tinto wanted to build a nuclear power station to melt its metal, that would be another thing.

They could sell extra kiloWatthours to Eskom at R1,25 per pop or possibly R4,50 at peal times.

But the sad thing is that aluminium smelters would have to be located not only near the coast, but near a deepwater harbour.

Because aluminium ore comes from afar (mainly from Australia) and so must come by giant ships.

Any who want's another nuclear power station on one of our precious beaches, just forty clicks up the road from the homes of millions of people?

Pinnoccio, can I hear you?


*4      Solar is good inland where there is less wind.

Wind is good on the coast where there is more wind energy than sun energy.

But please, not on the beach.