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Wednesday, October 1, 2008

Govt change clouds Eskom power projects

By: Reuters
Published: 30 Sep 08 - 16:23

A change at the helm of the ministry that controls South Africa's state utility Eskom may delay projects to expand electricity generation in a country gripped by a power crisis that will take years to resolve.

New South African President Kgalema Motlanthe surprised analysts by naming former justice minister Brigitte Mabandla to the public enterprise department, which runs Eskom.

The utility has since January this year battled to keep the lights on in South Africa after a near-collapse of its grid.

The rolling power cuts affected aluminium smelters and shut gold and platinum mines, sending metal prices soaring, and by some estimates cost Africa's biggest economy R50-billion by August, slowing fast-paced economic growth.

The government offered a mea culpa, saying it ignored warnings from experts to invest in new power generation. The power crisis could last until 2013, but South Africa has said plans to host the 2010 Soccer World Cup should be unaffected.

Analysts said Mabandla would have to get to grips with plans to build a slew of new power stations and help Eskom raise cash internationally, right in the middle of a global credit squeeze.

Her term will last seven months before scheduled general elections, and there is little time for meaningful changes, and worse still if a new minister is named after the polls, as it may disrupt plans to handle the power crisis.

"I don't think we needed this kind of changes at this stage. It will take her seven months just to settle," said Johan de Kock, head of research at Metropolitan Asset Managers.

"I expect a delay of a couple of months if not more on various decisions on contracts for expansions," he said.


One of the key tasks for Mabandla this year would be the approval of huge deals to expand power generation, including a new nuclear plant, which could be worth billions of dollars.

The market is watching to see how soon or if at all Mabandla will give her approval to plans to build the country's second nuclear power plant. France's Areva and US-based Westinghouse Electric have bid for the contract.

Areva has said it expected a decision last week, but added Mbeki's exit could have pushed back the timing.

"She has to walk in completely cold," Johan Botha, a senior economist at Standard bank said.

"She won't put hand to paper to approve the big contracts like the nuclear one before she has been fully briefed."

Mabandla was unavailable to comment. She has not publicly spoken of her plans since she was sworn in on Friday.

South Africa's National Treasury, which has already fast-tracked R60-billion over the next three years to pay for Eskom's R343-billion, five-year expansion.

Eskom has said it plans to get the extra cash from the government, tariffs, the World Bank and global capital markets, and that a ratings downgrade by Moody's may hurt its chances.

Fani Zulu, Eskom's spokesman, said Moody's downgrade of Eskom would lessen the amount it can raise from capital markets, but a roadshow in Europe showed there was still some appetite.

The new minister is expected to be briefed on Eskom soon.


"She has to face foreign investors, and play the PR [public relations] role for Eskom in attracting funds to the sector," Nicky Weimar, a senior economist at Nedbank said.

"The more she knows about the sector the better."

Analysts said there were plans for further Eskom changes, and the minister may open the door for rivals to Eskom.

"There is some market talk of plans to move Eskom to the Treasury, which understands funding issues, or house it under the Department of Minerals and Energy," Botha said.

Weimar said despite her short time in office, Mabandla may take a fresh look at Eskom's status as a monopoly.

"The minister drives policy," Weimar said. "She could review public enterprises policy on generation or distribution, and end its role as a monopoly."

Global Insight's senior economist Ronel Oberholzer said moving Eskom elsewhere or changing the country's energy policy would require rigorous debate. She said what most investors wanted was a quicker end to the power shortage crisis.

"I can't see her trying to stir things up, she may try to play it safe," Oberholzer said.

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1 comment:

Anonymous said...

I believe countries like South Africa, or democracies in Europe or all over the world need to start making changes to how the governance of their republic functions. There shouldn't be this disruption to long term plans every time there is an election or political event(which seems to happen constantly).

Look in the US, and oil exploration since this or that party could get in and shut down their operations the companies look abroad for long term investments.

Democracy is failing in this first decade of the 21st century, as in many nations it has become too unstable to get anything serious done.