By Charlotte Mathews for MiningMx
The under-performance of Eskom’s fleet of coal-fired power stations is currently being concealed by falling demand. Even a 0.1% uptick in GDP growth would result in a resumption of load-shedding, Nelisiwe Magubane, chairperson of Matleng Energy Solutions and a member of the Eskom board, said on Wednesday.
Nelisiwe said Eskom was reviewing its system availability. The previous energy availability factor report of a few months ago predicted 75-80%. At this point availability was 69-70%.
Mike Rossouw, CEO of Independent Energy Thought Leader and a former chairman of the Energy Intensive Users Group, said if demand picked up, South Africa would experience loadshedding twice a day.
Magubane and Rossouw were speaking at the Afriforesight Future of Coals & Bulk Commodities Conference in Sandton.
Rossouw said the root of the problem facing Eskom was that its pricing policy was wrong. It was devised when Eskom was stable and smaller and not building new power stations. “Today it is the worst medicine for Eskom. The good news is that it can be changed overnight, without parliamentary processes, and things will start improving,” he said.
He said price and demand were inextricably linked. About 75% of Eskom’s income was derived from industry and mining, who were paying too much for power. A comparison of South Africa’s industrial and mining tariffs (rather than its average price) with the same sectors globally showed Eskom’s prices were far higher.
For some smelters, 60% of costs are electricity. At the moment 47 South African smelters were shut. Several South African mines were now smelting offshore because they could get better prices elsewhere.
As Eskom increased its tariff, demand for electricity was falling. As a result, Eskom did not have the revenue to pay for its current scale of operations, which were 500% bigger than they were in 2001 measured in number of plants, Rossouw said. The tariff allowed Eskom by the regulator should reward the utility for good behaviour and punish it for bad behaviour.
Rossouw said Eskom’s average price should not be more than 90c/kilowatt hour (kWh), and ideally it should be about 80c/kWh. Eskom has some power stations that can produce at 30-35c/kWh, but others were generating at a cost of 90c/kWh.
A price of 80c/kWh presupposed that Eskom could bring costs under control. “It makes no sense to raise prices because costs are not under control,” he said.
Rossouw said Eskom’s high costs resulted from three main factors. Firstly, it was paying excessive costs for coal as a result of too many small operators supplying bad coal intermittently and destroying road infrastructure at the same time. “(Former Eskom CEO Brian) Molefe’s ‘I don’t want the bakery I just want the bread mantra’ is nonsense,” Rossouw said, because coal and power stations were inextricable.
A second problem was that Eskom had too many assets. Breakdowns were now 20% of capacity from 3% in 2001 and fixing breakdowns required three times as many resources as planned work.
The third problem, Rossouw said, was staff and other costs. Eskom could address those costs, if it was allowed to do so. It should not be stopped from retrenching. “Every company in the world that is in trouble cuts back operations and staff,” he said.
South Africa’s unemployment rate is getting worse. The latest stats from Stats SA, as well as the opinions of leading economic and labour experts, paint a very dire picture:
- The unemployment rate increased by 1,4 percentage points from 27,6% in the first quarter of 2019 to 29,0% in the second quarter of 2019
- The number of people unemployed grew by 455 000
- The number of people employed grew by just 21 000
- Government’s failed Industrial Policy Action Plan (IPAP) was supposed to create 350 000 manufacturing jobs
- 320 000 manufacturing jobs have been lost since 2008
- Gang violence on the Cape Flats is a direct result of the loss of jobs in the textile industry in the areas
- 6,7-million people are currently unemployed in South Africa – the size of the entire country of Bulgaria
According to a Business Tech article published recently, chief economist at Efficient Group, Dawie Roodt believes that state spending has increased relentlessly since 2009, at a time when tax collections collapsed – and that the South African economy “doesn’t have a long time”.
“Even if we can somehow wave a magic wand and get rid of all the corruption and incompetence in the state and SOEs overnight, the perilous condition of the state’s finances will need an extraordinary attempt to save us from further economic collapse,” Roodt was cited as saying.
South Africa’s faltering economy can be attributed to:
- Eskom’s dire financial results, with a record reported loss of R20.7-billion
- The potential for load-shedding making a return in late August
- The latest unemployment data: the Quarterly Labour Force Survey for Q2 2019 showed that the unemployment rate increased by 1.4 percentage points from 27.6% in the first quarter of 2019 to 29% in the second quarter of 2019
- Rumours that international ratings agency Moody’s could downgrade South Africa’s sovereign debt to junk status abound
- A collapse of fiscal accounts
- Lack of economic growth – it needs to be at 6%
There are a few ways to remedy this, including:
- Increasing taxes, such as VAT, by 11 percentage points will get in approximately R250-billion
- Cutting state spending by a similar amount, and do away with cash-heavy initiatives like the NHI
Nedbank Group is in talks with about 1 500 employees over potential job cuts at the South African lender’s retail and business-banking division to cope with a struggling economy and increased competition.
The company forecasts that “between 50 and 100 employees are at risk of not being placed in a role,” Johannesburg-based Nedbank said in an emailed response to questions on Friday.
“Unplaced employees will then be assisted by the bank to either secure available alternative positions within the bank, which is our first prize, or be equipped for opportunities outside the bank.”
South African lenders are battling to grow revenue faster than costs as they contend with an economy that has shrunk for three of the past five quarters.
Consumers have been battered by rampant unemployment, rising taxes, fuel prices and utility bills, pushing them to explore cheaper banking alternatives or digital services.
Companies aren’t investing amid uncertainty over electricity supply and surging government debt levels.
“Nedbank is being forced to reshape our operating models and businesses,” the company said. “In doing this, Nedbank actively makes use of natural attrition and a redeployment and reskilling pool. Non-voluntary retrenchments are always the last option.”
The company, which employs 30,577 people, has also been reducing the floor space used by its branches and increasing the use of automation to lower costs.
Nedbank expects the process to be concluded after the final meeting with the labor union Sasbo at the end of this month, it said.
By Gaye Davis for EWN
Finance Minister Tito Mboweni said cash injections for state-owned entities like the South African Airways, the South African Broadcasting Corporation (SABC) and Denel wouldn’t be handed over all at once but in chunks, as certain conditions are met.
Mboweni was on Tuesday replying to debate on the Appropriations Bill, which was before the National Assembly.
The Appropriations Bill provides for budget allocations to all departments and entities and was tabled by Mboweni along with his February Budget.
It included provision for R3.2 billion for the cash-strapped public broadcaster.
The bailout money for the SABC, Denel and SAA would come from the contingency reserve account but Mboweni said it came with strings attached.
“We would not just make that available tomorrow, it would be a mistake but we will release in chunks as certain conditions precedent are met, to make sure there’s progress in improving the organisation.”
Mboweni said chief restructuring officers for each entity would be announced on Wednesday. They would work with the management of the SABC, SAA and Denel to get them back on track.
The minister has warned that the country’s debt to GDP ratio was at an “unacceptable level”: “Thus providing the basis for a serious crisis in the country.”
He said financial management needed to be improved across government and people needed to accept the principle of paying for the services they use.
According to a recent MyBroadband article, Cell C is in deep financial trouble, and was “forced to delay its debt payments and hire consultants to probe its business practices”.
Cell C’s interim CEO, Douglas Craigie Stevenson, wrote an open letter detailing the challenges faced by the company. The letter included a turnaround strategy, aimed at “extracting greater value from its roaming agreement and optimising its network revenue and usage”. A recapitalisation programme is also on the cards.
Bowmans Attorneys have been hired to “investigate any parts of the business where we suspect that there may be irregular business practices”.
A sharp decline in Cell C shareholder Blue Label Telecoms’ share price followed this announcement.
According to MyBroadband, they have “received information from industry insiders saying Cell C is facing tremendous financial challenges which are big enough to bankrupt the company”, with some speculating the company may “close down and have its parts sold off”.
According to Stevenson’s open letter, the challenges faced are the following:
- Debt – this has gone up more than anticipated since the recapitalisation of 2017
- The cost of debt – Cell C is paying a substantial premium on the cost of its debt
- Liquidity problems – this is due to some of the events around the payment of large tranches on coupons
- Poor business performance – Cell C’s business performance has not been optimal
Industry insiders told MyBroadband that Cell C is in this position because of:
- High interconnect rates – the interconnect rate went from 20c to R1.25 before Cell C’s launch, which made it nearly impossible to compete
- Bad management and shareholders – the company was not run efficiently enough to become successful
- Declining voice revenues – as data products become more popular, high-margin voice traffic is declining
- High roaming charges – Cell C pays high roaming charges in areas where it does not have network coverage
Image credit: Tech Central
According to the latest Old Mutual Savings & Investment Monitor report, South African households remain under pressure.
The report is based on 1 000 household interviews among working South Africans living in major metropolitan areas, and shows how consumers are being forced to tighten their belts.
- A need to to cut back on monthly spending just to make it to the next payday
- An increase in households under financial stress
- Middle- and upper-income households are showing strain
- 42% of respondents said they struggle to make ends meet each month
- 73% of respondents said they are constantly worried about having enough money
- 58% of respondents said they do not feel financially secure enough to cover an unplanned emergency
- 60% of respondents do not feel confident that government will be able to provide for them and their families if they cannot do it themselves
- Consumers are cutting back on expensive food and clothing purchases
- Households are cutting back on entertainment and entertaining, reducing how often they go out, or have friends and family over for a social gathering
- 15% of people indicate they will cutting back on using domestic workers
- 79% of households indicated they do not employ a domestic worker at all
Pay-TV MultiChoice has announced plans to retrench more than 2 000 employees in the call- and walk-in centres of its business, due to a “strategic realignment of its customer service delivery model”.
In a statement, the company said that customers are “increasingly moving away from traditional voice calls and visits to walk-in centres and adopting new self-service and digital technologies to engage with the company.
2 194 employees were given notice on retrenchment, but MultiChoice Group chief executive Calvo Mawela said the restructuring will make new roles available “for multi-skilled employees with the expertise, skills and technological prowess to enhance the customer experience”.
However, media worker trade union ICT said in a statement that “the Union has not been officially informed, which makes the process unlawful”.
South Africa is waiting with bated breath as Cyril Ramaphosa will present the first State of the National Address (SoNA) of the 6th Parliament on 20 June 2019 at 19:00.
The theme for this year’s event is: “Let’s grow South Africa together as we celebrate 25 years of freedom”.
During the SONA, the President will address the nation as both the Head of State and Head of Government. He will present a plan to address South Africa’s needs for the year ahead.
Since it is a Joint Sitting of both Houses, the Speaker of the NA and the Chairperson of the NCOP host the event. All the three (3) Arms of the State, namely; the Legislature, the Executive and the Judiciary attend this event. It is one of the rare moments whereby all three Arms of the State meet in one place. As one of the important ceremonies of the state, it is broadcasted live on national television so that the general population is afforded the chance to see it.
The State of the Nation Address is important for all South Africans because it tells us what government’s Programme of Action is for the year ahead. The Programme of Action is government’s plans for the country and people of South Africa.
By being aware of what government is doing, everyone can become involved and also take part in government’s plans to build a better life for all.
The State of the Nation Address was broadcast live on: DStv Channel 408, SABC TV, eNCA, ANN7, SABC radio stations and Parliament’s YouTube Channel.
By Jeanine Walker for SA Promo Magazine
“The end of the line is coming soon,” economist Mike Schussler told the Sunday Times over the weekend.
“We are in a deep crisis, we cannot save every state owned entity (SOE) and I think at this point in time Eskom is much more important than SAA”
His comments come at a time when SAA requested another R4 billion from the government in an attempt to keep the struggling airline afloat. BusinessTech reports the airline continues to operate at a loss and has a R3.5-billion short-term loan, which will be depleted at the end of this month (June 2019), along with a long-term R9.2-billion loan.
SAA board member Martin Kingston is quoted as saying that the board was worried about the state of the economy and how it may impact the government’s decision to bail out the airline.
Schussler says the airline is “indebted to the nth degree”, and that it probably wouldn’t survive.
Meanwhile labour union Solidarity says SAA needs urgent, radical intervention from outside. Responding to the resignation of SAA CEO, Vuyani Jarana, last week, Connie Mulder, head of Solidarity’s Research Institute says since President Cyril Ramaphosa’s election a spirit of excitement prevailed about a new beginning. “However, it now seems as if the faces on the pictures may have changed but the facts on the ground have not. Mr Jarana’s resignation leaves Solidarity with no choice but to update its court papers for business rescue, making a final end to the cadre merry-go-round at the SAA.”
SAA ‘is unsalvageable’
He says he finds its extremely disconcerting that in his letter of resignation Mr Jarana cites all the challenges Solidarity had highlighted in 2018 as the reasons for the airline’s failure. “This is proof that while the airline is state-owned it is unsalvageable, regardless of who is at its helm. In 2018 Solidarity reached an agreement with Mr Jarana in terms of which he would give us regular feedback on progress being made with the turnaround strategy. It is now clear to us that this strategy is not going to be implemented for as long as the SAA is owned by the state,” Mulder added.
The SAA’s status as a going concern is still in jeopardy, and it would appear as if little progress has been made as far the implementation of the turnaround strategy is concerned.
“To give a new CEO another chance, yet again, will be irresponsible given the history of the SAA,” Mulder added.
Solidarity considers the SAA business rescue application to be a precedent-creating case of vital importance, not only for the SAA, but also for taking back other, bigger state-owned enterprises from the hands of the state.
“To sit back now and let the SAA continue with another bailout and a new face will be akin to treating a patient who needs heart bypass surgery with a Panado. The SAA and other state-owned enterprises need radical, external intervention, and Solidarity will provide it,” Mulder concluded.
When Jarana resigned he said he would vacate the post on 31 August. However, the Sunday Times reported that he would now vacate his position immediately and would be succeeded by Zukisa “Zuks” Ramasia as acting CEO of SAA.