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Cablegate: Load-Shedding Worsens - Coal Supply Woes Shut Mines

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RR RUEHWEB

DE RUEHSA #0168/01 0251512
ZNR UUUUU ZZH
R 251512Z JAN 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 3284
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0724
RUEHRL/AMEMBASSY BERLIN 0578
RUEHBY/AMEMBASSY CANBERRA 0601
RUEHLO/AMEMBASSY LONDON 1394
RUEHMO/AMEMBASSY MOSCOW 0724
RUEHOT/AMEMBASSY OTTAWA 0554
RUEHFR/AMEMBASSY PARIS 1257

UNCLAS PRETORIA 000168

SIPDIS

SIPDIS
SENSITVE

STATE PLEASE PASS USAID
STATE PLEASE PASS USGS
DEPT FOR AF/S, ISN, EEB/ESC AND CBA
DOE FOR T.SPERL, G.PERSON, A.BIENAWSKI, M.SCOTT, L.PARKER

E.O. 12958: N/A
TAGS: ENRG EMIN EPET EINV SENV BEXP SF
SUBJECT: LOAD-SHEDDING WORSENS - COAL SUPPLY WOES SHUT MINES

REF: Pretoria 132 and previous

1. (SBU) SUMMARY: South Africa's state electricity supplier
Eskom's load-shedding (rolling outages) is getting worse before it
gets better. Major gold and platinum mines have substantially shut
down due to Eskom's inability to guarantee electricity supply due to
coal supply and quality negatively affected by excessive rains. The
mine shut-downs are characterized as temporary, but the resolution
timing is unclear. An embattled SAG warned that it may have to
invoke "emergency measures" if it cannot achieve a rapid improvement
to the coal and electricity situation. Over twenty per cent of
Eskom's capacity is unavailable due to planned and unplanned
maintenance and coal supply problems. Business and government
complain of inadequate coordination and planning from Eskom as it
imposes load-shedding and direr measures. End Summary.

---------------------------------------------
Electricity Crisis Shuts Gold, Platinum Mines
---------------------------------------------

2. (SBU) Gold majors AngloGold Ashanti, Gold Fields, and Harmony
Gold, as well as platinum giant Anglo Platinum said on January 25
they had stopped underground mining operations at all South African
mines, after state power utility Eskom could not guarantee
electricity supply. AngloGold Ashanti's Mponeng Mine General
Manager told Energy Officer on January 25 they had not sent down the
full production day-shift and were evaluating the night shift,
because Eskom could not guarantee its "uninterruptible" electricity
supply contract. He said the company had made the decision for
safety reasons, even though they have sufficient back-up capacity
for ventilation, cooling, and emergency evacuations. According to
press statements, all major gold and platinum company spokespersons
confirmed that underground production had halted.

------------------------------
Wet Coal Supply is the Culprit
------------------------------

3. (SBU) A Chamber of Mines official told Energy Specialist that
Eskom had called late on January 24 to advise mines to run on
"survival power only" as a temporary measure on January 25. He
cited flooding of the coal stockpile at Eskom's largest coal-fired
plant, 4,100 MW Kendal in the northern province of Mpumalanga, so
that the plant was attempting to run on direct coal production from
the contiguous mine. Sustained heavy rains in northern South Africa
are negatively affecting coal supply and quality in open pit mines,
as well as hurting coal transport logistics.

----------------------------------
SA May Invoke "Emergency Measures"
----------------------------------

4. (SBU) The SAG warned on January 24 that it might have to invoke
"emergency measures" to safeguard adequate quantity and quality of
coal to Eskom. Public Enterprises Minister Alec Erwin announced
there would be urgent engagement with the country's coal-miners over
the next few days to encourage a voluntary response. Speaking at a
media briefing, he said: "Should there be no rapid improvement, we
will not hesitate to use emergency measures". Erwin referred to a
Qwill not hesitate to use emergency measures". Erwin referred to a
hike in electricity prices, mandatory sectoral quotas, rigorous
conservation, renewable energy, and penalty and incentive systems,
but did not provide details on implementation. He insisted that the
SAG would not stop contracted projects or freeze new projects.
Erwin acknowledged that the situation was exacerbated at present by
the heavy and unrelenting rains of the past week. He apologized for
the "unprecedented and unplanned" outages, saying that, when it came
to making timely plans to expand supply to cope with increased
electricity demand, "government got it wrong."

5. (U) In a press statement released on January 25, the SAG stated
that the electricity outages "must now be treated as a national
electricity emergency that has to be addressed with the urgent,
vigorous and coordinated actions commensurate with such an emergency
situation." In addition: "We are running our power system at
utilization levels that are over-stretching maintenance and if we do
not stabilize this, we could drive our systems into higher levels of
stress - this we cannot do!" Finally, "the situation constitutes an
emergency and we are taking emergency steps to move the system out
of its current state of criticality, including creating an emergency
task team led by the Minister of Energy. There is no threat to the
successful holding of the World Cup in 2010 as plans to ensure
electricity security in that period are well advanced."

6. (SBU) Eskom has described 20 percent of its almost 40,000 MW
capacity as unavailable over the last week because of planned and
unplanned maintenance. Its reserve margin is identified as anywhere
from zero to eight percent. Eskom said on January 25 that 10,000 MW
- or 25 percent - of its capacity was unavailable, finally forcing
the unprecedented call to the mining industry to effectively shut
down. Eskom has also admitted to facing a dire skills shortage.
Senior Eskom officials corroborated separately to Energy Officer and
Energy Specialist that the company was experiencing significant
skills shortages. Finally, the Eskom officials noted that Eskom's
fairly old infrastructure was exhibiting increased need for
maintenance and repairs due to age, high usage, and deferred
maintenance. They also corroborated problems with coal supply,
quality, and handling.

--------------------------
How Do We Get Out of This?
--------------------------

7. (SBU) Eskom and the SAG have mooted many ways to mitigate the
electricity supply deficit from rationing (per Brazilian
experience), voluntary or mandated conservation, solar power
(residential water heaters and traffic lights - if it ever stops
raining), other renewable energy measures, and co-generation. Eskom
targets five-year capital expenditures of around $ 43 billion and
calls for substantial price increases over time to reach
international standards. An Eskom report indicated that reserve
margins will remain well below the international standard of 10-15
percent through 2014 when significant new coal-fired plants come
on-line. An advisor at the Presidency complained to Economic
Officer that Eskom was not coordinating its actions, and even
suspected that it was hyping the problem to get the government to
approve capital injections and back out of the Coega mega aluminum
smelter project (owned by Rio Tinto-Alcan, near Port Elizabeth).
Before the current crisis, Eskom and the SAG were proposing greater
cooperation with industry and better planning and warning for
enforced load-shedding. AngloGold Ashanti's Mponeng Mine's General
Manager told Energy Officer that they had had a good relationship
with Eskom and - until January 25 - had had no reason to question
their "uninterruptible" supply. In addition, the mine was able to
help Eskom with over 20 percent voluntary sustained reduction in use
of power.

8. (SBU) South Africans continue to endure the strain of
load-shedding across the country and its negative impact on traffic,
security, business, and lifestyle. The press is full of stories of
costs to small and large businesses. Supermarkets, cinemas, and
many small businesses regularly go dark. The cable car at Table
Mountain in Cape Town even stopped for a few hours due to
QMountain in Cape Town even stopped for a few hours due to
load-shedding and failure of emergency systems, trapping dozens of
tourists in a suspended cable car. There is a run on generators -
for those that can afford them, so there are reports of shortages of
generators. Some industry observers have warned of potential diesel
fuel shortfalls in northern South Africa.

9. (SBU) There is also confusion about the status of South Africa's
exports to neighbors. In Minister Erwin's press conference, there
was emphasis that there would be no cutting of power supply to other
countries to improve South Africa's supply, perhaps reflecting
political allegiance to the Southern African pool system. While
South Africa exports nominal amounts to Namibia, Botswana, and -
previously - Zimbabwe, it imports 1,400 MW from Mozambique and plans
to import large amounts from Lesotho. The amount of imported power
from Mozambique has gone down from time to time during recent
episodes of load-shedding and Eskom's projections show it in
question. Eskom officials have told Embassy officers that the
export contracts with neighbors are "infirm" and therefore
interruptible in the event of no surplus supply (like now). The
Namibian press has reported that its imports are reduced or stopped
and that the local power utility has to use expensive local
generators to produce power.

----------------------------------------
COMMENT - Load-Shedding as a Way of Life
----------------------------------------

10. (SBU) The proximate cause of load-shedding has shifted from
excessive demand to problems with supply. It appears that
load-shedding will remain a sustained problem over coming years
while waiting for new supply. There is broad recognition that the
government dithered over grappling with the potential role of the
private sector, and subsequently failed to heed warnings from Eskom
and its own 1998 energy policy that it needed to bring on new plants
in the face of growing demand from both economic growth and
increasing electrification. The South African grid will remain at
risk to unplanned maintenance outages in its aging and inadequately
maintained infrastructure. There is likelihood that the SAG will
cut corners from an environmental perspective to seek to bring on
line new and de-moth-balled facilities, while it runs its existing
stock flat-out.

BOST

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