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Engineering News editor Terence Creamer discusses the revelations that came to light during Eskom's centenary events, including warnings by the Eskom management of 1997 that the country was facing an electricity supply shortfall and that the debt owed to Eskom by municipalities was already becoming a significant challenge. He also talks about how loadshedding and allegations of ongoing criminality had overshadowed the centenary celebrations and the slow pace with which government is moving to deal with the country's energy crisis despite having declared a state of disaster.

Logistics specialist Grindrod aims to “deconcentrate” its portfolio of commodities, says CEO Xolani Mbambo.

Unveiling the company’s financial results for the year ended December 31 on Thursday, he noted that Grindrod had been doing exceptionally well in handling large volumes of chrome, ferrochrome, magnetite, coal and iron-ore through its various ports, terminals and other logistical channels.

However, it was time to now also grow other types of cargo, especially those prevalent in the green energy revolution.

“We need to start handling graphite beyond our Nacala solution [in Mozambique]. We are exploring various opportunities here,” said Mbambo.

Grindrod also wanted to become much more involved in the copper pipeline.

“By nature, copper flows are high-value items and typically they come with high margins,” noted Mbambo.

“[Any growth] needs to happen beyond the minimal warehousing we currently do in Durban, and also beyond the locomotives leased to other rail operators moving that same cargo.”

Grindrod also wanted to expand its manganese offering, with the board approving R150-million in funding to establish a manganese handling solution in the Eastern Cape, set to be implemented later this year.

“We also want to play aggressively in the agrispace, as well as in lithium,” said Mbambo.

In terms of rail solutions beyond the commodities outlined above, he noted that Grindrod had developed a pipeline of around 30 opportunities, with around six of these “high on the probability scale”.

Mbambo also noted that the Port of Maputo, where Grindrod played a significant role, was becoming increasingly well entrenched in the region’s transport network.

This comes as South Africa struggled to maintain and operate its State-owned logistics operations optimally.

“We are seeing Maputo becoming a de facto solution,” says Mbambo.

Grindrod saw record volume growth in the Port of Maputo last year, underpinned by the facility’s rehabilitated berths, expanded slabs, new handling equipment, upgraded rail wagon discharge facility and a 24-hour border operation.

The group on Thursday said revenue from its core businesses for the year ended December 31 expanded by 58% over the previous year, to R7.4-billion, based on volume growth.

Noncore businesses include the Marine Fuels division. The disposal of Grindrod Bank as a noncore asset was concluded in November.

Trading profit from core businesses – ports, terminals and logistics – increased by 32%, to R2.2-billion.

Murray & Roberts (M&R) CEO Henry Laas has described the group’s loss of control over RUC Cementation Mining Contractors as a consequence of its Australian holding company, or MRPL, having been placed into voluntary administration as a particularly “tragic” consequence of recent “devastating” developments.

MRPL and its subsidiaries together with Clough, previously M&R’s largest business unit by far, entered voluntary administration on December 5 after Clough experienced serious funding pressures as a result of factors such as Covid disruptions and a surge in working capital requirements at two key projects, Traveler and Waitsia.

Clough exited administration in mid-February when Webuild, of Italy, reached an agreement with administrators to acquire the Australian organisation and certain projects; a development that represented the final loss of Clough to M&R.

“But the most tragic part is that RUC, which is also a subsidiary of MRPL, was then caught up in this administration and we essentially lost control,” Laas explained during a presentation to investors, indicating that RUC had previously contributed about one-third of its mining platform’s earnings.

He reported that M&R intended to participate in the bidding process under way in an effort to regain control of RUC, which remains in administration, but expressed pessimism about its prospects for success.

“We think the possibility of that happening is remote,” he said.

M&R was considering launching a startup mining business in Australia and had already registered a company in the country known as Cementation Apec, while the CEO of its mining platform, Mike de Costa, had recently relocated to Perth.

“The difficulty with that is if you want to start a business from scratch, it will require working capital.

“So, it's not something that we will be able to do in the immediate future,” Laas said.

For now, the mining platform would comprise two regional businesses in Africa and the Americas, specifically the US and Canada, and orders worth R14-billion had been secured across both regions.

M&R’s far smaller power, industrial and water platform, meanwhile, had an order book of R2-billion, arising mainly from renewable energy and transmission projects in South Africa.

At R16-billion M&R’s order backlog is, thus, significantly smaller that it was in June when Clough underpinned its energy, resources and infrastructure. At that stage, Clough made up R37.2-billion of M&R’s R59.5-billion order book.

Laas said the group’s immediate focus had shifted to stabilising its remaining platforms and reducing debt, which stood at R2.6-billion.

Part of the debt would be reduced once M&R received the R1.3-billion payment in either late March or early April for the sale of its shares in the Bombela Concession Company, which operates the Gautrain.

Laas did not rule out the prospect of a rights issue in future to address its funding constraints but said it was unlikely that shareholders would support such a course of action it the sole purpose was to settle debt with the banks.

“If we are to be realistic, the focus first has to be to stabilise the group . get our debt down to more controllable levels . and make sure that we are as lean and mean as an organisation as we can be.

“How do we grow the business beyond that?

“I think the mining industry and the mining platform is a platform that has been good for the group for many, many years and that would be an obvious focus area for us to see whether we can grow the business.”

The other opportunity emerging, he said, was in the renewables sector where projects arising from South Africa’s public procurement programme had already been secure and there was an intensification of activity from the private sector.

M&R was participating in renewables tenders currently worth a combined R9-billion in potential orders and was keeping close tabs on transmission projects, particularly given the intensifying need to expand the grid to unlock new renewables generation.

The reform-related conditions outlined by the National Treasury as part of a R254-billion Eskom debt-relief package over the next three years – including the concessioning of coal power stations to the private sector and allowing for private sector participation in the building and operation of grid infrastructure – “make sense” and are necessary both in the context of the just energy transition and revelations of embedded corruption within Eskom’s coal supply-chain.

This is the conclusion arrived at by a team of economists at the University of the Witwatersrand’s Public Economy Project, who have published an analysis and commentary on the 2023 Budget.

However, Rashaad Amra, Thokozile Madonko, Michael Sachs and Owen Willcox also warn that the conditions are likely to prove controversial, as it is “by no means clear that the rest of government is behind the National Treasury’s vision of a market-based electricity supply industry, with extensive private participation in transmission as well as generation”.

“Over the next three years, Eskom will undergo a complex and contested set of structural reforms, splitting it into three separate operations; this process of fundamental change is laden with risks and uncertainties.

“Given these uncertainties, Eskom may well remain permanently dependent on fiscal subsidies beyond the three-year horizon currently anticipated by National Treasury,” the economists caution.

Success, they argue, also depends on a strong security intervention and on a transition to cost-reflective tariffs.

Here, too, there are lingering concerns, owing to uncertainty over the State’s capacity to disrupt criminality, especially where politicians are directly implicated, and opposition to the recent tariff hikes, with President Cyril Ramaphosa having personally cast doubt on the regulatory process.

Nevertheless, the analysis concludes that the relief package could be sufficient in scale to overcome Eskom’s bankruptcy and in creating a strong financial platform to address loadshedding.

“The economics of the plan are sound, as electricity is a binding constraint on growth.”

The economists are more dubious, however, about the debt and deficit projections provided in the Budget, arguing that a change in accounting practice “wrongly excludes Eskom bailouts from spending and the deficit”.

“Once these factors are accounted for, the expectation of an improved fiscal outlook is more apparent than real.

“Debt is unlikely to stabilise over the medium term.”

The accounting changes associated with the Eskom support plan, which also have implications for other State-owned companies (SOCs), are described as “problematic”.

“Until now, cash support for SOCs was defined as ‘payment for financial assets’ and reported as part of non-interest expenditure.

“Budget 2023 changes this practice and classifies cash payments to Eskom as a debt redemption, not an expenditure item.

“In our view, this departs from good government accounting practices and results in a better looking but wrong deficit number.”

If used exclusively to redeem Eskom debt, the economists agree that cash transfers will not increase the stock of debt held by the whole public sector. But excluding these payments from the main budget balance “does not make sense”.

The accounting change introduced along with the Eskom debt relief, they assert, has opened the door for future cash payments to failing SOCs being similarly recategorised “to obscure the fact that these payments added to government’s borrowing requirement”.

“In other words, the reliability and authoritativeness of the official Budget documentation has now been opened to question.”

Wilson Bayly Holmes-Ovcon (WBHO) this week revealed a record order book as the company reported its financial results for the six months ended December 31.

At around R26.5-billion, the order book eclipses the number recorded at the end of June last year by 19%.

CEO Wolfgang Neff says order book growth has been achieved across all divisions and key regions, with an additional R3.6-billion of work secured since December 31 within the Roads and Earthworks division, and R800-million in new building work, as improved market sentiment is translating into a consistent pipeline of new work.

Neff points out that WBHO’s building division is, in fact, nearing capacity.

There are also sizeable contributions within the order book from private renewable energy projects.

Around 66% of the order book is in South Africa, 15% in the rest of Africa and 19% in the UK.

The company has now fully departed Australia, notes Neff.

WBHO exited the Australian market after a costly botched roads contract, among other factors.

The group now has no further exposure Down Under. The total cost to exit Australia was R1.59-billion.

“There is no doubt in my mind that exiting Australia was the correct decision,” says Neff.

“It was necessary to protect the rest of the business, which, over the years, has time and time again proven its consistency and strength, as it stands ready to support the company’s next growth phase, which we think we are going to move into shortly.”

What is also interesting, is that WBHO is delivering its current record order book with around 6 500 employees – down from 11 000 prior to the Covid-19 pandemic.

Neff notes that WBHO’s operations have not been affected by loadshedding in the six months under review.

He says the group has “for years” been using back-up power to run its construction sites.

However, the negative impact of intensifying power cuts on general consumer confidence is “a worry”.

Looking ahead, Neff expects growth to come from South Africa over the next two to three years, with the UK market to also pitch in some positive numbers.

WBHO reported a 15% increase in revenue, to R10-billion, from continuing operations for the six months ended December 31.

Earnings a share from continuing operations reached 829 cents, which is the highest first-half earnings since 2010, says CFO Charles Henwood.

Operating profit was R462-million, up from a restated R420-million.

Naamsa | The Automotive Business Council says it is disappointed that last week’s National Budget Speech made no “solid commitment” to a support programme for the manufacturing of new-energy vehicles (NEVs) and NEV components in the country.

Naamsa said Finance Minister Enoch Godongwana did not provide any policy guarantees for the South African automotive industry’s “inevitable transition” to NEVs, which include hybrids and electric vehicles.

Naamsa’s comments come as the local automotive industry still awaits the release of government’s NEV policy, set to guide and support the country’s transition from internal combustion engine vehicles to EVs.

The Department of Trade, Industry and Competition (DTIC) in May 2021 released a Green Paper on NEVs, promising a White Paper in October of the same year.

However, the department has since failed to publish the White Paper. It was widely believed that this year’s Budget would have provided some guidance on government’s planned support for one of the country’s biggest manufacturing sectors.

Naamsa notes that the delay in the promulgation of the NEV White Paper continues to pose one of the “biggest risks towards investment and the retention of jobs in many of our local production lines”.

The association of vehicle manufacturers says the country's policy makers must “demonstrate a tangible and deliberate intent to create and stimulate a competitive environment for the NEV market through various government support schemes for NEV production, in order for the South African automotive industry to remain globally relevant, competitive and strong".

More than two weeks after President Cyril Ramaphosa announced that the electricity crisis had been declared a National State of Disaster, the regulations giving effect to that declaration have been Gazetted.

In a statement issued on February 28, it was confirmed that the regulations were approved following a sitting of the President’s Coordinating Council, as well as a special sitting of Cabinet, which took place on the evening of Monday, February 27.

Minister in the Presidency Mondli Gungubele described the regulations, which are already in operation, as providing for the “extra-ordinary measures required to deal with our energy constraints”.

Issued by Cooperative Governance Minister Nkosazana Dlamini-Zuma, the Gazetted regulations have been published despite there being legal processes under way to have the State of Disaster overturned on the basis of its being irrational and unlawful.

As anticipated, the regulations enable Cabinet Ministers to issue directions to “remove impediments to the development or construction of new generation capacity”, to streamline decision-making processes by designating a single department or institution “to receive and coordinate the processing of applications” for energy projects, and to maintain security.

Also, as anticipated, the regulations create space for exempting specified essential services from loadshedding schedules “where technically feasible”.

The essential infrastructure outlined in the Gazette includes health and military health facilities, water infrastructure, including water treatment plants, rail and port infrastructure, food production and food storage facilities, and critical electronic communications and broadcast infrastructure.

“These exemptions will be undertaken in a manner that does not result in an increased risk of placing the national grid under pressure,” government said in a statement issued together with the regulations.

Directions can also be issued to exempt certain activities, including repairs to existing energy infrastructure, from the provisions of the National Environmental Management Act, and to streamline decision-making processes for environmental authorisations, including atmospheric emission licences.

This is likely to have significant implications for Eskom’s plan to introduce three temporary flue stacks at the Kusile power station, where units 1, 2 and 3 have been inoperable since October after a buildup of slurry in the Unit 1 flue led to the flue collapsing on to the other two flues inside the same chimney.

The failure has increased loadshedding by two stages and Eskom says a permanent repair could take up to two years, leading it to apply for a temporary exemption from minimum emission standards to enable the temporary flues, for which orders have been placed and which could be installed by year-end, to by-pass the flue-gas desulphurisation system.

The regulations also open the way for electricity sales from individuals, companies and municipalities, as well as for the issuance of guidelines for net-billing or feed-in tariffs to “facilitate small-scale embedded generation as well as wheeling of electricity”.

They also open the way for imports, the recruitment of skilled personnel and the access to servitudes to expand the transmission network, as well as the broadcast, at no cost to users, of public service announcements.

Water authorities could also be allowed to revise their minimum operational levels and be exempted from penalties should they exceed their notified maximum demand during loadshedding.

Any emergency procurement undertaken during the State of Disaster will be subject to the emergency provision under the Public Finance Management Act, the Municipal Finance Management Act and the Preferential Procurement Framework Act.

However, the Auditor-General will “conduct real-time audits” and any procurement undertaken using the emergency provisions “must be published and reported to Parliament within a month of the expenditure”.

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Eskom is seeking comment on proposed amendments to the grid code, which it says are required to facilitate open and non-discriminatory access to the network for new generation in a context of severe grid constraints, especially in the Cape provinces, as well as changing market dynamics.

Included in the proposed changes is the creation of a “reservation queue” that will be governed by the principle of “first-ready, first serve”, implying that projects with a higher state of readiness will be prioritised over a competing project with a lower state of readiness.

The readiness of the project, Eskom says, will be determined by “objective criteria”, such as grid-connection timelines, project size and technical criteria, including whether a project is able to offer support to the network and/or system operations.

The absence of a queuing system came to the fore earlier this year when none of the 23 wind projects that bid for a 3 200 MW allocation under government’s renewables procurement programme were selected as preferred bids, owing to claims of grid over-subscription in the Western, Eastern and Northern Cape provinces.

It subsequently emerged that bidders under the public procurement programme were disallowed by the rules of the programme from securing budget quotations from Eskom until they were selected as preferred bidders.

These rules did not apply however, to independent power producers (IPPs) that were proceeding with projects on the basis of private power purchase agreements. The private project developers were, thus, able to secure budget quotations for grid capacity that the IPPs participating under the public programme were also seeking to access.

Eskom says the purpose of the proposed rules is to allow for an orderly development of budget quotations, as well as a standardisation of procedures to support a fair and transparent process for grid access.

In its request for comment, Eskom says the amendments were required because of the increasingly dynamic environment that had arisen, following the resumption of the public procurement programme and the 2021 relaxation of generation licence requirements that have enabled IPPs to pursue private self-generation and wheeling projects.

“Eskom has received an increased number of connection applications predominantly in the Cape area (Western Cape, Eastern Cape and Northern Cape) leading to an oversubscription for grid connection capacity in this constrained area,” Eskom said in a covering note to stakeholders when requesting comment on the proposed amendments.

“As a result of the oversubscription and the overall lack of grid capacity in the Cape area, it has become imperative that Eskom conducts additional due diligence in the development of connection quotes to ensure that projects which have demonstrated readiness to connect to the grid are given priority in the allocation of the limited grid capacity in the Cape area,” the note adds.

Eskom has requested stakeholders to provide comment on the proposed amendments by March 9.

Embattled State-owned utility Eskom has denied having implemented either Stage 7 or Stage 8 loadshedding during what it acknowledged to have been a “tough week”, during which it reported power cuts exceeding 7 000 MW over some evening peaks.

Each stage of loadshedding typically equates to 1 000 MW.

Acting generation executive Thomas Conradie confirmed that there had indeed been a risk of exceeding Stage 6 during the week, when high levels of unplanned outages were further amplified by the shutting of all but one of the six units at the normally reliable Lethabo power station for a period, owing to coal constraints arising because of an extended period of heavy rains that negatively affected mining and coal handling.

Supply was constrained further by a disruption to 600 MW of imports from Cahora Basa, in Mozambique, owing to a collapse of a transmission tower north of Pretoria.

However, Conradie insisted that Stage 6 had not been exceeded, with the balance of the cuts exceeding 6 000 MW arising from its extensive use of coal curtailment contracts with its large industrial customers, as well as interruptible supply contracts with the country’s smelters.

He confirmed, however, that a review of the loadshedding framework was under way to prepare for the prospect of higher stages of loadshedding in future.

It is understood that the new framework, which is still being drafted, could include up to 16 stages of loadshedding.

The current framework is outlined in a National Energy Regulator of South Africa document known as NRS048-9 and it is anticipated that the regulator will release a revised document for public comment in due course.

“At this stage, we don't foresee going to Stage 8, but we also need to be responsible and ensure that the schedules are clear if the situation forces us [to move beyond Stage 8] . so as to keep the demand and supply matched and to keep the system stable,” Conradie said during a briefing hosted to provide and update on the implementation of the Energy Action Plan.

“There's a workgroup working on the [new framework] which is not only Eskom, but also industry, reviewing and updating that document and, as I've alluded to earlier, the responsible thing is to make sure that this document caters for higher stages of loadshedding, and that those schedules are developed upfront so that we have a more systematic approach, if we require it.”

The pace of transformation within vehicle dealerships remains woefully slow, and urgent action is needed if the automotive industry is to achieve true transformation, warns Legacy Motor Group (LMG) chairperson and shareholder Mpho Dipela.

“A lack of diversity and representation in dealerships has become an increasingly pressing issue within the automotive industry.

“There are still only a few major black dealer principals within this space . . . and there is a particular lack of black and female employees at the middle to senior management level,” says Dipela.

“Given the importance of the sector as an economic driver and job creator, industry stakeholders and particularly manufacturers, urgently need to increase focus on skills development, job creation and ownership throughout supply chains.”

According to Naamsa | The Automotive Business Council, the automotive industry accounts for some 4.3% of South Africa’s gross domestic product and 17.3% of the country’s total manufacturing output, while it is also the fifth-largest export sector.

In terms of vehicle production and manufacturing, the industry is dominated by seven original equipment manufacturers (OEMs, or vehicle manufacturers), namely BMW, Nissan, Ford, Volkswagen, Isuzu, Mercedes-Benz and Toyota.

Naamsa figures reveal that the contribution of these automotive companies to skills development and transformation programmes accounted for total expenditure of R2.7-billion between 2015 to 2020.

In 2020 alone, the seven OEMs increased their spending on training and skills development by 8.4% to reach R417.6-million, up from R385.2-million in 2019.

Dipela argues, however, that the OEMs’ social investment efforts have largely focused on manufacturing, rather than taking a holistic approach to supply chains.

“The barriers to entry for smaller black businessmen to secure partnership agreements with OEMs and take ownership of dealerships is extremely high, and OEMs have also tended to favour a few larger players rather than consider smaller players,” he notes.

“Likewise, while the investments made by OEMs in skills and development programmes have yielded numerous benefits for employees entering the industry and working within manufacturing, there has not been a sufficient level of change at the management tier within the dealer network.”

To address this imbalance, OEMs must re-examine their programmes supporting the development and promotion of black individuals within middle to senior management levels at dealership level, says Dipela.

This will not only promote diversity and inclusion in the workplace, but it will also strengthen the industry by bringing in new perspectives and ideas, and stimulating broad-based empowerment.

“Leadership and development programmes that specifically focus on upskilling black individuals and promoting the development of more female and black dealer principals, could play a significant role in achieving the goal of greater economic inclusion, as well as small- and medium-enterprise development,” he says.

“By investing in these programmes, and supporting small players seeking to own successful dealerships, OEMs can help to create a more inclusive and diverse supply chain, while also contributing to the overall growth and economic impact of the industry.”