Engineering News Online Audio Articles

Engineering News and Mining Weekly Deputy Editor: Online Marleny Arnoldi discusses the burning issues raised by Electricity and Energy Minister Dr Kgosientsho Ramokgopa during his first media briefing following the appointment of a Government of National Unity Cabinet; as well as Eskom's announcement that it will implement load reduction in seven provinces.

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South African industrial users of natural gas are moving forward with the establishment of a R10-billion-a-year gas-aggregator company to provide the basis for large-scale gas infrastructure investments and transactions.

The establishment of this gas aggregator (GasCo) will enable South African manufacturing to transition from a fragmented market to a consolidated and structured market enabling secure, long-term gas infrastructure development and supply, says the Industrial Gas Users Association of Southern Africa (IGUA-SA).

"Gas aggregation paves the way for a more mature, transparent and equitable gas market in South Africa. We anticipate that GasCo will be a platform to enable inclusive, effective, long-term participation alongside government, Sasol, international oil companies, gas suppliers and transporters and financial institutions, all of whom will play a critical role in the process moving forward," says IGUA-SA CEO Jaco Human.

Since the onset of large-scale natural gas consumption in 2004, IGUA-SA notes that the South African industry has remained commercially and technically reliant on the continued supply of natural and methane-rich gas from Sasol.

It explains that, owing to natural gas resource constraints, the South African industry has to consider alternative supply options from June 2026 onwards.

Given the imminent crisis between this supply cut-off and the time needed to establish alternative supply options, this decision required industrial users of natural gas to make long-term strategic decisions to ensure continued gas-energy supply, the association says.

Hence, the formation of GasCo is aimed at securing alternative gas supply within the timeframes needed to avert permanent damage to South African manufacturing and employment.

IGUA-SA says South African industrial users of natural gas employ more than 70 000 people and contribute more than R500-billion a year to the South African economy.

IGUA-SA says GasCo will act on an inclusive basis as an intermediary marketplace across the entire gas supply chain, facilitating the development of gas supply infrastructure, sourcing, transport and distribution of gas to offtakers.

This includes consolidating the demand from the various offtakers, and negotiating with gas infrastructure developers, suppliers and systems operators for efficient pricing and terms of gas delivery to help bridge the gap between supply and demand.

"The close, constructive collaboration of all stakeholders is a key prerequisite to finding the best possible solution for South Africa Inc and our engagements continue in parallel as we move forward to determine this solution.

"Sasol remains an important role player in the transition to imported gas, as will related government entities, including the Central Energy Fund and the departments of Trade, Industry and Competition, and Energy and Electricity," says Human.

GasCo will take the form of an externally funded, private company based on the guiding principles of cost-pass through (thereby operating as a non-profit), full transparency, a low asset and operational base and proportional representation.

IGUA-SA says gas aggregators are typically incorporated as State-owned or State-operated entities, with risk borne by the State in the national interest, given that the primary and often sole purpose behind their establishment is to secure a steady flow and stable pricing for gas in their respective countries to support their manufacturing and power-generation sectors.

In the absence of such a State-coordinated mechanism in South Africa, the association says that the industry has been driven to establish this model privately, on a nonprofit basis.

IGUA-SA says the private sector is compelled to carry the additional fiscal burden associated with such an initiative in the interest of continued...

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With continued cold winter weather, increasing electricity theft and the indiscriminate use of electricity, the issue of network overloading has resurfaced in seven of South Africa's provinces, State-owned power utility Eskom advises.

The utility will, therefore, implement load reduction in Limpopo, the Western Cape, the Eastern Cape, Gauteng, Mpumalanga, North West and KwaZulu-Natal.

This is despite the utility having achieve more than 100 consecutive days without loadshedding.

Eskom has sufficient generation capacity to meet demand, meaning it does not have to resort to loadshedding; however, as customers' demand is higher than what the equipment in particular areas can withstand, load reduction is implemented to prevent transformers and substations from being damaged and potentially exploding, which could injure people.

During the winter season, there is an exponential increase in energy demand in areas prone to electricity theft, as electricity is often used indiscriminately, leading to network failure owing to extreme overloading, the utility points out.

It notes that there are currently about 2 111 transformers that are frequently overloaded across the country and at risk of being damaged, with about 900 transformers awaiting replacement.

Eskom says about 94% of the total overload transformers are in the seven affected provinces.

"Overloaded transformers as a result of electricity theft present a serious risk to human life. We only implement load reduction as a very last resort for the shortest periods possible after all other options have been exhausted," says Eskom distribution group executive Monde Bala.

He adds that a transformer damaged by overloading can leave an area without power for up to six months and that protecting Eskom's assets is in the best interest of all South Africans.

In areas where load reduction has been implemented in the past, Eskom has seen a significant reduction in equipment failure and prolonged outages.

Load reduction is most likely to be implemented between 05:00 and 07:00 in the morning and again from 17:00 to 19:00 in the evening, when the risk of overloading transformers is highest.

In areas where load reduction will be implemented, the relevant cluster or province will communicate with affected customers through the normal channels including SMS and Customer Connect newsletters.

Meanwhile, Eskom points out that electricity theft activities are wide-ranging and include illegal connections, network equipment theft, vandalism, meter bypasses and tampering, unauthorised network operations and buying electricity from illegal vendors.

Bala explains that electricity infrastructure is designed to handle loads based on known demand through legally connected customers and actual sales for specific areas. Exceeding these loads through electricity theft can overload the equipment, potentially causing explosions that may lead to electrical fires in the surrounding areas.

Eskom has invested resources over time and increased capacity to meet the exponential demand in the areas that are prone to overloading, but the demand has continued to grow, rendering the situation unsustainable.

Eskom has been engaging with various communities, educating them on the safe and efficient use of electricity.

In some areas, Eskom has removed illegal connections; however, network overloading persists.

While Eskom aims to exclude paying customers from load reduction, the network's configuration does not allow for dedicated supply lines to paying customers, making it impractical to service them separately.

Eskom is urging customers to reduce their electricity consumption to prevent load reduction and abrupt loss of supply, as well as to ensure their electricity is legally connected and paid for from legal vendors.

The utility also urges customers to report illegal...

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Despite Eskom having made progress on improving the country's energy availability factor (EAF), lowering the unplanned capacity loss factor (UCLF) and achieving 100 consecutive days without loadshedding on July 5, the country is facing a new kind of energy crisis, Electricity and Energy Minister Dr Kgosientsho Ramokgopa has said.

In his first briefing for the now standalone ministry on July 8, the Minister warned that municipalities were investing too little on infrastructure maintenance and modernisation, with some having mismanagement issues, resulting in costly issues on the distribution side.

Not only are certain municipalities implementing load reduction, leaving various households without constant supply of electricity, but tariff hikes are causing energy poverty in poor households.

Ramokgopa elaborated that household finances were increasingly under pressure, with customers unable to afford rising electricity costs. Some households were opting to buy food instead of electricity, which, in turn, means municipalities are generating less revenue.

He told attendees of the Ministry's inaugural briefing that South Africa's electricity distribution industry was heading for self-destruction and that it would increasingly become a liability for the economy.

With municipalities owing R78-billion in arrear debt to Eskom as of end-May, Ramokgopa said these arrears would worsen to more than R3-trillion by 2050 if no urgent interventions were made.

Additionally, an increasing number of people are unable to afford electricity, which is also a focal point for the Ministry as it undertakes a review of the electricity tariff model.

"The electricity pricing structure is eroding the income base of municipalities and increasing the cost of living for all households - for some to unaffordable levels."

The Minister added that government would finalise a funding model to mitigate municipal revenue loss through distribution reforms and the uptake of renewable-energy options for large power users, as well as a reviewed electricity tariff model to enhance affordability.

The Department of Electricity and Energy is working on an electricity distribution industry restructuring roadmap, in collaboration with municipalities, the South African Local Government Association and other government departments such as Cooperative Governance and Traditional Affairs to determine viable solutions to address municipal mismanagement, debt reduction and inadequate infrastructure investment.

Further, Ramokgopa foresees the possibility of an "unprecedented scale" of bid windows to be rolled out for the procurement of renewable energy. He referred to these as "mega bid windows" and said it would accelerate renewable energy development in the country, which should contribute to the modernisation of the distribution industry, improved affordability of energy and universal access for all citizens.

He added that the distribution industry would undergo more modernisation through smart meter installation, flexible grids, demand side solutions and increased efficiency to arrest the escalating municipal debt issue and to bring down costs for consumers.

The Minister noted one major issue as being that of non-ringfenced investment for electricity infrastructure in many municipalities, which renders unmaintained systems vulnerable to failure, damage and technical losses.

"Distribution has both a commercial mandate to ensure economic growth and a social mandate to provide affordable energy to alleviate energy poverty," Ramokgopa stated.

Meanwhile, he lauded Eskom for having improved the year-to-date EAF to 61.5%, compared with 54.5% in the same period of last year. This while the UCLF has been reduced to 27% in the year-to-date, compared with 34.9% in the same period of last year.

The country had 17 000 MW in unplanned c...

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The newest Ctrack Transport and Freight Index (Ctrack TFI) shows that the recent recovery in South Africa's logistics sector continued in May, albeit at a slower pace.

The index improved in May to reach a level of 125.6 - an increase of 1.7% compared with April's level, and 2.5% above year-ago levels.

This marks the third consecutive monthly increase in the index and could be an early signal that the transport sector's contribution to overall economic growth could move into positive territory in the second quarter, notes the index report.

On a monthly basis, three subsectors increased in May, led by air freight, which was up 5.5% on April, and the heavy-weighted road-freight subsector, up 2.7% on April.

Compared with a year earlier, five of the six subsectors increased during May, while only the pipeline transport subsector declined.

The air-freight subsector has been a star performer among the subsectors since the start of this year.

Comparing May's index level to December last year, there is a notable increase of 15.4% in air-freight activity.

The subsector increased by 5.5% in May, the fourth consecutive monthly increase, reaching the highest index level on record, while on a quarterly basis, the sector is up 18%.

Following a horrendous month for the sea-freight subcomponent in April, the sector bounced back in May.

Overall, for all ports in South Africa, the number of containers that landed increased by 14.5% in May compared with a 17.9% drop in April, and the number of containers shipped shot up by 45.5%, following a 32.5% drop in the month before.

Other cargo handled (excluding vehicles) also increased by 12.4% in May, following a decline of 11.6% in April.

For the year-to-date, sea freight is up 5.4% on the corresponding period in 2023.

The heavily weighted road-freight subsector, which has grown notably in recent years to now account for 83.6% of all freight payload in South Africa, recovered further in May.

This is the sector's third consecutive positive monthly growth rate following a downward trend that lasted almost a year.

Road freight increased by 2.7% on a monthly basis in May vs 4.5% in April, and is up 8.6% on a quarterly basis.

The Ctrack TFI shows that the rail-freight subsector lost a bit of ground in May; however, it is continuing its "very gradual recovery overall".

For the first five months of the year, rail freight increased by 11% compared with the corresponding period in 2023.

The storage-and-handling subsector of the TFI declined further by 1.1% on a monthly basis in May, and remained only 1.6% above year-ago levels.

Lastly, the transport of liquid fuels via Transnet Pipelines increased by 0.2% in May compared with April, but still declined by 0.3% and 2% on a quarterly and yearly basis, respectively, partly reflecting the sluggishness of the economy.

"In the last two years, since the establishment of the National Logistics Crisis Committee, backed by the business sector's resources and expertise, a new form of collaboration has developed between the public and private sectors, facilitated by the efforts of the Operation Vulindlela team," says Ctrack CEO Hein Jordt.

"While notable progress has been made in pursuing the reform agenda, it is of utmost importance that the new government continue and accelerate the efforts, in the interest of the economy as a whole."

Engineering News editor Terence Creamer discusses President Cyril Ramaphosa's decision to separate the energy portfolio from that of mineral and petroleum resources; what the priorities are for the new leadership of the energy portfolio; and the potential risks facing the new Ministry.

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Minister in the Presidency Khumbudzo Ntshavheni has reaffirmed that the coordination of State-owned enterprises (SOEs) previously falling under the Department of Public Enterprises (DPE), which is to be closed, will be located in the Presidency during the process of implementing a new shareholder model.

However, the precise roles and responsibilities that her fellow Minister in the Presidency Responsible for Planning, Monitoring and Evaluation, Maropene Ramokgopa, will have were still to be clarified in what she described as a "Presidential proclamation", to be published in a future Government Gazette.

Speaking during a briefing on how the multi-party government of national unity (GNU) would function, Ntshavheni stressed that, until the Gazette was published, reports regarding Ministerial roles and responsibilities in respect of SoEs, as well as reporting lines for companies such as Eskom, Transnet and Denel, should be treated as speculation.

No timeframe was provided for the issuance of the Gazette notice, but it was possible that it might be released only after an upcoming Cabinet lekgotla, which had been scheduled for July 11 and 12.

Ntshavheni also refused to elaborate on the DPE closure process and the implications for staff, saying only that it would be conducted in line with national macro organisation of government (NMOG) processes, which are overseen by the Department of Public Service and Administration (DPSA) in the cases of a department's restructuring or closure.

"But the issue of DPE closing is not a new issue. The staff of DPE knew, everybody knew that DPE was going to close and the NMOG process is not only commencing now, it had already commenced," she said, indicating that the DPSA would clarify the position at a later stage.

She also stressed that the policies and programme of the GNU were still to be finalised and that the manifestoes of all 11 participating parties to the GNU were being analysed by the Forum of South Africa Directors-General to assess whether the policies outlined could feature in the seventh administration's Medium-Term Strategic Framework (MTSF).

The analysis would be debated at the lekgotla, where the MTSF was to be agreed and President Cyril Ramaphosa would announce the details of the MTSF during his speech at the opening of Parliament on July 18.

GNU PROGRAMME TO BE FILTERED USING NDP

Party policies would be "filtered" using the vision and framework provided by the National Development Plan (NDP), against which their suitability for inclusion in the MTSF would be judged.

"After the adoption of the MTSF, the individual departments will then develop their strategic plans linked to the MTSF," she explained, arguing that Ministers would, thus, be expected to implement the policies of the GNU as outlined in the MTSF rather than specific party-political policies.

Parliamentary committees would have oversight over the annual performance plans arising from the strategic plans and the National Treasury would fund the implementation of the MTSF through the National Budget.

"The Department of Planning, Monitoring and Evaluation is responsible for overseeing and reporting on the implementation of the MTSF and the annual performance plans and submits the reports of alignment and performance to both the President and the Cabinet."

On whether a deadlock-breaking mechanism, which the GNU Statement of Intent said pertained where sufficient consensus could not be secured, had been created, Ntshaveni argued that existing Cabinet processes should be sufficient to break logjams.

She said that even when the Cabinet had been dominated by the African National Congress there were "vehement" differences of opinion.

"We differed vehemently, but a solution was found," she said, indicating that, at times, matters were reverted to technical committees and i...

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Energy Regulator rescinds decision on new tariff-setting rules as Eskom prepares to apply for big hike

The Energy Regulator has rescinded its approval, made in December, of the so-called Electricity Price Determination Methodology Rules (EPDMR), which were proposed for implementation in the 2025/26 financial year as a replacement to the prevailing multiyear price determination methodology (MYPDM) for setting tariffs.

The decision was made by the National Energy Regulator of South Africa's (Nersa's) highest decision-making structure during a meeting on June 27 and confirmed in a statement issued on July 2.

Nersa indicated that the decision followed the Energy Regulator's consideration of the practicality of implementing the rules, as well as the fact that licensees and stakeholders were not yet ready to implement the EPDMR.

Following the approval of the rules last year, Eskom questioned whether they could be implemented, owing to the absence of an accompanying methodology to calculate tariffs and the fact that insufficient time had been left to adjust its application, which was being prepared using the MYPDM.

These timing requirements had been reinforced in court judgments and orders, which stipulated that only a methodology that was in place 18 months ahead of a new tariff adjustment could be applicable.

That being the case, Eskom argued that the new rules and associated methodology would have to have been approved by September 2023 for it to be implemented for the 2025/26 tariff period, which starts on April 1 next year.

Eskom is already consulting with the National Treasury and the South African Local Government Association on its next tariff application, with media reports having emerged indicating that the State-owned utility will be applying for allowable revenue of R446-billion for 2025/26. This would translate into a hike of more than 36% for direct customers.

While rescinding the EPDMR approval, the Energy Regulator said Nersa remained committed to reviewing its regulatory tools to take account of "dynamic changes in the electricity supply industry, as well as legislative change, the unbundling of Eskom and new investments in energy generation".

It also resolved that a plan would be developed to clarify the approach in processing and evaluating future revenue and tariff applications.

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The South African Photovoltaic Industry Association (SAPVIA) has expressed surprise at government's decision to introduce a 10% import duty and rebate on "photovoltaic cells assembled in modules or made up into panels" in the absence of consultations with domestic consumers.

The trade measure has also been implemented ahead of the formal launch of the South African Renewable Energy Masterplan (SAREM), which is meant to guide the industrialisation of renewable-energy value chains. The launch of SAREM is believed to be imminent, with some of the contents of the plan having already been reported in the media.

Introduced in line with Section 48 of the Customs and Excise Act, the new duty was confirmed in a Government Gazette notice dated June 28 and authorised by then Finance Minister Enoch Godongwna, who was subsequently reappointed to the position as part of the government of national unity.

The International Trade Administration Commission of South Africa (Itac) provided notice in August last year that such a duty was being considered alongside a temporary rebate facility for PV cells assembled in modules or made up into panels.

This action was triggered by an application for such protection lodged in 2019 by ARTSolar, which has a facility in KwaZulu-Natal able to produce some 325 MW of modules yearly.

Itac concluded that there was a need to provide protection to ARTSolar and Seraphim, as they had invested heavily in their manufacturing capacity and were the only two domestic manufacturers remaining following disinvestments by others.

The 10% duty, it also concluded, should be introduced together with a temporary rebate provision, which will be made available in the form of a rebate permit "issued at such times, in such quantities, and subject to such conditions as the Itac may allow".

SAPVIA reports that, having been made aware of the proposed duty and rebate, it conducted detailed consultations with its members and provided a written response to Itac on the September 29, 2023, which included a request for engagements with Itac and the Department of Trade, Industry and Competition.

It had already conducted a localisaiton study, which was updated in 2023, to assess local manufacturing potential, and the findings were shared with Itac.

"We were of the view that such engagement will enable us to explore instruments that can prioritise investment in quick wins and low hanging fruit and localisation incentives," SAPVIA CEO Dr Rethabile Melamu tells Engineering News, while reporting that Itac never committed to such an engagement.

SAPVIA's governing committee will be meeting soon to discuss a possible response, but it warns that the immediate implication is a likely 10% price increase to cover any potential problems or delays in importers utilising the rebate mechanism.

"Despite continued module price declines over the last three to four years based on upstream cost of production decreases and oversupply locally and internationally, module pricing still makes up a significant portion of the total solar PV project capital expenditure, ranging from 30% to 45% for rooftop PV and decreasing to 20% to 35% for carport and ground-mount solutions," Melamu notes.

However, Gaylor Montmasson-Clair, who is Trade & Industrial Policy Strategies senior economist and SAREM facilitator, believes the implementation of a 10% custom duty on imported PV panels is long overdue.

He tells Engineering News that the duty is fully aligned with SAREM, which considers the careful use of tariffs on selected products to be necessary to support local industrial development.

"It will help local panel manufacturers compete in the domestic market and reach full production capacity and hopefully expand in the future."

Montmasson-Clair acknowledges that global panel production is a highly competitive and subsid...

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Despite a negative trading update, steel producer ArcelorMittal South Africa (AMSA) has announced that it will continue to operate its longs business, the closure of which was deferred earlier this year while various initiatives aimed at saving the unit were pursued with government, labour and other stakeholders.

Any closure would be devastating for the 3 500 workers employed in the longs business, as well as the town of Newcastle, in KwaZulu-Natal, where AMSA's longs production is centred. Studies estimated that the livelihoods of up to 80 000 people in the long-steel value chain or in communities in proximity to the operations could have been lost.

It also would have had major implications for South Africa's manufacturing prowess and the country's overall industrialisation.

CEO Kobus Verster said that, despite uneven progress in finding a lasting solution, the longs business remained fully operational, and a working-capital facility of R1-billion had been secured for a 12-month period.

Progress had been made in removing the advantage that scrap-based producers had over integrated mills using iron-ore, with the export ban on steel scrap having not been extended in December 2023.

There had also been an improvement in Transnet's performance, despite negotiations to guarantee port and rail service efficiency still being under way.

Verster said AMSA continued to assess the prospects for pursuing third-party access to the rail network having estimated that its tariffs were about 30% above competitive levels. However, such a strategy would require capital that the group currently did not have in supply.

AMSA also welcomed the provisional safeguard duty of 9% to be implemented on certain hot-rolled steel products by the International Trade Administration Commission and reported that applications for protection on other steel products, including long products, were being pursued.

The group has been calling for higher levels of protection than the blanket 10% currently applied for several years and Verster argued that he felt that import duties of 25% were currently justified, noting that various other countries had implemented similar levels of duty to protect their steel industries.

Meanwhile, discussions with organised labour during the deferral period aimed at reducing the cost structure of the longs business had proved unsuccessful, and Verster indicated that a resolution on labour costs was still required.

BOOSTING DEMAND A PRIORITY

He also stressed that the progress made to date on the other short-term initiatives only partially addressed the structural unsustainability of the longs business and workstreams had been set up in a bid to shore up local and regional demand.

He described the Steel Masterplan introduced during the previous administration as having been ineffective to date and expressed the hope that the new Minister of Trade, Industry and Competition, Parks Tau, would find a way to re-energise support for the sector.

"The focus now must be on the demand-side of the economy," he argued.

"How do we create more local demand? How do we promote localisation more aggressively?"

AMSA also warned that its financial performance for the six months ended June 30 would be weak, indicating in a statement that earnings per share could decline period-on-period from a R0.32 loss, to a loss per share of between R1.04 and R1.10. Headline earnings per share would decline from a R0.40 loss to a loss per share of between R0.96 and R1.04.

This weaker performance was attributed largely to the flat-products unit, with AMSA reporting that the Vanderbijlpark mill experienced notable instability at its blast furnaces in April and May, owing to chilled hearth conditions.

This resulted in some loss of sales and higher costs in a market that was already experiencing thin margins, owing to...