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President Cyril Ramaphosa used his final State of the Nation Address ahead of upcoming elections to reiterate government's commitment to reforms in the country's failing power and logistics sectors, including one that would open the electricity transmission sector to private investors.

Speaking against the backdrop of almost daily power disruptions, South Africa's worst-ever year for loadshedding in 2023, and a precipitous collapse in the freight rail service, which was constraining key commodity exports, Ramaphosa described the power and logistics crises as the "most important constraints on economic growth".

Ahead of the speech, Business Unity South Africa called on the President to signal government's commitment to opening up space for greater participation by the private sector in building, operating, and maintaining critical logistics networks and generating energy.

The organisation also called for a clear acknowledgement of the partnership between government and business in the areas of energy, logistics and crime and corruption.

In his address, Ramaphosa listed a series of collaborative initiatives under way through the National Energy Crisis Committee to tackle loadshedding and even expressed confidence that "the worst is behind us and the end of loadshedding is finally within reach" - a claim that was met with audible scepticism from opposition lawmakers.

Included in his list was a series of initiatives to facilitate new private generation, as well as the financial support extended to Eskom last year under a R254-billion debt-relief package, which Ramaphosa said was helping the utility fund much-needed maintenance.

Also highlighted was the connection of 2 500 MW of utility-scale wind and solar following the revival of the public renewable-energy programme five years ago, as well as the procurement of projects with a combined capacity three times that, some of which were already under construction.

The President also noted that 120 utility-scale private generation projects were under development following the removal of the licensing requirement for such facilities.

The doubling last year in the capacity of solar photovoltaic installed on household and business rooftops was lauded as a success, even though most of these investments were made in response to extreme power disruptions. The installed base is now estimated to be above 5 000 MW.

Without specifically referencing the grid constraints that were preventing new generators from connecting to the network, the President said that 14 000 km of new transmission lines would be built to accommodate more renewable energy.

"To fast-track this process, we will enable private investment in transmission infrastructure through a variety of innovative investment models," he announced.

Further reforms - including a major legislative overhaul outlined in the Electricity Regulation Amendment Bill, currently serving before lawmakers - would facilitate a future "competitive, sustainable and reliable" electricity supply industry.

While insisting that the transition away from coal would proceed at a "pace, scale and cost that our country can afford and in a manner that ensures energy security", he also highlighted the economic potential associated with the green economy.

"With our abundance of solar, wind and mineral resources, we are going to create thousands of jobs in renewable energy, green hydrogen, green steel, electric vehicles and other green products."

Ramaphosa also noted that financing pledges for the country's Just Energy Transition Investment Plan had increased from about R170-billion to almost R240-billion and announced the establishment of a Climate Change Response Fund to "build our resilience and respond to the impacts of climate change".

On the freight logistics crisis, the President insisted that action was...

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Steel producer ArcelorMittal South Africa (AMSA) has deferred the wind-down of its long-products business by six months amid widespread concern regarding the detrimental impact of the closure on downstream industry and jobs and following consultations with government and other affected stakeholders during which several short-term interventions were agreed.

The deferral announcement was made despite AMSA reporting a R1.89-billion loss for 2023, which represented a dramatic R4.5-billion negative swing from earnings of R2.6-billion in 2022.

CEO Kobus Verster announced the JSE-listed group's decision to close the longs business on November 28, citing several structural impediments to sustainable operations, and he again warned that these structural constraints had not been removed by some of the short-term interventions currently being pursued during the deferral period.

He also indicated that should there be insufficient progress on any of the elements, AMSA would move to reverse the deferral decision, possibly even prior to the six-month period elapsing.

The deferral was agreed following meetings with Trade, Industry and Competition Minister Ebrahim Patel, as well as Transnet, industry associations, organised labour, affected suppliers, community forums and downstream customers.

AMSA reported that several short-term initiatives were being progressed because of these consultations, including:

engagements with Transnet leadership on improving port and rail service efficiencies to narrow the current cost gap;

ongoing discussion with government on its scrap policy, which AMSA cited as a key reason for why its integrated mills could no longer compete, with government's decision not to extend the export ban on steel scrap in December viewed as the first step in addressing what AMSA has described as an artificial cost advantage to lower-quality scrap-based steelmakers;

the expediting of demand-side opportunities to improve capacity utilisation in the absence of economic growth, including import replacement as envisaged in the Steel Masterplan;

ensuring the enforcement of trade protection measures;

an agreement with key customers to longer-term volume commitments and localisation; and

working with key suppliers, service providers and organised labour to reduce the cost structure of the longs business.

The JSE-listed group would also apply for an additional working capital facility of up to R1-billion, which could be used to support continued operations during the deferral period.

"The timing of the deferral is subject to these in-principle agreements being commercially and contractually concluded," Verster said, stressing that there was still a risk that the agreements might not be translated into commercial contracts.

These risks were evidenced by the group's decision to proceed with its Section 189 retrenchment talks with labour in relation to the longs business, where some 3 500 people are currently employed directly or indirectly.

AMSA has also made proposals to its unions regarding ways to contain costs to sustain the longs operations, including suggestions ranging from retrenchments, to "punitive" wage decreases for longs employees, to cost sharing across all AMSA employees.

Verster rejected suggestions that AMSA was being talked into a deferral by government as a pre-election ploy, saying that the group had been convinced during its consultations with stakeholders that there was a plausible pathway for salvaging the business, and that it was, thus, giving those prospects a "decent shot".

He reported that there appeared to be a genuine commitment from both government and Transnet to implementing the short-term remedies, which could then open the way for the longer-term initiatives required to provide the longs business with an "end game" that did not involve a permanent clo...

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Standard Bank chief economist Goolam Ballim does not anticipate "material fiscal slippage" in the 2024 Budget, despite expenditure pressures associated with the upcoming elections, as well as calls for additional support for Transnet, whose underperformance alongside ongoing power cuts and water disruptions continue to throttle growth and investment.

Delivering his yearly economic outlook, Ballim acknowledged that there was likely to be some fiscal slippage relative to the forecasts provided by Finance Minster Enoch Godongwana in his Medium-Term Budget Policy Statement.

However, he did not anticipate a major deviation on the revenue side from what was communicated in October, while on expenditure he highlighted recent statements by the Minister in which government's commitment to "fiscal containment" had been reiterated.

In addition, Ballim did not anticipate an announcement of additional support for Transnet beyond the R47-billion guarantee facility announced in December, as any debt-relief or capital injection was likely to be linked to a decision on harnessing the Gold and Foreign Exchange Contingency Reserve Account; one that was unlikely to be made in time for the February Budget.

Nevertheless, the political climate, including election uncertainty and ongoing problems relating to the performance of State-owned enterprises, would continue to "bedevil" the growth and investment outlook and eclipse other factors such as geopolitical tensions and high interest rates. Standard Bank is forecasting a moderation in the average inflation rate to 5% this year and cumulative rate cuts, starting from the second quarter, reducing the repo rate to 7.25% by year-end from 8.25% currently.

The political headwinds could ease during the second half of the year, with Standard Bank anticipating an easing in the intensity of loadshedding, together with visible momentum on reforms designed to address the prevailing logistics crisis.

The bank's election base case is for the governing African National Congress (ANC) to dip below 50% for the first time in the democratic era and it has ascribed a 65% probability to the ANC securing between 45% and 50% of the votes, from 57.5% in 2019.

It has assigned only a 10% probability to the ANC securing more then 50% of the vote and a 25% probability to the ANC's share falling to about 40% and requiring a coalition with a bigger party, which Ballim said would be a binary choice between the Democratic Alliance or the Economic Freedom Front.

The bank's analysis pointed to the ANC facing major difficulties in retaining its leadership position in provinces such as Gauteng, KwaZulu-Natal, the Free State and the Northern Cape.

The election is likely to lead to a 0.2 percentage point fall in gross domestic product (GDP) for the year, which was relatively small when compared with the bank's estimate that power disruptions lopped two percentage points of growth in 2023 and Transnet between 0.5 and one percentage point.

Ballim expected loadshedding to continue to weigh on GDP in 2024, reducing growth by a percentage point. But he argued that South Africa might have reached a turning point on the electricity front, owing to increased generation from Kusile and Medupi, as well as the investments made in rooftop solar and distributed generation.

Transnet, which he dubbed 'Eskom 2.0', would continue to clog South Africa's trade arteries, but reform momentum should build later in the year, while water was emerging as 'Eskom 3.0'.

Overall, Standard Bank is forecasting growth of only 1.2% for 2024, with fixed investment still leveraged towards closing infrastructure backlogs rather than growth projects.

"I think the year will end more optimistically: power; momentum in Transnet; inflation better controlled; real incomes that will be positive; general upward momentum w...

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Volkswagen Group Africa (VWA), formerly Volkswagen Group South Africa, is investing R55-million to procure 3 MW in additional solar energy for its assembly plant in Kariega, in the Eastern Cape, says MD Martina Biene.

The panels will be installed on the car ports in the employee car park.

VWA production director Ulrich Schwabe says this means the local arm of the German vehicle maker will have 6.3 MWp in solar energy installed by the end of this year, in an investment totaling R89-million, across its facilities in Kariega, as well as in Centurion and Sandton, in Gauteng.

"Our expectation is that, in 2024, we would have installed more than 6 MW," notes Schwabe. "This means that, around lunch time, we can cover 50% of our electricity needs in production. And this is just a first step."

He notes that VWA has the ambition to become carbon neutral by 2030.

Schwabe adds that VWA has also been forced to rent a backup diesel generator plant for the Kariega plant for the next two years, starting in March, with a capacity of 16 MW.

This comes at an additional cost of R130-million, with the daily diesel costs for the generator carrying a R1.6-million price tag.

The generator will provide power to the plant during loadshedding and other outage periods.

VWA's plant is not exempt from loadshedding, and experiences it from level five and upwards.

Schwabe says the generators are to provide security of energy supply when the sun is not shining, as well as at night.

"Last year we were hit quite hard, with 23 shifts lost, or 11 production days.

"As the now sole supplier of the Polo, our order book is completely full for the next two years. We can now securely run the plant for the next two years. This answers the trust the brand has given us.

"It is not a cheap exercise, but it is much better than losing trust and not being a reliable supplier," says Schwabe.

VWA currently produces the Polo and Polo Vivo for the local and export markets.

Biene announced this week that VWA will become the sole supplier of the Polo to all global markets, except China, from June this year.

"We have proven that we can do it, and this makes us very proud."

VWA last year exported 101 557 Polos from Kariega - 3 500 more than in 2022.

The expectation is that the Eastern Cape plant will see a 10 000-unit production increase this year on the back of the added Polo numbers.

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The National Energy Regulator of South Africa (Nersa) has approved far-reaching changes to the way electricity tariffs will be set in future, but it could still take some time before the rules are fully implemented.

Nersa approved the new Electricity Price Determination Rules (EPDR) on December 14, following a consultation phase, which was initiated in 2021 to find an alternative to the current multiyear price determination (MYPD) framework that has been used to set Eskom tariffs since 2006.

Full-time regulatory member for electricity Nhlanhla Gumede tells Engineering News that the decision to revamp the approach to setting tariffs was informed by changes under way in the electricity supply industry, including the emergence of new participants in generation and trading and the unbundling of Eskom.

In addition, the regulator had grown increasingly concerned about the steep rise in tariffs over the past number of years that, alongside a dismal industry performance, had undermined credibility and sent poor price signals.

"The objective was to develop interventions to make the pricing framework more fit-for-purpose in an increasingly disaggregated industry and to drive efficiencies in both the use and production of electricity for improved price stability," Gumede explains.

The move to a competitive industry, he argues, also requires a tool that focuses on the industry as a whole and not only a single licensee.

Under the EPDR, tariffs will no longer be aggregated and are instead determined for each licensed activity along the value chain - including generation, transmission, distribution and trading - based on the fixed costs, variable costs and customer-specific costs allowed by the regulator.

Nersa argues that such activity-based costing (ABC) should be no more data-intensive than the current methodologies, as licensees collect costing and financial data on an ongoing basis.

ABC, it adds, simply requires the licensees to package the same data with a standardised set of regulatory accounts, before the allowable revenue calculations are undertaken.

The proposed outcome is what Gumede describes as being "unbundled and cost reflective tariffs".

Nersa is currently aiming to implement the EPDR from the 2025/26 financial year but acknowledges that transitioning from the MYPD poses challenges and timing will depend on the readiness of licensees and other effected stakeholders.

Implementation also requires the finalisation of the methodology to be used by licensees to prepare a tariff submission, and no timeline has as yet been set for the publication of such a methodology.

In approving the EPDR, Nersa outlined both a Plan A and a Plan B for implementation, with Plan B allowing for the use of the MYPD methodology, with certain conditions.

Eskom has stated previously that it takes two years to prepare a revenue application under the MYPD and has, thus, already started preparing its submission for the 2025/26 financial year under the existing methodology.

In addition, in July 2022 the High Court confirmed that any revenue application needed to be made in accordance with an existing methodology, which in the case of the EPDR still must be finalised.

Therefore, Eskom is likely to argue that it is not practical to implement the EPDR in 2025, given that its submission would have to be made this year to allow Nersa time to conduct the public consultations and hearings required for the approval of municipal tariffs by March 15, 2025, as stipulated by the Finance Minister.

Nevertheless, Gumede indicates that the regulator is eager to transition to the EPDR, while highlighting that the EPDR implementation plan "provides for a period of support to licensees and affected stakeholders to transition to the new pricing rules".

He notes, too, that Eskom's September 2005 application for revenue f...

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Energy Council CEO James Mackay has welcomed the decision of the Department of Mineral Resources and Energy to extend the comment period for the draft Integrated Resource Plan (IRP) 2023 by a month and has also called on President Cyril Ramaphosa to use his State of the Nation Address (SoNA) to emphasise government's commitment to "open and robust debate on national energy policy".

Mineral Resources and Energy Minister Gwede Mantashe used his Mining Indaba address on February 6 to announce that the IRP comment period had been extended to March 23 from February 23 to "allow maximum participation in this process". However, he refrained from initiating public hearings, which some commentators have called for given serious concerns over the assumptions and modelling used to produce the draft document.

In a statement issued ahead of the SoNA, which is scheduled for February 8, Mackay stressed that national energy policy had multiple and significant impacts on all South Africans and should, thus, be fully debated and be accessible to all, including labour and communities.

"Our reality is that business confidence is near historic low levels resulting in continued reluctance to make the much-needed capital investment required to grow our economy and create jobs.

"It is well accepted that the majority of future energy investment will come from the private sector, so building a national energy vision that has the buy-in of the public and private sector is critical."

Mackay argued that it was also important for the President to use the SoNA to acknowledge the important role of the private sector, primarily through its efforts within the National Energy Crisis Committee, to tackle the loadshedding crisis and lay the foundations for energy security and a modernised electricity supply industry.

"A strong message in this regard is critical to building investor confidence that is needed to unlock economic growth and job creation."

Mackay expressed optimism that the historic downward trend of Eskom's plant availability was being stabilised. But he said that there was still a need to underline accountability at Eskom ahead of Dan Marokane starting work as CEO on March 1 and following the appointment of the new National Transmission Company South Africa (NTCSA) board, ahead of its operationalisation.

He added that the most important reform message in the SoNA should be the urgency of passing the Electricity Regulation Amendment Bill (ERA), which was currently before the National Assembly.

"This will help lay the foundation for the long-awaited sector modernisation, including the unbundling of Eskom and the introduction of our first energy market.

"A clear message on ERA will significantly improve confidence in energy policy, including the critical need for grid expansion under the new NTCSA.

"This, in turn, will enable a shift in efforts to focus on efficient regulations and implementation capacity."

The Department of Trade, Industry and Competition welcomed AMSA decision to defer the closure of its long-products business, noting that the move followed extensive discussions with the company since December.

"Government has engaged the leadership of the firm as well as its customers and suppliers do identify concrete measures that can assist to support primary steel manufacturing in South Africa," the department said in a statement, adding that the deferral offered immediate relief to more than 1 500 workers at the Newcastle Works and its downstream customers.

"The expected improvement in infrastructure spending, coupled with turnaround plans on transport logistics and commencement of trade under the African Continental Free Trade Area, will all play a positive role in strengthening both demand and supply side challenges in line with the objectives of the Steel Masterplan."

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The domestic mining industry is looking at 2024 as a year of stabilisation, rather than growth, says Minerals Council South Africa CEO Mzila Mthenjane.

The industry continues to face persistent challenges such as loadshedding, an ailing logistics sector, and a declining commodity market.

Mthenjane spoke at a Minerals Council media briefing, held on Monday morning ahead of the Investing in African Mining Indaba 2024 in Cape Town.

Council data, released on Monday, shows that the mining industry's contribution to South Africa's gross domestic product declined to 6.2% in 2023, down from 7.3% in 2022.

Total primary sales dropped from R883.5-billion in 2022, to R786.2-billion last year.

Overall, mining input costs in South Africa increased by 8.6% year-on-year in 2023 - well above inflation - softening from 13.8% in 2022.

Minerals Council chief economist Hugo Pienaar noted that there were some "very small, initial green shoots" visible in terms of Eskom energy supply as 2024 kicked into gear.

"Let's hope it continues."

Pienaar was hopeful that the next 12 to 18 months could see an improvement in both the frequency and severity of loadshedding.

He warned, however, that seeing an uptick in the logistics system would take longer.

Pienaar said the Council was seeking the rapid appointment of permanents CEOs in all Transnet executive positions, and for the permanent infrastructure manager to be announced as soon as possible.

"This will be the vehicle through which the concessioning of private sector involvement on rail is likely to be driven.

"In a very optimistic scenario this manager is probably up and running by April, May, and then the concessioning needs to start."

Pienaar also emphasised that Transnet would need funding support from national government, and that such support should be announced in Budget 2024.

"Transnet's turnaround plan cannot work if there are no funds from national government."

Jobs in Jeopardy

Minerals Council president Nolitha Fakude said the mining industry was being "severely and negatively affected by the crisis in energy, logistics and crime".

She noted that crime and corruption remained a pervasive challenge for the industry, in terms of not only personal safety for the mining sector's employees, but also around the issue of illegal mining.

"If these three areas are not driven in a very focused manner by government, business and other stakeholders, it is going to be very difficult to stabilise the economic environment that we need to unlock job opportunities, but more importantly, protect current jobs."

She noted that a failure to address these challenges would be "disastrous", not only for the mining sector, but for the economy as a whole.

Fakude added that the mining industry paid R186.5-billioin in wages in 2023, up from R174.2-billion in 2022. Employment also rose slightly, to 477 000 people, up from 469 353 in 2022.

As for the rollout of a long-awaited electronic mining cadastre, Pienaar said the Council was awaiting more detail on government's announcement last week of the preferred bidder to design and implement a functioning cadastre for South Africa.

"Timelines would be useful. At best, it would be implemented in 2025."

Pienaar noted that the rollout of the cadastre could be a game changer for exploration spending in the country.

A minerals cadastre lists available mining or prospecting rights, properties currently under a mining or prospecting right, and the expiry of currently held rights and the ownership of these rights.

It allows companies to apply for exploration, prospecting, mining and related rights, and for the regulator to process such applications.

Looking ahead, Pienaar said an easing in global inflation could see a softening in interest rates in the second half of 2024, which could see economic conditions improve in 2025.

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The National Energy Regulator of South Africa (Nersa) has officially published on its website the three licences required for the operationalisation of the National Transmission Company South Africa (NTCSA), having approved their transfer from Eskom to the NTCSA last year.

The NTCSA is in the process of being established as an independent subsidiary of Eskom Holdings as part of a far-reaching restructuring process initiated in 2019 to unbundle the vertically integrated utility into three independent businesses of transmission, distribution and generation.

While the licensing has been implemented under the current Electricity Regulation Act, the transfer is also aligned with amendments currently before lawmakers aimed at facilitating a more competitive market structure.

The separation of NTCSA has also been prioritised ahead of that of distribution, whose unbundling is also well advanced, and generation, owing to the importance of having an independent transmission, system and market operator in levelling the playing field between the Eskom generators and those of independent power producers.

The NTCSA is expected to begin operating from the start of it new financial year on April 1 and it inaugural board, chaired by Priscillah Mabelane, was appointed on January 9, leaving the securing of bondholder consent as the key remaining condition precedent for operationalisation.

On February 1, Nersa published NTCSA's transmission licence, officially issued on July 27, 2023, as well as trading and import and export licences, issued on September 14, 2023.

In terms of the transmission licence, the NTCSA has been authorised to operate the transmission facility and to undertake the roles of Transmission Network Service Provider, System Operator, Transmission System Planner, and Grid Code Secretariat.

Through the trading and import and export licences, the NTCSA can trade with generators and customers in South Africa and import and export regionally, including through the Southern African Power Pool.

The transmission and import and export licences are valid for 25 years from the date of issuance, while the trading licence is valid for five years.

The German Ministry for Economic Cooperation and Development is offering €270-million in nonrefundable grant funding to close “bankability gaps” standing in the way of implementing industrial-scale green hydrogen projects in Brazil, Egypt, Georgia, India, Kenya, Morocco and South Africa. Engineering News editor Terence Creamer discusses the types of projects that will be developed and how this could potentially fit in with South Africa's own green hydrogen strategy

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New-vehicle sales declined by 3.8% in January, to 41 636 units, compared with the same month last year.

This continued the decline in new-vehicle sales witnessed in the last five months of 2023.

New-passenger-car sales in January dropped by 6.7%, to 28 790 units, compared with January last year.

Sales of bakkies, small trucks, vans and minibuses provided some cheer, increasing by 2.3%, to 10 871 units.

Medium-truck sales also expanded, growing by 13.3%, to 520 units, with heavy-truck and bus sales increasing by 7.9%, to 1 455 units, as South Africa's rail transport woes continue.

New-vehicle exports saw a decline of 2.1%, to 20 242 units.

"The lingering effects of cost-of-living increases, dampened consumer and business confidence, combined with the country's port challenges, as well as persistent loadshedding, continue to undermine the new-vehicle market's recovery path," says Naamsa | The Automotive Business Council CEO Mikel Mabasa.

"Following a record export performance in 2023, vehicle exports slightly declined year-on-year in January," he adds.

"Several global externalities remain, creating an uncertain backdrop for the year ahead, including sluggish global growth, a bullish inflationary environment and increased geo-political tensions.

"The global economy is expected to remain weak in 2024, but inflation is easing and interest rate cuts in major markets may be on the cards in the second half of the year, which could support the South African automotive industry's export performance," notes Mabasa.