Chamber media statement on the release of the NERSA determination on the Eskom re-application
for a further electricity price increase

The Chamber welcomes the release today of the NERSA determination regarding the Eskom re-application for a further electricity price increase for 2008. Electricity is a vitally important input to the mining sector and plays a key role in health and safety, ventilation, pumping, cooling and in production processes. The mining industry relies on a consistent and reliable supply of competitively priced electricity.

The Chamber recognises that electricity prices have to rise in real terms, but has focused on ensuring that the price increases are smoothed in over an appropriate period of time to avoid the economic dislocation effects of large front-loaded price increases. The Chamber has consistently stated that the large increases requested by Eskom in its second application, which looked at doubling the price within two years, was simply too aggressive and would have resulted in negative economic impacts on inflation, economic growth, mining production and ultimately on employment.

The NERSA announced 13.3% price increase from 1 July 2008, in addition to the 14.2% increase granted from 1 April 2008, equates to an overall average tariff increase of 27.5% in 2008/09. The Chamber’s submission to NERSA provided support for the need to cover primary energy costs, for the removal of demand side measures from the Eskom application and for extra support for Eskom’s balance sheet and income statement by its 100% shareholder, the State. It appears that this price increase goes some way towards meeting the Chamber’s proposal to NERSA. The NERSA approval of Eskom to raise electricity prices by 20% - 25% over the next three years captures the Chamber’s view that price increases should be smoothed in a predictable and sustainable manner. This clarity on expected electricity price increases over the next three years will enable the mining sector to plan and adjust more effectively over the next three years.

However, the 2008/09 price increase is not without cost. For the mining sector the price increase is an additional 20% on 1 July 2008 over and above the 14.2% increase in force from 1 April 2008. This means that from 1 July 2008 the mining sector's average tariff will rise by 34.2%. For the NERSA pricing period (1 April 2008 to 31 March 2009), this implies that the mining industry’s average increase in electricity costs will be about 29%, which totals an extra R1.6-billion cost to the industry. This will add to cost pressures that the mining industry is facing. For the large-scale deep level gold and platinum mines, where electricity costs are about 10% of cash production costs, this electricity price increase will add between 2% and 2.5% to cash costs.

The Chamber reiterates its previous recommendation that the 2 cent/kWh levy proposed by Treasury, should be held in abeyance until such time as the current electricity emergency is past. If this increase is granted, it will add another 10 percentage points to the overall electricity price increase.

MG DILIZA
CHIEF EXECUTIVE

For any enquiries related to this media statement please contact:
Jabu Maphalala
Deputy Communications Adviser
Chamber of Mines of South Africa
Tel No. +27 11 498 7212
Fax No. + 27 11 838 4251
Cell No. + 27 72 883 4642
Email: jmaphalala@bullion.org.za