VZCZCXRO7239
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #2814 2221347
ZNR UUUUU ZZH
R 101347Z AUG 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 1159
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDC/DEPT OF COMMERCE WASHDC

UNCLAS PRETORIA 002814 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR T.RAND 
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
AF/S FOR RMARBURG 
 
E.O. 12958: N/A 
TAGS: ECON ENRG SF
SUBJECT: BUSINESS VIEWS OF POWER CRUNCH 
 
REF: (A) PRETORIA 1684 (B) STATE 99099 
 
¶1.  (U) Summary:  South Africa's private sector is concerned 
about the country's electrical power deficit.  While firms 
believe that the South African Government (SAG) has a plan to 
address the problem, many are hedging their bets by buying 
generators and economizing on power.  Shortages are not yet a 
"top concern" of investors, but electricity price hikes are 
likely and could affect South Africa's competitiveness.  End 
Summary. 
 
-------------------- 
The View of Business 
-------------------- 
 
¶2.  (SBU) Blackouts and uncertainties about electrical power 
supply are a serious problem in South Africa, according to 
Vic van Vuuren of Business Unity South Africa (BUSA), and 
Bill Lacey of the South African Chamber of Business (SACOB). 
The business reps recently spoke with Econoffs about the 
country's power deficit and its implications for business 
(Ref A). 
 
¶3.  (SBU) According to Van Vuuren, firms know that power will 
be in short supply for the medium-term future, and many are 
buying back up generators and taking measures to economize on 
electricity.  However, the BUSA executive took heart from the 
fact that top levels of the SAG understand the gravity of the 
problem and are resolved to add generating capacity.  Van 
Vuuren told us that the SAG has embarked on an urgent 
remedial program overseen by Deputy President Phumzile 
Mlambo-Ngucka, in close consultation with operating 
departments, parastatal giant Eskom (the power utility), and 
the business community.  "A plan, the political will, and 
financing" are all in place to add generating capacity in 
coming years, he said.  He was concerned, however, that 
haphazard coordination between national and local governments 
could delay implementation. 
 
¶5.  (SBU) Van Vuuren was also worried that Eskom's "reserve 
margin" of power would remain razor thin for several years 
until new capacity came on line.  "If one plant malfunctions, 
we won't have back up.  It would compromise the whole system. 
 If someone drops a monkey wrench, we could be in trouble," 
he warned.  His fear was echoed by SACOB's Lacey, who said 
that Eskom's reserve margin could fall to as low as 3.75 
percent in 2008, in contrast to the globally accepted reserve 
margin of 15 percent.  Lacey noted, however, that tapping 
Mozambican power imports could augment Eskom's reserve. 
 
------------------------ 
The Impact on Investment 
------------------------ 
 
¶6.  (SBU Lacey told us that the retail, light industrial and 
small business sectors have been the hardest hit by power 
shortages, since they are least able to afford in-house 
generating capacity.  Information and financial services have 
also been affected, he said. 
 
¶7.  (SBU) Van Vuuren stressed that power shortages are not 
yet a "top concern" of investors.  Lacey agreed and argued 
that due to the temporary nature of the power deficit, few 
investments would be put off or cancelled permanently.  Both 
business reps did predict, however, that electricity prices 
would increase by 15-30 percent over the next few years. 
This could affect South Africa's competitiveness, as cheap 
power has been a historical South African selling point. 
 
------- 
Comment 
------- 
 
¶8.  (SBU) Robust economic growth coupled with inadequate 
infrastructure investment and shortages of skilled labor have 
led to infrastructure bottlenecks and supply constraints 
throughout the South African economy, including the power 
sector.  The SAG has a $60 billion capital expansion plan to 
alleviate these infrastructure bottlenecks over the next five 
years.  In the meantime, the lights will go out from time to 
time. 
Bost