VZCZCXRO6227
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #0132/01 0181523
ZNR UUUUU ZZH
R 181523Z JAN 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 3229
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0721
RUEHRL/AMEMBASSY BERLIN 0575
RUEHBY/AMEMBASSY CANBERRA 0598
RUEHLO/AMEMBASSY LONDON 1388
RUEHMO/AMEMBASSY MOSCOW 0721
RUEHOT/AMEMBASSY OTTAWA 0551
RUEHFR/AMEMBASSY PARIS 1251

UNCLAS SECTION 01 OF 03 PRETORIA 000132 
 
SIPDIS 
 
SIPDIS 
SENSITVE 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DEPT FOR AF/S, ISN, EEB/ESC AND CBA 
DOE FOR T.SPERL, G.PERSON, A.BIENAWSKI, M.SCOTT, L.PARKER 
 
E.O. 12958: N/A 
TAGS: ENRG EPET SENV EINV BEXP SF
SUBJECT: DOOM AND GLOOM IN THE ELECTRICITY SECTOR - BUSINESS 
COMPLAINS 
 
REF: A) 07 Pretoria 4082 
 
B) 07 Pretoria 3078 
C) 07 Pretoria 2814 
 
¶1.  (SBU) SUMMARY: The local media is abuzz with complaints from 
businesses and consumers about increasing electricity load-shedding 
and unplanned outages.  State power company Eskom and the government 
offer no quick "silver bullet" solutions, and are asking consumers 
to bear up and conserve energy, waiting for new projects to come on 
line over the next 4-7 years.  Eskom admits that the timing of 
mega-projects like aluminum smelters is at risk.  The problem is 
likely to get worse before it gets better - given that Eskom faces 
its own skills shortages as it grapples with deferred maintenance 
and new build.  Electricity shortages will likely have a negative 
impact on growth and investment, especially in energy intensive 
sectors, which have in the past been a prime source of foreign 
investment.  Other consequences include pressure to end all 
electricity exports and likelihood for the government to make a 
decision on new nuclear power build by mid 2007.  End Summary. 
 
------------------- 
Load-Shedding Angst 
------------------- 
 
¶2.  (SBU) Consumers, businesses, residents, and motorists are in an 
uproar about state electricity supplier Eskom's increasing 
load-shedding and unannounced rolling black-outs.  According to 
press reports, Business Unity South Africa (Busa) seeks urgent 
meetings with Eskom and the government and called for a "transparent 
plan" to deal with the country's growing power supply problems, 
citing the particular negative impact on business and small and 
medium-sized enterprises.  Busa called for better planning and 
appropriate incentives for all energy users to increase energy 
efficiency.  Economic officers hear increasing complaints from small 
businesses about the costs of unplanned outages.  Larger businesses 
and institutions are increasingly investing in generators, which 
have become a booming business, but it is more difficult for small 
businesses to finance back-up power sources. 
 
¶3.  (U) Meanwhile, South Africa's Public Protector has launched a 
preliminary investigation into Eskom's rolling power cuts, noting 
the "devastating" effect on public and private service delivery. 
The agency sent a letter to Eskom on January 16, requesting detailed 
information on the reasons behind and measures taken to deal with 
load-shedding, including steps it intended to take to "compensate 
those that have suffered damages and/or inconvenience as a result of 
load-shedding." 
 
---------------------------------------- 
Negative Impact on Investment and Growth 
---------------------------------------- 
 
¶4.  (U) Econometrix Economist Dr. Azar Jammine was quoted in the 
press warning that power shortages would inhibit foreign investment 
and prevent the government from reaching its targeted six percent 
yearly economic growth from 2010 onwards.  Minister of Minerals and 
Energy Buyelwa Sonjica, responding in a number of interviews, 
countered that "there is no need to panic about future investments." 
 Sonjica did, however, concede that the country had an "acute 
Q Sonjica did, however, concede that the country had an "acute 
problem" with electricity supply in light of strong demand growth. 
Foreign investment has typically been strong in energy intensive 
sectors, because South Africa has been perceived in the past as 
possessing cheap and available electricity. 
 
¶5.  (SBU) Eskom has been quoted widely that its reserve margin is 
dwindling as it copes with planned and unplanned maintenance.  The 
margin is so tight that, according to press reports, planned 
maintenance at the Koeberg nuclear power plant was postponed for one 
week due to the load-shedding   Eskom predicts 4-7 more years of 
load-shedding until significant new coal- and gas-fired projects 
come on line.  In a January 16 meeting with Energy Officer, Eskom 
Executive Assistant to the Managing Director Calvin Theko predicted 
significant load-shedding for the next four years until the first 
unit at the Medupi coal-fired plant comes on line.  He lamented that 
Eskom's headquarters at Megawatt Park in Johannesburg is itself not 
immune to the disruptions and inconvenience of power outages.  Theko 
 
PRETORIA 00000132  002 OF 003 
 
 
insisted that South Africa would be able to provide adequate 
electricity to the 2010 FIFA World Cup.  An Eskom maintenance 
training manager told Energy Officer that Eskom faces severe skills 
deficits in maintenance training and staff. 
 
¶6.  (U) As quoted widely on January 17 in the business press, Eskom 
said it would not take on any new mega-projects until 2012, pending 
commissioning of the first unit at Medupi.  Finance Director Bongani 
Nquababa said this would exclude any projects "1,000 MW-plus", and 
could affect the timing of the massive aluminum smelter Rio Tinto 
Alcan planned to build at Coega in the Eastern Cape.  A Rio Tinto 
Alcan spokesperson expressed confidence that the project would move 
forward.  The company had negotiated a long-term electricity supply 
contract with Eskom in 2007 that included compensation for 
shortfalls in electricity supply.  The 735,000 ton, 1,350 MW, $3.25 
billion aluminum smelter project has been delayed since its 
conception by Pechiney, as it was acquired first by Alcan, then 
Alcan was in turn acquired by Rio Tinto. 
 
------------------- 
Eskom's Way Forward 
------------------- 
 
 
¶7.  (SBU) Short-term, Eskom is approaching the Treasury for balance 
sheet support as it seeks to fund its five-year, $ 25 billion 
capital investment program and in light of credit rating agencies 
raising concern about Eskom's deteriorating debt-to-equity ratios. 
Standard & Poors has threatened to lower Eskom's investment grade 
BBB- credit rating if it does not secure additional capital from its 
principal shareholder, the government, in the next three months. 
Eskom gained approval from the regulator for a 14.2 percent tariff 
increase (whittled down from the requested 18 percent).  (Note: 
South Africa enjoys low-cost electricity of around 2 U.S. cents per 
Kwh - when available.  End Note.)  An AES-led consortium will soon 
begin construction on two gas-fired plants totaling 1,000 MW, 
ambitiously targeted for the end of 2009.  Eskom is de-moth-balling 
some plants and is using some peak-load plants as part of its 
current base load.  Eskom reportedly still exports small amounts of 
power to neighbors, including Namibia, Botswana, and Zimbabwe, but 
these amounts have been steadily declining.  The sustainability of 
these power exports is now under question as local commentators have 
called on Eskom "to come clean" about these exports during a time of 
growing domestic power shortages. 
 
¶8.  (SBU) Longer term, Eskom ambitiously plans to build up to 20,000 
MW of nuclear power stations, out of a planned doubling of current 
capacity from about 40,000 MW to 80,000 MW by 2025.  Westinghouse 
and Areva of France are competing for the first tranche of 3,500 MW 
and the larger fleet of as many as 14-18 power plants.  Preliminary 
bids are due January 31 and more detailed bids will be submitted 
March 31.  Eskom and the government are expected to make technical 
and political reviews in advance of Eskom's board meeting in June. 
The government anticipates that some of the new nuclear build would 
comprise new Pebble Bed Modular Reactor technology (where 
Qcomprise new Pebble Bed Modular Reactor technology (where 
Westinghouse is also a partner).  Westinghouse is pitching its 
strength in localization as a key component of its fleet approach. 
One consequence of the growing power shortage is that Eskom will be 
under intense pressure to award the nuclear contract without delay. 
Embassy therefore expects the award to be made to Westinghouse or 
Areva by mid-2008.  In addition, the government has announced that 
up to thirty percent of new electricity generation capacity would be 
available to Independent Power Producers (IPP), like the AES 
project, which represents the first significant greenfield IPP. 
 
 
------- 
COMMENT 
------- 
 
¶9.  (SBU) The media is full of stories complaining about 
load-shedding and its costs and inconveniences, adding additional 
angst to the regular topics of crime and traffic congestion. 
Residential and business security features, such as electric fences 
and alarms, are compromised by the outages.  Motorists grapple with 
chaotic intersections where stop-lights are not functioning.  Energy 
 
PRETORIA 00000132  003 OF 003 
 
 
Specialist recently did his normal 20 minute commute in quiet 
Pretoria in two hours due to traffic jams associated with stop-light 
outages. 
 
¶10.  (SBU) With Eskom's effective reserve margin now zero and given 
likelihood of deferred or inadequate maintenance, the problem is 
likely to get worse before it gets better.  President Thabo Mbeki 
made a public apology and accepted responsibility for the country's 
power problems last December.  Unfortunately, neither the SAG nor 
Eskom has provided an immediate solution, other than bearing up 
under growing power cuts for the next several years until the next 
major power plants come on line. 
 
BOST