VZCZCXRO9065
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #0315/01 0451536
ZNR UUUUU ZZH
R 141536Z FEB 08 ZDK
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 3477
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0744
RUEHRL/AMEMBASSY BERLIN 0601
RUEHBY/AMEMBASSY CANBERRA 0620
RUEHLO/AMEMBASSY LONDON 1430
RUEHMO/AMEMBASSY MOSCOW 0744
RUEHOT/AMEMBASSY OTTAWA 0573
RUEHFR/AMEMBASSY PARIS 1283

UNCLAS SECTION 01 OF 03 PRETORIA 000315 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
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 EMIN EPET SENV BEXP AMGT SF
SUBJECT: POWER CRUNCH MAJOR CONCERN AT ANNUAL MINING INDABA 
 
REF: A) Pretoria 262 
B) Cape Town 31 
C) Pretoria 214 
D) Pretoria 168 
E) Pretoria 132 and previous 
 
¶1.  (SBU) SUMMARY: The nadir of South Africa's electricity crisis 
may have passed - when mines were shut-down for lack of electricity 
guarantees (Ref C), but electricity supply problems will persist for 
the next four-five years until significant coal-fired power plants 
come on line.  In the interim, the nature of the power crunch will 
be determined by the ability of government and industry to cooperate 
and implement conservation and efficiency measures.  The impact on 
economic output will be significant, but is difficult to quantify at 
this point (Ref A and Septel).  The state of infrastructure, 
including plants and distribution remain a question mark.  The power 
problems in South Africa were a major topic of concern at the 
February 4-7, 2008 annual Mining Indaba, attended by Mining/Energy 
Officer and Specialist (Septel).  End Summary. 
 
------------------------------------------ 
Power Woes Continue - Aims to Reduce Waste 
------------------------------------------ 
 
¶2.  (SBU) Background: State power supplier Eskom and the SAG alerted 
South Africans to persistent electricity supply shortfalls and began 
imposing "load-shedding" (rolling black-outs) on consumers at the 
end of 2007.  The power crisis reached a head in mid-January when 
over 25 percent of the country's 37,761 MW of capacity was 
unavailable for planned (3,675 MW) and unplanned (5,647 MW) 
maintenance, exacerbated by low coal stockpiles at plants (Refs). 
Eskom alerted mines and major companies on January 24 that it could 
no longer guarantee electricity supply.  After four-five days 
closed, mines restarted operations with about 90 percent of their 
electricity under a rationing system.  Analysts expect and the SAG 
admits that there will be significant shortages until large new 
coal-fired plants come on line in 2012. 
 
¶3.  (SBU) In his February 8 "business unusual"-themed State of the 
Nation address (Ref B), President Thabo Mbeki again apologized on 
behalf of the SAG and Eskom for the power crisis and exhorted South 
Africans to adopt energy conservation and efficiency measures.  He 
said he would shortly announce a team of "energy champions" experts 
who would help the SAG in easing energy demand.  Mbeki thanked the 
private sector for its contribution to mitigating and resolving the 
crisis, pointing out General Electric's offer to assist by advising 
on solutions and procuring scarce turbine equipment.  At a luncheon 
with industry leaders on January 28, GE CEO Jeffrey Immelt told 
Economic Counselor he was going to meet with President Mbeki and 
offer to help South Africa with up to 4,000 MW of generation 
capacity, using turbines available from a cancelled deal.  GE Energy 
Market Development Leader Johan Cilliers confirmed to Energy Officer 
GE's efforts to work with the SAG to devise short-, medium-, and 
long-term solutions for the power crisis. 
 
¶4.  (SBU) Also speaking on the margins of Parliament meetings in 
Cape Town, Public Enterprises Minister Alec Erwin sought to allay 
QCape Town, Public Enterprises Minister Alec Erwin sought to allay 
foreign investors' concerns about the electricity emergency, which 
he said should be overcome within the next six months.  He claimed 
that South Africa was not alone in facing tight energy supply, and 
asserted that the country would "fairly quickly" regain a sufficient 
reserve margin of 16 percent.  Westinghouse Senior Vice President 
Dan Lipman and Regional Vice President Rita Bowser met with Minister 
Erwin in Cape Town on February 12 to reinforce its bid on 
significant new nuclear build, in addition to showing commitment to 
its participation in the Pebble Bed Modular Reactor project.  Bowser 
told Energy Officer that Erwin was optimistic on the SAG's ability 
to mitigate the power problems. 
 
--------------------------------------------- - 
Mining Sector Complains - But Will Do its Part 
--------------------------------------------- - 
 
¶5.  (SBU) The February 4-7, 2008 Mining Indaba in Cape Town was 
dominated by surging commodity prices, fears of a U.S. recession, 
and angst over South Africa's power crunch (Septel).  In her opening 
address, Minerals and Energy Minister Sonjica Buyelwa conceded that 
 
PRETORIA 00000315  002 OF 003 
 
 
the SAG had not planned adequately and there would be large-scale 
shortages.  She cited key elements of the national response plan 
(de-moth-balling plants, cogeneration, rationing, conservation, 
energy efficiency, and solar traffic lights).  Buyelwa fended off 
criticism that her department building lights were left on at night, 
claiming that lights were only utilized when the cleaners were 
working.  She called for municipalities, businesses, and consumers 
to turn off lights and electricity when not in use.  Buyelwa 
applauded (as also did President Thabo Mbeki in his State of the 
Nation address) Anglo American CEO Cynthia Carroll's calming remarks 
calling for cooperation and ingenuity, rejecting finger pointing and 
afro-pessimism, and qualifying South Africa's energy problem as 
surmountable - and not a disaster. 
 
¶6.  (SBU) At the Mining Indaba and in other venues, mining officials 
complained that power reductions and uncertainty will have a 
significantly negative impact on output.  Platinum prices continue 
to surge and set daily records ($1,977/oz on February 13) based on 
uncertain supply in South Africa, which accounts for 80 percent of 
the world's supply.  Sister metal rhodium surged past $7,000/oz at 
the start of this month.  Major platinum producer Anglo Platinum has 
announced that it expects to lose 150,000 ounces of production in 
¶2008.  Smaller producer Northam Platinum adopted a contrarion view, 
stating the 10 percent cut in power would not affect its output. 
Number two gold producer Gold Fields warned that a 10 percent drop 
in its power would result in a 20 percent drop in production output, 
because 50 percent of power consumption was dedicated to pumping, 
cooling, and ventilating.  Anglo Gold Ashanti said it would lose 
200,000-400,000 ounces or 10-20 percent of its South African 
production.  Harmony Gold Mining CEO Graham Briggs (with all their 
operations in South Africa) lamented the dual challenges of rising 
costs and Eskom.  The Chief Economist at Stellenbosch University 
told Economic Counselor deep mines which require more than 50 
percent of their power for maintenance purposes may suffer an even 
greater output loss per unit of power cut.  Chamber of Mines (COM) 
Advisor Dick Kruger told Energy Specialist that Eskom was having 
difficulty in delivering the promised 90 percent of power to mining 
companies.  COM Economist Roger Baxter told Energy Specialist he 
foresaw cuts in mine production of over eight percent if current 
problems persisted.  Gold companies warned that persistent cuts 
could lead to shaft closures and job reductions. 
 
¶7.  (SBU) The consensus view is that companies will begin to adopt 
more energy saving measures over time.  A former DME official 
predicted to Energy Officer that in the short-term Eskom would get a 
handle on maintenance and companies would adopt conservation and 
efficiency practices, but in the longer-term, he saw supply problems 
getting worse, before they were resolved.  He characterized the 
power shortage as a giant failure in SAG policy, since it could have 
been averted.  The former DME official anticipated that mining 
Qbeen averted.  The former DME official anticipated that mining 
companies might use the leverage of accommodating conservation 
measures with respect to gaining favorable response on the vexing 
issue of gaining mining license conversion by 2009.  For example, 
Anglo American CEO Cynthia Carrol committed to gaining 15 percent 
efficiency in its operation, gaining applause from the Mining and 
Energy Minister seated next to her.  COM Economist Roger Baxter told 
Energy Specialist that demand has already declined and mines and 
companies will continue to implement energy saving measures; 
however, he corroborated the view that a 10 percent drop in power 
would cause a greater drop in output.  DME Chief Director: Nuclear 
Tseliso Maqubela told Energy Officer that the problem was already 
 
SIPDIS 
abating, but the SAG still had to "tighten the screw one or two more 
turns." 
 
------------------------------- 
Another Target is Manufacturing 
------------------------------- 
 
¶8.  (SBU) Manufacturing has been another target of forced reductions 
for Eskom to balance its power equation and output has been 
significantly reduced.  South Africa Petroleum Industry Association 
Director Connel Ngcukana told Energy Officer he estimated that 
manufacturing output was down 20 percent.  Arcelor-Mittal South 
Africa announced on February 13 that it may have to ration steel to 
its domestic customers, owing to disruptions in production arising 
mainly as a result of the electricity crisis.  Aluminum and 
ferrochrome smelters tend to suffer an output loss directly 
 
PRETORIA 00000315  003 OF 003 
 
 
proportional to electricity cuts.  Coca Cola blamed power cuts and 
related shortages in carbon dioxide for a fall-off in production and 
sales. 
 
------------------------- 
Other Infrastructure Woes 
------------------------- 
 
¶9.  (SBU) Many observers fear that there are equal or greater 
problems with electricity transmission and distribution.  Attempted 
restructuring of electricity distribution has been long delayed and 
analysts believe there is significant under-investment and risk 
there.  For example, a sub-station failure triggered a large 
black-out in Cape Town on the eve of the Mining Indaba and the 
opening of Parliament.  Although ports and refineries receive 
priority and are not subject to load-shedding, this outage shut down 
the Caltex-Chevron refinery, requiring 5-7 days to restart 
operations.  The Cape Town Airport worried about obtaining adequate 
jet fuel, but was able to find alternative sources. 
 
¶10.  (SBU) COMMENT: Energy Officer and Specialist found 
interlocutors at the Mining Indaba still bullish on doing business 
in South Africa for a range of commodities.  However, uncertainty in 
South Africa's power supply makes riskier projects in DRC, Zambia, 
and elsewhere on the continent look more enticing.  The SAG has 
given the public the erroneous impression that the problem is under 
control by greatly reducing random and aggravating load-shedding in 
residential neighborhoods.  In fact, the SAG's second failure - 
after failing to plan for adequate power - is its inability to plan 
for efficient load-shedding and power-sharing.  Forcing mining and 
manufacturing to bear the brunt of the electricity crisis is not 
sustainable.  There does appear to be room for reducing waste and 
harvesting efficiencies in both industrial and residential sectors. 
The ultimate impact of power woes on economic output, growth, and 
jobs will be significant, but difficult to quantify at this time. 
The prolonged use of aging plants will be a challenge during the 
southern hemisphere winter (June-August), when there will be peak 
demand for power capacity. 
 
BOST