VZCZCXRO1702
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #0906/01 1210916
ZNR UUUUU ZZH
R 300916Z APR 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 4294
INFO RUEHZO/AFRICAN UNION COLLECTIVE
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 0203
RUEHBJ/AMEMBASSY BEIJING 0791
RUEHBY/AMEMBASSY CANBERRA 0663
RUEHLO/AMEMBASSY LONDON 1505
RUEHMO/AMEMBASSY MOSCOW 0793
RUEHNE/AMEMBASSY NEW DELHI 0485
RUEHOT/AMEMBASSY OTTAWA 0623
RUEHFR/AMEMBASSY PARIS 1343
RUEHSG/AMEMBASSY SANTIAGO 0192
RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 03 PRETORIA 000906 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR AF/S, EEB/ESC AND CBA 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DOE FOR SPERL AND PERSON 
DOC FOR ITA/DIEMOND 
 
E.O. 12958: N/A 
TAGS: ENRG EPET EMIN EINV SF
SUBJECT: AFRICA ELECTRICITY CONGRESS - LIGHTING THE DARK 
CONTINENT 
 
REF: A. PRETORIA 758 
     ¶B. PRETORIA 726 
     ¶C. PRETORIA 565 
     ¶D. PRETORIA 315 
     ¶E. PRETORIA 214 AND PREVIOUS 
 
 ¶1.  (SBU) SUMMARY:  State power supplier Eskom and the South 
African Energy Minister used the recent Africa Power & 
Electricity Congress as yet another opportunity to highlight 
plans to augment demand side management and increase energy 
efficiency as short term methods to address the South African 
power crisis.  Delegates noted the failure of South Africa 
and other countries to secure significant private sector 
participation in the power sector, citing that power tariffs 
are too low.  There was recognition that there are limits to 
how much and how quickly South Africa and other countries can 
raise tariffs, given governments' fear of inflation and 
hurting business and the poor.  Delegates also cited the role 
of regional cooperation.  The SAG announced its intent to 
convene a high-level energy summit to coordinate its response 
to its power crisis and to grapple with getting the tariff 
right.  END SUMMARY. 
 
------------------- 
Power to the People 
------------------- 
 
¶2.  (SBU) The Africa Power & Electricity Congress and 
Exhibition April 15-17, 2008 in Johannesburg drew government 
and private leaders from throughout the continent to debate 
challenges in the sector.  This was set against the backdrop 
of power shortages in South Africa and other countries 
(Reftels).  The power was cut off twice during the 
proceedings, including while the South African Minister of 
Minerals and Energy held the stage.  Fortunately, the 
convention center's generators kicked in each time with only 
a few seconds delay.  Building on its recent India-Africa 
summit in New Delhi, India had a high profile at the 
congress, including a ten-company India exhibit at the 
accompanying exhibition, a special breakfast, and 
sponsors/speakers in a number of sessions.  The U.S. presence 
at the exhibition was primarily as a provider of alternative 
power solutions, such as Cummins, Detroit Diesel, and 
Caterpillar.  Westinghouse was a speaker at the nuclear 
session of the congress.  Areva and EDF, Westinghouse's 
competition for nuclear new build in South Africa, had 
substantial exhibits and also spoke at the nuclear session. 
The congress organizers played "Power to the People" over and 
over again during breaks on day one, but recognized that they 
needed to change the repetitive tune for the balance of the 
congress.  The Minister admitted that she said a special 
prayer each morning: "let there be no power outages", and 
only some of her prayers were heard. 
 
------------------------------------ 
Engaging Private IPPs - Tariff Angst 
------------------------------------ 
 
¶3.  (SBU) There was broad consensus that power tariffs in 
South Africa and other countries are too low to entice 
private sector participation in the power sector.  Energy 
Minister Buyelwa Sonjica said in her opening speech that 
current low tariffs and "cheapness" of South Africa's 
Qcurrent low tariffs and "cheapness" of South Africa's 
electricity were deterring private sector investment in power 
generation projects.  Sonjica said AES decided to pull out of 
the Independent Power Producer (IPP) deal for two peaking 
power plants totaling 1000 MW (Ref B) because the project 
"was not lucrative enough" in terms of profit for AES.  A 
National Energy Regulator of SA (NERSA) senior official also 
said the introduction of IPPs failed because the private 
sector viewed electricity prices as too low.  The CEO of one 
of the few IPPs implemented in South Africa, Darling Wind 
 
PRETORIA 00000906  002 OF 003 
 
 
Power, urged the government to revisit or reverse its 
decision to maintain state power utility Eskom as the single 
buyer in the government's plans to seek up to 30 percent 
participation by IPPs in the South African power sector. 
Sonjica replied that her department was discussing the 
matter.  Sonjica noted that Namibia was ahead of other 
African countries in restructuring electricity distribution, 
another critical need in assuring power supply to consumers. 
 
 
¶4.  (SBU) Congress moderator and private power consultant Jan 
de Beer observed that South Africa possesses artificially low 
tariffs at 1-2 U.S. cents per Kwh.  When he pressed a forum 
of regulators from other countries, they would not quantify 
the "right" amount, but they uniformly said it should be 
higher.  De Beer noted that tariffs had to be commercial but 
electricity service was recognized as a social good, so 
governments had to balance commerciality and affordability. 
Finance sector speakers also observed the SAG's failure to 
secure IPP's, despite its long-standing objective, perhaps 
because investors perceived too much payment and fuel risk. 
 
--------------------------------------------- - 
Eskom's Way Forward - MEGAWATTS NOT MEGA-WORDS 
--------------------------------------------- - 
 
¶5.  (SBU) State power company Eskom presented its vision of 
increasing power tariffs and capacity and implementing 
demand-side management and efficiency as its action plan for 
resolving power woes in South Africa.  Eskom General Manager 
Andrew Etzinger cited the importance of ramping up its 
existing demand-side management program, noting that this was 
one of the identified uses of funds from the proposed 60 
percent nominal tariff increase.  Eskom Financial Director 
Bongani Nqwababa said South Africans would face more power 
cuts without the tariff hike.  NERSA Chair Mbulelo Ncetezo 
said we need "megawatts, not mega-words!"  National Energy 
Efficency Agency acting Operations Manager Barry Bredankamp 
stressed the need to augment and implement energy efficiency 
programs in South Africa and other countries in Africa.  He 
noted that progress on the continent had been fragmented and 
episodic, calling for better sharing of best practices and 
success stories.  Bredenkamp recommended creation of a 
depository of information on African energy efficiency 
projects and initiatives. 
 
------------------- 
Regional Approaches 
------------------- 
 
¶6.  (SBU) Eskom Chief Officer for Networks and Customer 
Service Erica Johnson cited the importance of regional 
electricity options to meet the target of adding 40,000 MW of 
capacity to the South African grid by 2025, in addition to 
diversification to include greater reliance on nuclear power. 
 She highlighted possibilities of importing coal-generated 
power from Botswana and Mozambique, natural gas-generated 
power from Namibia and Mozambique, and hydroelectric power 
from Mozambique and the Democratic Republic of Congo.  CIC 
Energy Corporation COO Tore Horvei told the Congress that his 
QEnergy Corporation COO Tore Horvei told the Congress that his 
company was at the final discussions stage of finalizing 
power purchase agreements with Eskom and the Botswana Power 
Corporation for the 2,500 MW first phase of the coal-fired 
Mmamabula power project in Botswana, near the South African 
border.  Another theme of the Congress was the importance and 
still unrealized potential of cooperative regional 
electricity pools like the Southern African Power Pool 
(SAPP).  Note: SAPP's members are the major utilities of 
South Africa, Mozambique, Botswana, Malawi, Angola, Lesotho, 
Namibia, DRC, Swaziland, Tanzania, Zambia, and Zimbabwe. End 
Note. 
 
 
PRETORIA 00000906  003 OF 003 
 
 
------------ 
Power Summit 
------------ 
 
¶7.  (SBU) Soon after the close of the African Power Congress, 
the SAG and the ANC decided to convene an energy summit to 
coordinate responses to the power crisis, organize the myriad 
task teams and efforts underway, and seek broader consensus 
on the way forward, possibly including discussion of power 
tariffs.  The Department of Minerals and Energy has 
spear-headed a National Electricity Response Team, but 
higher-level leadership and coordination are needed.  The 
SAG-ANC energy summit date has yet to be scheduled.  Eskom 
CEO Jacob Maroga welcomed the summit proposal, saying there 
was a definite need for a "national conversation" both on the 
handling of the crisis, as well as the utility's application 
for a 60 percent nominal tariff increase.  The application is 
under expedited public comment-taking and consideration by 
the regulator.  Eskom says the tariff increase will cover 
increased coal/fuel costs and demand-side management 
measures, while significant capital expenditure needs for new 
supply will be financed by other means. 
 
¶8.  (SBU) General Electric representatives told Energy 
Officer on the congress margins that the SAG had not 
responded to the company's offer to quickly provide 3,000 MW 
of new gas-fired turbine capacity, cited in President Thabo 
Mbeki's State of the Nation speech in January (Ref E).  They 
conjectured that the SAG's and Eskom's short-term response 
will be focused on demand, rather than supply. 
 
--------------------------------------------- --------- 
How High a Tariff is Right - or Politically Palatable? 
--------------------------------------------- --------- 
 
¶9.  (SBU) COMMENT: The consensus at the power congress was 
clear on the need to raise power tariffs to assure adequate 
returns for potential private investors, reduce demand, and 
establish the framework for making pricing incentives work. 
The potential inflationary effect on businesses and consumers 
- especially the poor - raises a steep challenge.  The ANC, 
labor federation COSATU, and business umbrella group Business 
Unity SA are criticizing the Mbeki government's support for 
the power price hike, so Eskom may not obtain its full 60 
percent nominal tariff increase.  The government has long 
espoused securing a significant portion of generation from 
IPP's, but has failed in creating the necessary investment 
environment to make this happen.  It is still not clear how 
well the government can manage the power crisis, while 
balancing needs of consumers, the mining sector, and the 
power utility, as well as assuring infrastructure and power 
for the 2010 World Cup. 
BALL