Eskom Says South Africa Power Pinch May Run to Month-End

Photographer: Nadine Hutton/Bloomberg

Eskom Holdings SOC Ltd.'s Kendal power station stands in Delmas, South Africa. Close

Eskom Holdings SOC Ltd.'s Kendal power station stands in Delmas, South Africa.

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Photographer: Nadine Hutton/Bloomberg

Eskom Holdings SOC Ltd.'s Kendal power station stands in Delmas, South Africa.

Eskom Holdings SOC Ltd. said South Africa’s power system will remain constrained until the end of the month even as the utility told its biggest clients to cut use by 10 percent for a second day in a bid to avoid blackouts.

The company today extended emergency measures announced yesterday that caused the rand to weaken against the dollar and the platinum price to rise after the utility lost generating units. South Africa is the world’s biggest platinum producer.

“We anticipate that the system will remain extremely tight until Friday Nov. 29,” Johannesburg-based Eskom, which produces more than 95 percent of the nation’s power, said in an e-mailed statement. “We are constantly reviewing the situation and will lift the emergency notice once the situation improves.”

The utility is spending 500 billion rand ($49 billion) to replace aging equipment and add plants to avoid a repeat of 2008 blackouts that halted mines, including those owned by companies such as Anglo American Plc (AAL) and BHP Billiton Ltd. (BHP), for five days and paralyzed factories in the continent’s biggest economy.

The company, which produces about 85 percent of its power from coal, said about 27 percent of its 41,900-megawatt generating capacity was out for maintenance earlier this week. While the targeted surplus is at least 2,000 megawatts, it was forecast to be just 400 megawatts yesterday,

More Favorable

“The outlook for today is more favorable than yesterday, but our reserve margins remain low and therefore we are still vulnerable,” Andrew Etzinger, a spokesman for the Johannesburg-based company, said by phone. “As a precautionary measure we kept the emergency declaration in place.”

The company’s generation capacity may exceed demand by 1,000 megawatts today, he said.

“This is an optimistic scenario,” Etzinger said. “It is based on plants returning to service from maintenance and that we don’t see additional trips at our power stations.”

BHP, whose aluminum smelters are the country’s biggest power users, and Anglo American said they would assist Eskom by cutting usage. Platinum and gold producers in South Africa use electricity to move workers up and down the world’s deepest mine shafts. Usage cutbacks by Eskom’s biggest customers contributed 600 megawatts to the power grid yesterday, Etzinger said.

The Chamber of Mines, which represents producers such as AngloGold Ashanti Ltd. (ANG), said its members have been working with Eskom on the emergency protocol for the past three months and will do what they can to protect the network.

Eskom Provisions

“It isn’t the responsibility of the large industrial customers alone to carry the full burden of the electricity-supply emergency,” the Johannesburg-based chamber said yesterday in an e-mailed statement. “This is a ‘national emergency’ and all stakeholders have a responsibility to curtail electricity demand by at least 10 percent.”

The utility is allowed to interrupt power to BHP’s smelters in Richards Bay on South Africa’s northeastern coast and another in neighboring Mozambique for as long as two hours a week without warning or compensation.

“Eskom is currently making use of this provision,” BHP spokeswoman Lulu Letlape said in an e-mailed response to questions.

While Anglo American hasn’t officially been asked to cut usage, it will make required adjustments when necessary, spokesman Pranill Ramchander said in an e-mail yesterday.

Customer Instruction

Eskom instructed its key industrial customers to reduce consumption from 5 p.m. to 9 p.m. yesterday, said Johan Theron, a spokesman for Impala Platinum Holdings Ltd. (IMP), the second-largest producer of the metal. The utility renewed the directive today for 9 a.m. to 12 p.m., he said by text message.

The rand weakened as much as 0.8 percent against the dollar after yesterday’s announcement. It strengthened 0.9 percent to 10.0939 by 3:53 p.m. in Johannesburg. It has lost 16 percent to the dollar this year, the most among 16 major currencies tracked by Bloomberg. The spot price of platinum rose as much as 1.1 percent yesterday and fell 1 percent to $1,404.90 an ounce today.

Yields on Eskom’s $1.75 billion of bonds due in January 2021 rose for a second day today, adding 6 basis points, or 0.06 percentage point, to 5.98 percent.

Maintenance Program

While the utility is conducting “a great deal of maintenance” on coal-fired plants, it also has shut one of two 920-megawatt units at its Koeberg plant, its sole nuclear operation, in Cape Town for repairs and refueling. The facility will return to service in the last week of December, Eskom said Nov. 10.

Sibanye Gold Ltd. (SGL) is cutting consumption by about 40 megawatts at its Kloof and Driefontein operations, in addition to its normal power-control procedures during the peak 5 p.m. to 9 p.m. period, spokesman James Wellsted said in an e-mailed response to questions. Output hasn’t yet been affected, he said.

Most industrial users have maintained power usage at 90 percent or below since 2008, said Shaun Nel, director at the Energy Intensive User Group of Southern Africa, whose 32 members include local units of BHP and ArcelorMittal.

“We have had significant opportunities to look at really innovative ways to address the power situation,” he said by phone. “We’ve wasted a number of years and it’s come back to haunt us.”

To contact the reporters on this story: Kevin Crowley in Johannesburg at kcrowley1@bloomberg.net; Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net; Andre Janse van Vuuren in Johannesburg at ajansevanvuu@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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