'NEPA' Strikes In South Africa!

South Africa Blackouts Snarl Traffic, Shut Cartier, Vex Mbeki

2008-01-23 19:03 (New York)

Jan. 24 (Bloomberg) -- Workers at Johannesburg's Tre Gatti Cucina restaurant spent peak business hours last week wiping down tables and folding napkins by candlelight, their kitchen idled by South Africa's worst-ever blackouts. With the country's power monopoly, Eskom Holdings Ltd., predicting shortages until at least 2013, the six waiters and kitchen workers may soon be out of work. ``If it continues like this we will have to sell,'' said Dee Kroon, who opened the Italian restaurant in the Johannesburg neighborhood of Craighall Park in 2005. ``Who is going to buy a business if there are power cuts all the time?''

Africa's largest economy is being threatened as a lack of new power plants and increased energy demand have conspired to reduce power to shops and cafes as well as the mines and smelters of companies such as BHP Billiton Ltd. and Anglo American Plc. The shutdowns mean entire regions of South Africa are dark for up to five hours a day, triggering traffic jams as street lights shut down. ``Its having a very serious effect on business,'' said Bill Lacey, an economic consultant at the South African Chamber of Commerce and Industry. The group has called for lower duties on imports of generators for small businesses. The situation is also riling commuters. Last week some trains were torched by rioters at a station near Pretoria, the country's capital, after a blackout stopped services.

Growth Threat

The outages may scupper the government's aim of boosting economic growth to 6 percent, the level it says is necessary to cut a 25.5 percent jobless rate. On Jan. 21, Eskom brokered an agreement ``in principle'' to cut power supplies to the biggest users, including mining companies BHP Billiton and Anglo American by as much as 15 percent. ``That's not a joke. You are taking 10 to 15 percent of your production away,'' said Jasper Pieters, operations director at Mitsubishi Corp.'s Hernic Ferrochrome Ltd., which uses 200 megawatts of power, enough to supply 200,000 US. homes.

``When will power be restored? We don't know. If that's the case then I am afraid it's going to go to job cuts.''

South African President Thabo Mbeki in December apologized to Eskom for failing to heed the utility's call in 2000 to start increasing generation capacity as the economy grew and it extended power to poor townships built under apartheid. Plans to sell part of Eskom to private investors and invite companies such as International Power Plc to develop plants weren't implemented after Enron Corp.'s bankruptcy suppressed the appetite for power investments.

Eskom Gap

``Privatization and independent power plants were the flavor at the time,'' said Bongani Nqwababa, Eskom's finance director. ``The view was that private power companies would build a power station, and they didn't.''

In 2000, Eskom had a so-called reserve margin, the gap between generation capacity and energy use, of about 30 percent. That has shrunk to less than 10 percent, leaving it vulnerable to blackouts when there are spikes in demand. About 20 percent of Eskom's capacity is currently unavailable due to maintenance and a series of plant breakdowns. Plans to re-open three coal-fired plants and build two diesel-fired plants won't meet increasing demand, which jumped 5.6 percent in a single month last year.

Generator Sales

Instead, businesses and individuals are turning to diesel-generated power. The country's most expensive shopping district, Sandton City, is considering spending 80 million rand ($11 million) on a generator to keep the doors open at retailers such as Cartier, MontBlanc and Accessorize. Several of the shops shut last week because of power outages.

In the third quarter of 2007, South Africans imported 44,590 generators, according to the South African Reserve Bank. That compares with 790 in the third quarter of 2003. After a four-year delay in approving new power plants, Eskom in 2004 began a 300 billion rand expansion program. The first major new plant won't begin producing power until around 2012.

The state company, which supplies 95 percent of domestic electricity, plans to double peak capacity to about 80,000 megawatts by 2025 by building coal and nuclear power plants and purchasing hydropower from other countries. ``Government has been very slack, there is no question that it is going to slow down growth,'' said Iraj Abedian, chief executive of Pan African Investment & Research Services. ``It's a disaster.''

World Cup Looms

The crisis comes as South Africa prepares to host the soccer World Cup in 2010, an opportunity to promote the country as a tourist destination. Power outages have disrupted a five-nation field hockey

tournament being held this week in Potchefstroom, about 100 kilometers southwest of Johannesburg. More than 100 players from Germany, Australia, the Netherlands and Spain had games rescheduled to avoid blackouts.

Although World Cup games may be guaranteed electricity supply, closed restaurants and traffic jams will do little for the country's image at an event seen by some 1 billion television viewers. For restaurant owner Kroon, opening for business remains a gamble. ``Tonight I have bookings,'' she said. `I'm not sure I should have taken them.''

-- Bloomberg.

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