‘There are three certainties in life: death, taxes and never ending inflation’ Quoted in an after-dinner speech by a Cabinet Minister
In the previous issue, our guest commentator, Dr Sam Spearing, made some powerful observations on the importance of mining engineers. This importance is emphasized at this time of a power crisis and even more so if extended to all other engineers and specifically those involved in power stations. We are in for a rough ride and the allocation of electrical power to the various consumers, involves decision making of the highest strategic importance. We have suddenly been transformed from a euphoric climate of abundant low-cost coal and low-cost electrical power into a crisis of shortage, rationing and unquestionably high double digit inflation in energy costs. This is a frighteningly different world!
The well publicized explanation for the crisis is that the much hoped for industrial expansion has surpassed all reasonable expectations and inadequate provision was made for power requirements. This needs more detailed examination. There were many components in estimating future demand for electric power, notably from the expansion of the mining, metallurgical and industrial and manufacturing industries I am not convinced that these are the main contributors to the mistaken planning debacle. The Departments of Industries and Minerals and Energy are well in control of statistics and long-range approval is a prerequisite. Eskom falls within their jurisdiction. It is difficult to believe that many major surprises have emerged in these sectors. What I believe is the main culprit is a phenomenal expansion in a sector of our society, which has escaped focused attention and which seems to be expanding out of control. I am referring to the alarming multiplication of mammoth shopping centres, office/business parks, luxury homes and apartments.
There is hardly a suburb in Gauteng that is not pervaded by monstrous holes in the ground for parking garages. Property developers are swallowing up wetlands, parkland, golf courses, breathing spaces and informal recreation areas. This is not only to satisfy the need to plough the funds from the huge financial and insurance industry into safe fixed asset havens, but also there is obviously an increased population pressure to create such a demand. These developments represent large consumers of electric power in the form of air conditioning, escalators, lifts and glaring lights. It is remarkable that Gauteng consumes 10% of the total electric power generated in South Africa. Apart from the ferromanganese plant at Meyerton, Gauteng has no other electrometallurgical plant of any significance or other high power industrial consumers. Sasol at Secunda, a huge consumer of coal and power is outside the Gauteng borders.
Yet Gauteng is the focal point of the energy crisis, and its power consumption points to the main source of the unanticipated problem. The load shedding in Gauteng urban areas has been rated as a disastrous crisis in public opinion. Accordingly, it has been decreed that to minimize this impact it is preferable to penalize the mining and metallurgical industry and impose a ‘voluntary’ power cut of CA. 10%. Is this a wise decision? Are our priorities right? As an old-timer, I still divide economic activity into two main categories, productive and parasitic. The former are those activities adding value to our resources of raw materials, land and manpower. This is the creation of wealth leading to employment. An important component is the procurement of investment to utilize such resources.
The latter represents the spending of our wealth on entertainment, luxury goods and non-productive activities such as battling bureaucracy, fighting legalities, security and sitting in traffic jams. Although I may appear caustic about this latter category, let me concede that it is a huge contributor to the GDP. Sport, tourism and entertainment are the biggest businesses in the world today, if one takes into account the air travel and spectator costs in the form of TV viewing, promotion and sponsorship. I don’t have figures to prove it but I suspect that turnover from mining activity in South Africa is an increasingly small fraction of that of the entertainment industry. Retail marketing and advertising is another huge category of modern economics. It can be productive in the sense of adding value to the goods produced particularly if these are exported. It can be parasitic if applied to imported goods competing with local production.
Here again I do not have the precise figures to prove my suspicion that we are being invaded by a hoard of agents finding us a prolific hunting ground for importing and marketing products produced elsewhere. In a previous comment I pointed out that the total retail mark-up value of the South African automobile industry is more than the total value of platinum produced in this country. Based on the crowded motorways and the explosive expansion of high-value suburbs and property prices, I suspect that our total population, augmented by immigrants both legal and illegal, is far higher than official statistics. Sadly these activities are focused in the glamourous urban areas and act as a magnet to attract the rural poor into squatter camps jeopardizing the provision of power into cluster industries in the rural areas, which should be a high priority. Panic stricken semi-dictatorial edicts are not appropriate if we wish not to make the same errors of judgement that caused this crisis in the first place.
A very thorough strategic assessment of productive and parasitic activities is desperately needed. A national team from government and industry must be constituted. Pricing of those exports depending on low cost power is a critical factor. There are many criteria other than economics that must be taken into account. Employment parameters must be included in quantitative terms for different sectors of the national economy. This base model (which surely must be close to being done) must be a forward impact assessment of power cuts on the productive industries and the future demand for power in proposed projects. Low cost coal and electrical power, were, in the past the life blood of the new South Africa. Of cardinal importance is the impact of power cuts and cost increases on the electrometallurgical industries such as ferroalloys, beach sands, base and precious metals and stainless steel.
Can these products continue to maintain a dominant position in global markets? Does it continue to make sense to import high purity cell grade alumina from Australia (who has already enjoyed the added value of converting their raw material, bauxite, into a higher valued product) and to use our scarce and now costly and rationed power to take the next step of producing the metal, creating a few hundred sustainable operator jobs? This is, with many other examples, a challenging decision and a most important criterion is the impact on job creation. It can be tackled only on a holistic computerized modelling basis, which is now becoming commonplace in many engineering situations, and needs the discipline of engineering modelling and calculations. It must be done transparently and not hidden away in government offices. It seems as though the western and eastern first world countries are gleefully offering their services to help solve the crisis. But we must get the pecking order right if we are not to compound the debacle. R.E. Robinson March 2008
- Written by R.E. Robinson