Mining production and linked manufacturing are being hit hard by high electricity prices, according to Minister of Mineral Resources and Energy Gwede Mantashe.
It has been suggested that South Africa should be beneficiating in order to maximise revenue from its mineral resources, but according to Mantashe, electricity price hikes mean this is not feasible.
“At this point in time beneficiation remains a dream as long as the price of electricity is at the level it is,” Mantashe said in his Budget Vote Speech in Parliament on Wednesday for the 2019/2020 financial year.
The National Energy Regulator of South Africa (Nersa) approved electricity hikes of 9.41%, 8.1% and 5.2% for the next three years in March, and mining companies warned of 90 000 jobs in the sector being at risk due to the price increases.
Mantashe told MPs that government is considering using administered prices as an “interventionist tool to grow the economy and support localisation”.
Administered prices refers to tariffs set by government or state entities, as opposed to market forces.
“Steps to address administered prices, in electricity, port and rail tariffs…that hamper investment and growth are being considered,” Mantashe said.
Value added processing
Beneficiation, according to Productivity SA, refers to the treatment of raw materials such as mining ore to prepare it for further processing.
The policy of value added processing has long been a promise of government to improve skills and industrialisation, while lowering reliance on raw materials as mining deposits become older and more difficult to mine.
“Beneficiation has the ability to grow the economy and create decent jobs,” Mantashe said.
Mantashe on Wednesday tabled a R2bn budget for Mineral Resources for the financial year ahead. He will on Thursday deliver the budget speech for the Department of Energy, which was merged with Mineral Resources in President Cyril Ramaphosa’s State of the Nation Address in June. “The reconfiguration should result in a department that is adequately capacitated, that is efficient and that is responsive to the needs of the people,” Mantashe said.
He added that merging the departments will result in an alignment of policy and regulatory frameworks aimed at attracting investment and providing stability.
Both mining and energy sectors have been criticised by business for not providing policy certainty for investors.
Mantashe also referenced the dire state of the economy and the mining sector with the GDP contracting in the first quarter of 2019 by 3.2% and mining declined by 10.8% contributing 0.8% to the overall fall.
“Load shedding, electricity pricing and the five-month strike in the gold sector account for the decline in the main,” Mantashe said, adding that a reliable and secure supply of energy are for growth in mining is “critical”.
Mantashe, however, said it was not all doom and gloom in the sector, with 61 mineral resources projects in the pipeline for 2018 to 2020 with an estimated investment value of R110bn, and projected employment estimated at 32 000 employees.
He added that the growing attraction of clean energy represents new opportunities for mineral such as lithium, carbon, copper and cobalt.
Mantashe said SA currently receives 1% of the global budget for mining exploration and has plans to increase that to 5% of the approximately $10 ban (R140bn) that is available.
“Mining is a sunrise industry. I believe that… we must prospect, we must explore and we must exploit the world class mineral deposits that we have.”
During the debate on the Mineral Resources budget vote, Democratic Alliance spokesperson for the portfolio Kevin Mileham said SA’s mining sector could no longer compete despite massive mineral deposits.
“South Africa, once the jewellery box of the world, now has a mining industry in decline. It is dying not because the mineral resources are running out but because of government ineptitude, poor policy choices and militant trade unions,” Mileham argued.