Without fixing Eskom SA will no longer have a mining industry, warns Exxaro CEO

By Amogelang Mbatha

(Bloomberg) – State-owned power producer Eskom will be the “death knell” for South Africa’s mining industry unless the government enables mines to produce their own electricity, according to Exxaro Resources Chief Executive Officer Mxolisi Mgojo.

“The current state of Eskom is going to be the one thing that is going to be the death knell of this industry,” Mgojo said at a conference organised by Business Unity South Africa, the country’s largest business lobby group, on Tuesday. “Without fixing Eskom we don’t have a mining industry. It is as dire as that.”

Eskom is drowning in debt it can’t repay and has had to institute rolling electricity blackouts due to operational defects, weighing on growth at a time when South Africa’s economy is barely expanding. The utility’s chairman, Jabu Mabuza, resigned on Friday after it resumed power cuts in spite of a promise to President Cyril Ramaphosa that it would keep the lights on in January.

The company has a monopoly on electricity generation and distribution, preventing mines such as Exxaro from producing the power they need to operate. South Africa is the world’s largest producer of platinum, and earns more than half of its export revenue from raw materials.

“We have been in discussion with the ministries around that, how we would actually go about investing our own monies in alleviating the electricity demand within the grid,” Mgojo said. “That is out there; it just needs the will from somebody else to make that happen.”

Andre de Ruyter started as chief executive of Eskom on January 6, ahead of a planned restructuring to turn the loss-making company around and deal with its billions of rand of debt. His predecessor Phakamani Hadebe stepped down in July citing health reasons.

Economic reforms

The government must implement economic reforms urgently to avoid losing its last remaining investment-grade credit rating and having to resort to bailouts from multilateral lenders, Business Unity President Sipho Pityana said in a speech at the same event. Priorities include security of energy supply, the reform of state-owned enterprises and appointment of competent leaders to manage those businesses, he said.

Pityana’s comments echo those by Finance Minister Tito Mboweni last week, when he warned a credit-rating downgrade was unavoidable unless the state ramps up structural reforms.

“The minister of finance hit the nail on the head in his latest warning that we are running out of time, and we need all hands on deck to avoid a sovereign downgrade and the extreme pain that would follow bail-outs from entities like the International Monetary Fund,” Pityana said.

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