Local output shock from Coega smelter

Posted On Friday, 22 June 2007 02:00 Published by eProp Commercial Property News
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Alcan and the government have agreed that only 5,5% of the 720000 tons of aluminium to be produced by Alcan’s planned R21bn smelter at Coega in Eastern Cape will be earmarked for use in the domestic market

Property-Housing-ResidentialThis is despite the huge amounts of electricity it will consume.

The agreement goes against the grain of SA’s new industrial policy which aims to drive economic growth by boosting manufacturing capacity and downstream benefits.

But it also raises questions about the strategic use of SA’s scarce electricity supply, and government’s wisdom in chasing a project that will consume a large amount of power.

The Coega smelter will consume 675MW of electricity — enough to power a city.

With the bulk of its production destined for the export market, it means SA will be exporting its scarce, increasingly expensive, electricity as the country is facing an energy crunch.

Alcan’s recent appointment of Brent Hegger as CEO of the Coega smelter project was seen as another firm step towards bringing the project to fruition.

The Canada-based firm said it had reached an agreement with the government on the proportion of production to be channelled into the local market.

According to Robert Valdmanis, the group’s director of public affairs for the South African project, that figure was set at 40000 tons a year .

A second phase to increase capacity is being planned, which will bump up power consumption at the plant to 1355MW — nearly 4% of SA’s supply capacity.

An analyst who declined to be named, said the government’s determination to persist with the project needed to be questioned.

“In an electricity-scarce country, is this the most effective use of our power?” said the analyst.

Negotiations to secure the giant investment took six years, and hinged on the price at which Alcan was able to buy electricity from Eskom.

The deal was clinched in November last year when Alcan signed a 25-year agreement with Eskom.

Eskom is not divulging the price Alcan pays for power but the rate is said to be competitive — below current commercial rates.

This is exempted from the hefty tariff increases local consumers and industry have to pay to Eskom to increase generating capacity.

Recent attempts by environmental group Earthlife Africa to get the details of Eskom’s deal with Alcan failed.

But the power utility said that Alcan did not have the right to sell-on electricity as it does in Canada, because it was subject to a “take-or-pay” arrangement.

There was also no link between the aluminium price and the price it paid for power.

Alcan gets cheap electricity in terms of the developmental electricity pricing programme.

Built into that programme is a reciprocity clause in which the beneficiaries of the programme commit to help develop domestic downstream demand.

But given the rock-bottom domestic supply agreement Alcan got as trade-off for cheap power, several people have questioned the government’s commitment to its own plans.

The government’s dogged determination to secure the project was criticised on other fronts.

The smelter is set to use energy generated from coal, a major emitter of carbon dioxide.

Environmental lobbyists said the project was out of touch with changing global trends to pursue more sustainable production methods.

The project is not in line with other aspects of government policy.

The industrial policy framework is on a par with the government’s Accelerated and Shared Growth Initiative and is underpinned by a strategy to boost employment-intensive sectors.

However, the smelter will create only 1000 jobs, raising questions about its apparently negligible contribution to alleviating joblessness in the region.

Last modified on Wednesday, 25 June 2014 11:41

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