More Power Cuts

Officials at South Africa’s unstable power utility giant, Eskom, announced Dec. 9 that extraordinary measures were needed to prevent the country’s electrical grid from collapsing amid plant breakdowns and extreme weather conditions. The company opted to increase its level of load shedding, a maneuver that takes demand strain off the grid, to 6,000 megawatts, amounting to its biggest-ever forced power cut. Eskom authorities also asked companies in the country’s mining sector to reduce power consumption by 20 percent, stalling multiple operations across the country.

Why It Matters

The unprecedented cuts follow six days of a lower level of forced power reduction, underscoring the severity of South Africa's electricity crisis. Even in light of its ongoing problems, Eskom's demand that mining companies cut power consumption, however, is particularly notable, given the importance of mineral extraction to the country's economy. Mining, which accounted for roughly 7.3 percent of the country's gross domestic product in 2019, is a foreign-currency cash cow for Pretoria that employs nearly half a million South Africans. Many of its mining businesses, however, cannot safely conduct operations with reduced power.

As a result, the demand that mining power usage be reduced by 20 percent will force many companies to fall behind on production by leaving them with little choice but to halt extraction efforts — especially those involved in electricity-dependent mining operations, such as platinum and palladium. Indeed, multiple platinum, gold and diamond extraction mines shuttered their night shifts on Dec. 9 and morning shifts on Dec. 10. Given South Africa’s dominant position in global platinum and palladium mining, the market reacted sharply to the decision to even temporarily halt operations, with platinum prices rapidly rising by 1.2 percent and palladium prices up 0.6 percent. 

A Gloomy Forecast 

Years of corruption and mismanagement and a lack of investment have eroded South Africa’s electrical grid. Costs for electricity, once cheap and reliable in South Africa, have skyrocketed amid Eskom's declining ability to deliver it reliably. Ever since Eskom's problems first began to emerge, South Africa’s electricity woes have plagued the country's economy by forcing households and businesses to either rely on more expensive means of power generation (such as auxiliary generators) or go without.

The timing could hardly be worse for South Africa. Deep political infighting and lackluster economic growth, combined with the ever-shakier electrical grid, risks trapping the country in a downward spiral that it won't be able to escape anytime soon. Fixing Eskom's perennial ineffectiveness, in particular, will require a massive overhaul of its power plants and transmission infrastructure that will likely take several years, if not more, to complete. Until then, the utility's continuing problems will risk cutting into miners' profits, decreasing output and increasing global prices whenever South Africa’s load-shedding worsens.