News in South Africa 19th January:

1. Eskom diesel nightmare:

Eskom is living hand-to-mouth in its efforts to obtain the diesel needed to continue running its open-cycle gas turbines (OCGTs), which, in the face of prolonged power generation outages, is the only way the utility can stave off severe and ongoing curtailment of South Africa’s electricity supply.

Eskom diesel nightmare
Photo by Waldemar Brandt

In the past two years, Eskom has been forced to rely increasingly on the OCGTs — which were intended only for dire emergencies or use during peak demand periods — because of a steadily increasing number of breakdowns within its ageing coal-fired power fleet.

The diesel emergency:

Eskom’s management team drew the ire of the government in November 2022 when it declared that the utility had run out of diesel and could not afford to buy more, having spent roughly double the R6-billion diesel budget for the financial year ending 31 March 2023.

When no further funds from Treasury materialised, Eskom chief financial officer Calib Cassim managed to scrape together, R1.5-billion intended for other purposes from his budget for the remainder of the year, to immediately buy 50 million litres of diesel from PetroSA.

That provided enough diesel to keep the OCGTs running as needed through December 2022. As the fuel ran out, Cassim came up with yet another R1.5-billion from Eskom’s coffers for a further 50.4-million litres of diesel.

According to Oberholzer, this should last until the end of January 2023. “From an operational point of view, I can tell you we need diesel”, he told EE Business Intelligence. “We need at least — and this is based on certain assumptions — an additional 200 million litres of diesel to take us towards the end of March 2023. It may be less, and it may be even more, it all depends on what’s going to happen in respect of unplanned breakdowns. This is the best assumption we have, based on the outlook ahead”, he said.

The cost impact of load shedding:

But despite the prohibitive cost of diesel, there is widespread consensus that the burden of severe load shedding on the economy is much higher.

Estimates vary widely. However, based on 11 797 GWh (gigawatt hours) of unserved electricity in the 2022 calendar year calculated from load shedding data from EskomSePush, and a very low assumption of R10/kWh for unserved energy suggested by Eskom, the total cost to the economy during the year would have been R115-billion.

This very conservative estimate does not account for the longer-term impacts of lost opportunities caused by extended load shedding on business, industry, agriculture and investment generally — and the money spent by households, business and industry on backup power systems.

Taking this into account, the cost of unserved electricity is likely to be much higher. At R50/kWh or even R85/kWh (if a study by the CSIR is anything to go by), the cost to the economy in 2022 would be more like R590 billion or R1000-billion, respectively.

2. Confusion over January tax deadline:

The South African Revenue Service’s provisional tax deadline of 23 January 2023 is causing confusion among taxpayers, who think that their second provisional tax submission is due sooner this year.

However, this deadline is for provisional taxpayers’ annual income tax that is due on 23 January instead of 30 January – seven days earlier than normal, says Tax Consulting SA.

The second provisional tax submission and payment is still due on or before the last business day of February 2023.

“The close relationship between annual income tax and provisional tax makes this kind of misunderstanding easy, especially if such announcements are not carefully worded,” the group said.

Provisional vs Annual income tax

According to Tax Consulting SA, non-provisional taxpayers should have already submitted their annual income tax between 1 July 2022 and 24 October 2022.

These taxpayers would have declared their annual employment income after having earned it in the previous tax year, that is, between 1 March 2021 and 28 February 2022.

A provisional taxpayer, on the other hand, is any person who receives income other than remuneration. Most salary earners are, therefore, not-provisional taxpayers, if they have no other sources of income.

According to the definition in the Income Tax Act, a provisional taxpayer is defined  as any:

  • Natural person who derives income, other than remuneration or an allowance or advance or who derives remuneration from an employer who is not registered for employees’ tax (for example, an embassy is not obligated to register as an employer for employees’ tax purposes)
  • Company; or
  • Person who is told by the commissioner that he or she is a provisional taxpayer.

Unlike employment-only taxpayers, provisional taxpayers are given more time to reconcile and declare their total personal income from both employment and non-employment sources, Tax Consulting said.

Provisional taxpayers have from 1 July 2022 until 23 January 2023 to submit their annual tax returns and pay tax on all income earned between 1 March 2021 and 28 February 2022.

Provisional tax is not a separate tax but forms part of the taxpayer’s personal income tax obligation, Tax Consulting said.

“This is where things get tricky. While personal income tax is declared in respect of the preceding tax year, provisional tax is declared in the current tax year in which the non-employment income is earned,” it said.

3. Post Office to cut salaries:

The South African Post Office (SAPO) has confirmed that it is considering strategies to reduce its “unsustainable” staff bill, which currently accounts for 68% of its expenditure, according to Communications Manager Johan Kruger.

These considerations include cutting staff salaries by reducing the work week of some staff members, and a voluntary severance package process which is already under way, said Kruger.

“These measures are aimed at cutting employment costs, while saving some jobs – effectively a job-sharing model; while at the same time delaying a process of forced retrenchments,” he said.

This comes after the Democratic Alliance (DA) spokesperson on communications, Dianne Kohler Barnard, said in a statement on Wednesday morning that staff salaries at SAPO could be slashed by as much as 40% through the scheme.

Kohler Barnard claimed that if the reduced work week policy were implemented, this would result in a two-day reduction to the work week for some staff members, meaning staff members who were working five days per week would be reduced to a three-day work week and those currently working six days per week would be reduced to four.

Kohler Barnard says that this move is an attempt to cut costs, which amounts to “nothing more nor less than constructive dismissal”.

Aubrey Tshabalala, Gauteng deputy Chairperson of the Communication Workers Union (CWU), which represents postal workers, said that the reduction in working hours is a governance issue as consultation is required to change the terms and condition of postal workers’ employment contracts.

In addition to this he flagged concerns for workers, who he claims have not received a pay increase for a period of around four years and who have seen other benefits cut, such as medical aid.

“Having done that, you come back to the very same workers and say, ‘I want to cut 40% of your salary’. This is the worker that you have thrown into the street in terms of them no longer [being] able to afford a different medication.”

“The Post Office has always been overstaffed,” said Kruger. He attributes this to a number of reasons including the absorption of 8250 temporary employees when Labour Brokers became undesirable and another 708 employees who were absorbed from its courier division, Courier Freight Group, when it was dismantled. 

A substantial decline in letter volumes over the past number of years has also reduced revenue at SAPO, he said.

Kohler Barnard said that if SAPO go ahead with “criminal move” of reducing staff hours, the DA will report the matter to the Public Protector, CCMA and the Department of Labour.

4. Reserve Bank testing ‘digital rand’:

The South African Reserve Bank (SARB) says it is still investigating and testing a central bank digital currency (CBDC) – however, it is trying to narrow down on a specific use case and isn’t in a rush to be a global leader for the format.

Speaking on a panel at the annual World Economic Forum (WEF) meeting (18 January) in Davos, Switzerland, SARB governor Lesetja Kganyago said that South Africa would be “very fast followers” regarding the development and implementation of central bank currencies, learning from other countries that are ahead in development.

He said that the move to acknowledge and ready the SARB for digital currencies is a key step in its goal of modernisation. There is a digital economy developing, and central banks around the globe have to redefine their role, said the governor.

A CBDC is a digital version of a country’s fiat currency issued and controlled by the country’s central bank. They can potentially be used for cashless transactions, increasing financial inclusion and providing a new way for central banks to conduct monetary policy.

Debate and studies continue to surround the use case of the new system. However, Kganyago pointed to the following two drivers for an investigation into the technology:

  • The possibility to make national payments more efficient than the current real-time gross settlement (RTGS) system.
  • Being able to deal with domestic market failures better.

Central banks – including the SARB – feel that the economic environment is changing; however, the demand side also needs to be considered.

He told the panel that South Africa had made progress, which may seem small in comparison to what other countries have achieved – but nonetheless, it was a big success for the central bank.

5. JSE at end of 2022:

With the overall market ending 2022 broadly flat (down 0.9%, or up 3.6% including dividends), last year the money was made with stock picking.

In dollar terms, the JSE All Share Index was down 7.3% in 2022 (or -3.1%, when factoring in dividends)

Needless to say, a calendar year is simply an arbitrary measurement of time – different conclusions can be reached by analysing a different (and random) time period. For example, Naspers was up by nearly two-thirds (63%) in the last nine weeks of the year.

There was money to be made within the JSE Top 40

Eight stocks – NedbankAfrican Rainbow MineralsAbsa GroupWoolworthsInvestec plcGlencoreExxaro and Mediclinic International – were up over 20% in the year. These banks had been relative underperformers versus CapitecFirstRand and Standard Bank in recent years.

Commodity price pullbacks through the year notwithstanding, these more focused commodity counters fared better than Anglo American and BHP. Woolies finally solved its David Jones problem in Australia and Mediclinic approved a buyout offer from parent Remgro and unlikely bidder MSC in August.

By contrast, shares in Anglo American PlatinumMTN and Mondi ended 2022 more than 20% lower.

Amplats took a hit as prices of platinum group metals (PGMs) came under pressure during the year. MTN’s struggles across the continent – especially operating in and getting cash out of Nigeria – are well-known (after the market closed on Friday, it announced that it had been slapped with a R13 billion tax bill by Ghanaian authorities). And the impact of Russia’s invasion of Ukraine led to a sharp selloff in Mondi shares at the end of February (it has sizeable operations in both countries.)

Top 20 performers on the JSE in 2022:

Share codeMarket cap (at 31 December)Performance in 2022
Deutsche Konsum ReitDKRR4.2bn485.37%
Stefanutti StocksSSKR310.3m258.7%
Thungela ResourcesTGAR40.1bn224.12%
MC MiningMCZR1.3bn204.55%
African Dawn CapitalADWR13.3m137.5%
Go LifeGLIR18m100%
Premier Fishing and BrandsPFBR382.2m96%
African and Overseas NAONR127.8m78.57%
Mediclinic InternationalMEIR75.9bn51.88%
Fortress BFFBR5.1bn46.98%
Sourced from Moneyweb

Bottom 20 performers on the JSE in 2022:

Share code
Market cap (at 31 December)Performance in 2022
Sable Exploration and MiningSXMR4.4m-90.82%
Murray and RobertsMURR1.2bn-80.58%
Mantengu MiningMTUR1.5bn-66.67%
RMB HoldingsRMHR748.2m-64.9%
RH BopheloRHBR145.6m-55%
Delta Property FundDLTR199.9m-51.72%
Kibo EnergyKBOR121.5m-50%
Visual InternationalVISR12m-50%
Europa MetalsEUZR53.9m-49.57%
Sirius Real EstateSRER18.1bn-48.35%
Sourced from Moneyweb

All information sourced from articles posted by: MyBroadband, BusinessTech, Fin24, and Moneyweb.

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