News in South Africa 21st September:

1. Eskom to burn R17bn in diesel:

As part of Eskom’s updated assumptions for its tariff application for next year, the utility has said it plans to use R16.8 billion of diesel in its next financial year, which starts in April.

Eskom to burn R17bn in diesel
Image taken by: Engin Akyurt

This is a substantial increase from the amount of R5 billion as part of its updated request to the National Energy Regulator of South Africa (Nersa) in January. It equates to a 235% increase from the submission earlier this year – more than triple.

This means Eskom will, on average, burn R1.4 billion of diesel a month.

At current diesel prices, Eskom cannot burn more than about R2 billion in diesel in 30 days, due to the physical constraints of getting diesel to its peaking plants.

Eskom says there has been a “significant increase” in diesel costs when compared with assumptions in January 2022, but that its change in the addendum is “related to changes in both volumes and price”.

It says volumes of diesel required have increased “due to the production planning process requiring further dependence on OCGT [open cycle gas turbine power] to meet the demand requirements”.

Basically, it needs to use its OCGTs more extensively to keep the lights on.

Price has ‘more than doubled’?

While it contends in its submission that the diesel price “has more than doubled”, according to the South African Petroleum Industry Association (Sapia), the wholesale price has increased by 41% between January and September (R16.63 to R23.50).

It is up 89% from January 2021 to September 2022 (R12.41 to R23.50). Eskom buys diesel from suppliers including PetroSA at a discount of around 30% to 35% to the wholesale price.

One hopes Nersa will interrogate these sorts of details presented as facts by Eskom in the current round of public hearings.

Even if one generously assumes the full 89% increase in prices, it means that Eskom is planning on burning nearly 80% more diesel than its original plan.

It was reported, last week, that it is clear that because of various court rulings, “regulator Nersa will have little room to deviate from Eskom’s numbers and limit the increase substantially”.

It is all but certain that customers will pay 32% more for electricity from April (municipal customers from July).

Eskom says that in response to the announcements by President Cyril Ramaphosa, it “will undertake further emergency procurement processes to secure any further available generating capacity”.

2. Diesel price spike:

Despite South Africa’s petrol and diesel prices normally being closely aligned, this trend has changed in the last few months, with diesel prices now expected to rise despite projected drops in the cost of petrol.

The latest data from the Central Energy Fund shows that petrol prices are on track to come down by as much as R1.20 per litre in October – however, diesel prices are looking like they will increase by between 25 cents and 31 cents per litre.

Andre Botha, a senior dealer at financial consultancy TreasuryOne, said that this disparity between petrol and diesel lies in the ongoing conflict in Europe, which is pushing up global demand for diesel.

Should the crisis in the Eurozone continue and supply not increase from oil-producing countries, South Africa could see global demand for diesel drive prices up “for a while”, he said.

Botha said the key difference in the prices of diesel and petrol boils down to supply and demand.

“A lot of market players have bought diesel in the short term due to the lack of supply, as well as the current energy crisis in the Eurozone as the winter approaches,” he said.

“Diesel is used in generating electricity as well as being the preferred fuel for machinery for production. With the market scrambling for diesel surety, supply is king, and suppliers are selling diesel at a premium due to the high demand.”

Botha said that to curb high diesel prices, either a major change in the Russian conflict is needed or an increase in supply from other countries.

But even as alternatives are being explored, any changes will take a while to manifest in the market – so diesel prices are likely to remain under pressure in the near term.

3. Retirement changes:

The National Treasury has made major concessions to trade unions and the retirement industry on its proposed two-pot retirement system by granting workers immediate access to some of their accumulated savings and extending the implementation date by a year.

The Treasury has proposed that the new system will now take effect from March 1 2024, but the retirement industry represented by the Association for Savings and Investment SA (Asisa) remains sceptical that the new date is feasible.

4. Orders for military aircraft:

Private South African defence firm Paramount Aerospace Industries has received orders for nine of its Mwari aircraft – the first military aircraft to be designed and built in the country in nearly two decades, the company said on Wednesday.

The first of the propeller-driven reconnaissance, surveillance and precision strike aircraft will be delivered this week, Paramount announced on the sidelines of the Africa Aerospace and Defence show in Pretoria.

Paramount declined to name the two initial customers for the Mwari. But the company said it was targeting military clients in developing countries in Africa and Asia for sales.

“We have immense interest around the world,” Paramount Group founder Ivor Ichikowitz said. “Our biggest challenge right now is going to be to set up production capacity quickly enough to meet the demand.”
The Rooivalk – an attack helicopter developed by state-owned defence company Denel in the 1980s – was the last military aircraft designed and manufactured in South Africa. But it never reached large-scale production, and manufacturing ended in the early 2000s.

5. Putin orders military mobilisation:

Russian President Vladimir Putin has called for the “partial mobilization” of the country’s military reservists to “defend the motherland, its sovereignty, and territorial integrity, the security of our people.

In a televised address on Wednesday morning, Putin said the mobilization would begin immediately and that those called up would be granted the same status as regulars in the armed forces, the BBC reported. Putin also accused the West of trying to blackmail Russia and vowed to “use all resources we have to defend our people.”

“The territorial integrity of our motherland, our independence, and freedom will be secured, I repeat with all the means we have,” Putin said, per the BBC.

“Those who try to blackmail us with nuclear weapons should know that the prevailing winds can turn in their direction,” Putin added.

The mobilization will see 300,000 reservists drafted, The Washington Post reported, citing officials. Conscripts and students will not be called up and will affect only those with combat experience, according to Russian Defense Minister Sergei Shoigu.

Pro-Russian separatist officials in four occupied regions in eastern and southern Ukraine announced on Tuesday that they would hold referendums on joining Russia within the next few days. Ukrainian officials in response slammed the referendum as a “sham” and said it won’t change anything. 

“Russia has been and remains an aggressor illegally occupying parts of Ukrainian land. Ukraine has every right to liberate its territories and will keep liberating them whatever Russia has to say,” Ukrainian Foreign Minister Dmytro Kuleba said in response. 

Ukraine’s defense ministry said: “Ruscist reconstructionists in the occupied territories never tire of repeating the Nazi referendum on the Anschluss of Austria. They are expecting 1938 results. Instead they will get Hitler’s 1945 outcome.”

All information sourced from articles posted by: Moneyweb, BusinessTech, BusinessLive, Fin24, and Business Insider.

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