News in South Africa 22nd November:

1. Risk of total blackout:

Energy expert Professor Anton Eberhard has warned that Eskom’s decision not to refuel its diesel open cycle gas turbines (OCGTs) increases the risk of a system failure.

Risk of total blackout
Photo by George Becker from Pexels

Eberhard is the director of Power Futures Lab at the University of Cape Town’s Graduate School of Business.

Over the weekend, Eskom confirmed that diesel tanks at its OCGTs run have physically run out and are empty.

The power utility added that the tanks will not be replenished until 1 April 2023 as its spending overrun on diesel to date is twice the budget for the current financial year.

Eskom, responding to questions from Chris Yelland, said it has not ordered additional diesel and has no outstanding orders.

What it means, in simple terms, is that the Eskom OCGTs will be unavailable until at least 1 April 2023.

Eskom’s new OCGT power stations are intended to be used during peak periods and emergency situations to supply electricity to the national grid.

Without operational OCGTs, Eskom cannot respond to emergencies, increasing the risk of a system collapse.

Eberhard said Eskom’s decision not to refuel its diesel OCGTs removes 2,067MW from rapid response resources available to the system operator.

“At a time of intermittent and declining coal plant output, it increases the risk of more load-shedding and system failure,” he said.

He added that the cost of unserved energy for South Africa’s economy is much higher than the cost of running the Ankerlig (1,327MW) and Gourikwa (740MW) OCGT diesel plants.

“It is mad economics for Eskom to stop fuelling these due to regulatory constraints. The ministers are asleep again,” he said.

“The president will need to intervene. It is not a good idea to go into the ANC December conference with these power sector risks and levels of load-shedding that anger people.”

2. Sharp decline for Naspers:

Multinational media group Naspers has warned shareholders that it expects its earnings for the period ending 30 September 2022 to decline sharply.

The group said that shareholders should expect headline earnings per share to drop by over 100% for the period, largely due to its interest in Chinese tech giant Tencent.

“The significant decrease in earnings per share relates to a gain of US$12.3 billion realised on the sale of a 2% interest in Tencent in the prior year compared to an expected gain of only US$2.8 billion on the sell down of Tencent shares in the current period to fund the open-ended share-repurchase program announced on 27 June 2022.

“Impairment charges and dilution losses related to investments in associates are expected to be approximately US$1.8 billion higher in the current period. These are excluded from headline and core headline earnings per share,” the group said.

Headline earnings are expected to decrease in the current year mainly due to lower profitability across the group’s associates, including its share of Tencent’s fair value losses on financial instruments of US$372 million compared to fair value gains of US$1.0 billion in the prior period.

“Headline earnings are also impacted by our increased investment in earlier stage e-commerce extensions of autos, convenience and credit,” it said.

The group illustrated the anticipated changes in earnings, headline earnings and core headline earnings per share for continuing operations for the period ended 30 September 2022 as compared to 30 September 2021 for total operations (as previously reported) as follows:

  • Earnings per share are expected to drop by between 2,467 and 2,679 US cents from 3,031 US cents in 2021, representing a decline of between 81.4% and 88.4%.
  • Headline earnings per share are expected to drop by 370 and 396 US cents from 368 US cents in 2021, representing a decline of between 100.6% and 107.6%.
  • Core headline earnings per share are expected to drop by between 228 and 257 US cents from 416 US cents in 2021, representing a decline of between 54.7% and 61.7%.

Naspers said that the board considers core headline earnings an appropriate indicator of the operating performance as it adjusts for non-operational items.

Core headline earnings per share declined due to investment in adjacent opportunities in e-commerce, lower contributions from associates and Tencent, it said.

“During the period, growth expectations and valuations came under significant pressure as consumers adapted to the realities of higher inflation and interest rates on their daily lives and spending power. The group has taken action to meet these challenges and will take further action to continue delivering long-term value to our shareholders,” it said.

3. More green finance being negotiated:

South Africa, having secured $8.5 billion in climate finance from some of the world’s richest countries, is in talks with additional nations to help it cut reliance on coal, Environment Minister Barbara Creecy said. 

The climate finance – which is being provided by the US, UK, Germany, France and the European Union as part of a Just Energy Transition Partnership – has been hailed as a prototype for deals to wean other coal-dependent developing nations off the dirtiest fossil fuel. Still, it’s a fraction of the R1.5 trillion the country has estimated it needs for its plan to move away from coal over the next five years.

“We’ve had some bilaterals where there’s been additional interest shown,” Creecy said in an interview at the COP27 climate summit in Egypt, referring to talks with other countries. President Cyril Ramaphosa indicated to the partners “that we are now going to make the circle bigger and other countries that would want to contribute to the JET Investment Plan, we are going to include them as well.”

With more than 80% of its electricity coming from a fleet of mainly dilapidated coal-fired power plants and regular rolling blackouts because the state power utility, Eskom, can’t meet demand, the country is in dire need of investment in its electricity sector. 

In addition to electricity, South Africa, as part of its coal transition plan, is trying to boost investment in its nascent electric vehicle and green hydrogen industries. Green hydrogen refers to a process where water is split to make the fuel using energy from renewable sources. 

4. Chicken prices rising:

South Africa’s largest poultry producer Astral Foods warns that poultry prices will rise as producers will have to pass on more costs to cash-strapped consumers.

Astral Foods has had its run of bad luck during the last few years.

Problems with municipal water supply to its plant in Standerton knocked tens of millions off its profit in 2019 and made it necessary for Astral to take the local municipality to court to force it to do its job – and then Covid-19 hit operations as well as the demand for chicken.

While most industries have recovered from the worst of the effects of the pandemic, the chicken industry has had to contend with record levels of unemployment, rising inflation, and a steady increase in the dumping of chicken imports in SA – in addition to the usual problems of runaway feed prices and the risk of bird flu.

Although Astral reported its best results in years for the year to end September 2022, it warns that conditions remain under pressure due to record high unemployment levels, weak economic growth, high input costs and electricity disruptions.

Management says in its review of the results that raw material costs are at record levels, notwithstanding the good South African maize crops of the past three years. It is well known that the war between Russia and Ukraine increased grain and other food prices worldwide.

“Broiler feed prices increased by 11.6% versus the prior year, due to higher raw material costs. Feed cost remains the key driver of profitability, representing approximately 70% of the live cost of a broiler,” it says.

“Consistently high unemployment levels and a soaring cost of living have led to pressure on consumer spending with lower disposable income levels.

“Collapsing municipal infrastructure and national load shedding continue to impact Astral’s operational efficiencies negatively, which adds a significant cost burden. Production cutbacks have been implemented to limit the negative impact of the current load shedding, with significant capital expenditure in diesel generator capacity,” it says.

Astral noted that load shedding resulted in direct additional costs of R138 million, while water supply interruptions cost the company at least another R9 million.

The numbers

The Poultry Division contributed 81% to revenue.

It increased revenues by R2.4 billion and was the main contributor of the 22% increase in revenue to R19.3 billion.

The operating profit margin increased to 7.4% in the financial year under review, compared to 4.6% in the year to end September 2021, also as a result of the improvement in the profitability of the poultry operations.

Operating profit in this division increased massively – by 420% – from R147 million to R763 million.

Broiler slaughter volumes increased by 7.7% following an expansion of operations, and sales volumes increased by 8.9% to 42 630 tons. Broiler sales realisations increased by 12.5%, reflecting an effort to recover the significant increase in feed prices on the back of higher maize and soya meal costs, as well as rapidly rising energy costs.

5. Taxi strike begins:

Two buses were set on fire on Monday in South Africa’s Cape Town as local taxi associations embarked on a two-day strike to protest against a termination of an incentive program.

The Western Cape provincial government, home to legislative capital Cape Town, recently announced it would terminate an incentive scheme for taxi drivers which encouraged safe driving practises and curtailed illegal operations.

But due to a lack of funding it had to cancel the programme after a little more than a year, triggering an uproar from the taxi associations who called for a two-day strike in the city from Monday.

There were long queues by 6 a.m. (0400 GMT) at bus stops as people waited for transport to go to work and to school, a Reuters witness said.

The associations were not immediately available for comment.

A bus was attacked by an unidentified person, who shot at the tyres to stop it from operating, the witness said, adding people jumped from the windows with a woman suffering injuries.

“No passengers or drivers were injured,” Bronwen Dyke-Beyer, a spokesperson of Golden Arrow Bus Services, which runs a fleet of 1,100 buses in Cape Town, told Reuters, confirming that a one of its buses was set alight.

She said the company did not know who was responsible.

JP Smith, manager of safety and security of Cape Town, confirmed there had been several incidents during the morning involving buses operated by Golden Arrow and MyCiTi, the city’s rapid transit system, but the situation was under control.

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

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