News in South Africa 31st May:

1. Reserve Bank preps for grid collapse:

South Africa’s central bank is working on a contingency plan to ensure the country’s payments system remains in operation in the event the nation’s electricity grid collapses. 

Reserve Bank preps for grid collapse
Photo by Pixabay

The South African Reserve Bank and other financial markets regulators including the operator of the Johannesburg Stock Exchange are working on the strategy to ensure the orderly closing and reopening of markets, Deputy Governor Kuben Naidoo said on Monday. 

“All of that work is ongoing and we are working quite closely with the telecommunications sector, with diesel suppliers, banks payments industry, with retailers to ensure that we can gradually raise the resilience of the financial sector,” he said in Johannesburg on Monday.

Concerns over reliable power supply in the country have heightened as Eskom warned it will have to intensify rolling blackouts over the winter months to protect the grid from complete collapse. The utility has struggled to meet electricity demand leaving the nation in darkness for as many as 12 hours a day.

While a total system collapse is unlikely to occur, it is not impossible, Naidoo said. The financial sector is doing all it can to try and prevent chaos, prevent panic and enhance the system’s resilience, he said.

“If you had asked me a month ago, I would have probably said that in the event of a complete grid shutdown, there would be almost no transactions,” Naidoo said. “Thanks to technology and some planning, we may be able to run some transactions, we may be able to have some functionality in the system, even if it is for a short period.”

2. Eskom’s diesel bill climbs by 114%:

South Africa’s indebted state-owned power utility’s costs to run its diesel-powered units more than doubled as its fleet of coal-fired plants experienced frequent breakdowns.

Eskom paid R21.4 billion in the 12 months through March 2023, compared with R10 billion a year before, to operate the open-cycle gas turbines intended to run during peak-demand periods, National Treasury said in a presentation to lawmakers.

This is a 114% increase, and the difference in the amount was partly due to higher-than-budgeted volumes and higher prices, the Treasury added.

The performance of Eskom’s fleet of mostly coal-fired stations has deteriorated, resulting in record blackouts that the central bank estimates will shave 2 percentage points off economic growth this year.

The government had declared it a national crisis and implemented unprecedented measures with few results. The rand has slumped almost 14% against the dollar this year, in part because of the crisis.

The presentation showed that Eskom’s energy availability factor, a measure of usable capacity, dropped to 56% during the financial year, mainly due to unplanned outages. This is a 6% decline from 62% the previous year.

3. Call to ditch fossil fuels:

South Africa’s Presidential Climate Commission has advised the country, which relies on coal for most of its electricity, to forsake using the fossil fuel for future power generation and to only use a minimal amount of gas.

The commission, in a set of recommendations on how South Africa should structure its electricity system, said a review of the country’s Integrated Resource Plan, or IRP, a blueprint for its energy industry, should include 50 gigawatts to 60 gigawatts of renewable energy by 2030.

Only three to five gigawatts of gas-fired plants should be built, and they should only be used at times of peak demand, it said.

“There should be no new coal and gas should be kept to the role of peaking support,” the commission said in the report released Tuesday.

South Africa’s President Cyril Ramaphosa appointed the commission in 2020 to advise him on how the country’s power industry should be developed as it moves to reduce its reliance on coal.

South Africa is the world’s 14th-biggest emitter of climate warming gases, a large proportion of which are generated from burning fossil fuels.

The recommendations come at a time when South Africa is suffering its worst-ever power cuts, with blackouts of more than 10 hours a day, and is opening up the electricity generation industry to private operators.

The commission warned against investment in coal and nuclear power plants because they aren’t “least cost.” Reliance on fossil fuels in the future could reduce the competitiveness of South African export industries as they could be penalized for the carbon-intensiveness of their products, it said.

Instead, solar, wind and hydropower should be invested in, as well as batteries for storage, it said.

4. Gordhan appeals order to curb load shedding for hospitals:

Minister of Public Enterprises Pravin Gordhan is applying for leave to appeal over the court order that said all hospitals, clinics, schools and police stations should not be subjected to electricity outages.

Earlier in May, Judge Norman Davis said that the minister had 60 days to ensure that all these institutions were spared from load shedding.

However, Gordhan said that the order is impossible to implement within 60 days.

Moreover, the notice says, the order “wrongly assumes that the minister has the power and ability” to ensure a sufficient supply of electricity to the listed facilities.

In practical terms, Gordhan takes issue with the judgment’s criticism of generators as a solution, arguing that preferred alternatives such as solar PV panels will take longer than 60 days to install.

Furthermore, the filed papers argue, there are “multiple causes of the energy crisis”, which means multiple organs of state are required to work together. This means it is impossible for Gordhan – even working with other organs of state – to meet the demands of the order within 60 days.

Similarly, Gordhan contends, the order calls for him to take steps that fall outside of his area of authority.

5. Rise of blackmarket vaping products:

A new sin tax on vaping products could have the perverse effect of driving vapers to illicit products, in much the same way the government’s ill-conceived ban on cigarettes in 2020 allowed the black market for tobacco products to explode.

It comes into force on Thursday (31st June) – and will more than double the retail price of many vape e-liquids, regardless of the nicotine content.

This tax is going to wipe out a lot of small vaping businesses, and there is already evidence that it is promoting a black market for vaping products,” says Kurt Yeo, founder of consumer advocacy group Vaping Saved My Life (VSML).

“This is the first instance I am aware of where we have a tax being imposed on a product that isn’t even legally recognised.”

That’s because the sin tax on vaping products comes into effect from 1 June 2023, even before the Tobacco Products and Electronic Delivery Systems Control Bill – which regulates vaping products – has been passed into law.

Yeo says government has made the fatal error of lumping vaping products into the same basket as cigarettes and other forms of tobacco.

“Many people like myself took up vaping as a way of kick the smoking habit,” he says.

Black market trade thrives

Tax Justice SA estimates the black market in cigarettes robs the state of more than R20 billion a year in lost revenue. The illicit market in cigarettes blossomed as a result of the five-month ban on tobacco sales in 2020, ostensibly to fight Covid.

In 2022, British American Tobacco estimated the illicit cigarette trade at 70% of the market, though other estimates put it at 54% in 2021 – still multiples higher than the 5% estimate of 2009, according to Nicole Vellios, researcher at the University of Cape Town.

Yeo argues that a similar fate awaits vaping products, as the South African Revenue Service (Sars) stands to potentially lose out on billions of rands in revenue by over-taxing a product that is less harmful than tobacco smoking.

All information sourced from articles posted by: Fin24, BusinessTech, DailyInvestor, News24, and Moneyweb.

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