News in South Africa 6th June:

1. Supermarkets’ diesel bill nears R3bn:

The largest supermarket retailers in South Africa have now spent nearly R3 billion on diesel, to enable them to run generators so they could trade through the near-constant load shedding over the past nine months.

Supermarkets’ diesel bill nears R3bn
Photo by PhotoMIX Company

The bulk of this expense came in the period between October 2022 and May 2023, as daily power cuts intensified with days-long bursts at Stage 6.

An analysis shows that while public disclosures for the four largest retailers total R1.9 billion, because this data runs to between January and March (at the latest, in the case of The Spar Group), it is practically certain that spend is near – or has even exceeded – R3 billion by this stage.

Load shedding this calendar year (in terms of gigawatt hours) has already surpassed the total amount for 2022.

Together, the Shoprite Group and Pick n Pay have spent R1.1 billion in so-called “incremental” diesel costs to keep refrigerators and lights on and stores open.

Shoprite’s more-than half-a-billion-rand bill was for the six months to 1 January, while its rival’s cost was for a full year to the end of February (with the vast majority between September and February). Shoprite has said “the cost of diesel to power our generators, however, is expected to remain significant and as a result is expected to materially increase our operating expenses for the remainder of the year”.

Illustrative diesel cost

Beyond the half a billion already spent, Pick n Pay provided an illustrative incremental diesel cost of R477 million for the current financial year, which will be partially offset by energy savings (R85 million). This net incremental cost of R393 million is aggressive, but probably fair, as it is based on annualising the January/February run rate (during which load shedding was particularly acute).

In an effort to soften this bill, it is aiming to take a further R200 million in energy costs out of the business this year.

Last week, The Spar Group said it estimated “the added cost of diesel incurred by our retailers required to run generators during the period (six months to end March), amounted to more than R700 million”. The majority of Spar stores are independently owned and operated. This means any efficiencies in the procuring and delivery of diesel will be harder to achieve than in the case of its competitors.

Woolworths previously said its additional diesel spend for generators totalled R100 million in the six months before Christmas. This was primarily in its food business, where waste increased by 0.1% (a R20 million knock).

During Stage 6 load shedding, Woolworths says it incurs costs of between R20 million and R30 million a month due to diesel and higher waste.

2. Load shedding trend has reversed:

Where Eskom used to use weekends to build grid capacity for the week ahead, it now appears to be building grid capacity during the week to give South Africans a break from load shedding on the weekend.

This is one of the observations from independent energy analyst Pieter Jordaan in his latest Power Availability Statistics (PAS) report for the 22nd week of 2023.

The PAS is a comprehensive dive into the nitty-gritty details of load shedding in South Africa.

While reports from the Council for Scientific and Industrial Research (CSIR) measure outages in South Africa in the total gigawatt hours shed, and platforms like EskomSePush look at total hours in load shedding, Jordaan’s data looks at more impactful points like blackout hours (i.e., actual time spent in the dark) and the Power Availability Ratio (PAR) of the grid.

PAR represents the time consumers have utility power available after deducting the load shedding outage times, expressed as a percentage. At 100%, households have full access to grid power. Every 7% below that point represents a full stage of load shedding where power is taken away.

According to Jordaan, South Africa’s rolling seven-day average of PAR (PAR-7) shows that the country is currently sitting near 72% – an average of stage 4 load shedding. The worst the country ever reached was an average of 58% (near stage 6) in February 2023 – a record that has not (yet) been breached.

However, if current trends continue, the move to stage 7 could be right around the corner.

Looking at the long-term trend, the PAR has been deteriorating rather rapidly, with Eskom simply unable to recover availability beyond stage 4.

3. Sizeable fuel price cuts:

On Wednesday, the petrol price (both 93 and 95 unleaded) will be cut by 71c a litre, while diesel will be lowered by either 80c or 84c al litre depending on the sulphur content.

Illuminating paraffin will be 43c a litre cheaper.

South African fuel prices are largely determined by international oil costs and the rand exchange rate, as oil is priced in dollars.

The rand took a large hit to a record low following US accusation that Russia received arms from South Africa. But the average Brent crude oil price fell from $82.20 to $75.90 a barrel.

In a statement, the Department of Mineral Resources and Energy said this was due to concerns about lower-than-expected economic growth in China, which will affect fuel demand. In addition, oil inventories grew faster than expected, while concerns about the US debt ceiling – which could have triggered a debt default and market chaos – also weighed on the oil price.

The latest change brings the price of a litre of 95 unleaded petrol to R22.63 in Gauteng, compared to R24.17 a year before – and a record price of R26.74 in July last year.

The wholesale diesel price is now R19.31 a litre in Gauteng. As recently as in November last year, diesel cost close to R25.50. Diesel is back to levels before the invasion of Ukraine caused a big spike in oil prices.

4. Rail and ports failures:

The Minerals Council of South Africa has bemoaned Transnet’s “inability to do its job”, resulting in a “rail and ports catastrophe”. 

Roger Baxter, the Council’s CEO, made these comments when presenting an overview of the mining sector’s performance in 2022 with Minister of Mineral Resources and Energy Gwede Mantashe in attendance. 

Baxter expressed mining companies’ continued frustration with Transnet’s dismal operating performance and Eskom’s load-shedding. 

The Minerals Council estimates South African miners lost R150 billion in potential earnings last year because of Transnet alone. 

These additional exports would have added nearly R27 billion to the national fiscus.

Mining companies and their CEOs have been outspoken about the impact of Transnet on their operations in their latest trading updates.

In its preliminary results, Glencore pointed to logistics and port constraints as the reasons for its limited chrome ore supply from South Africa.

Its coal profits were also limited by “continued rail constraints”, exacerbated by a two-week Transnet strike.

Investing in solutions

The Minerals Council has been engaging with Transnet to unblock rail inefficiencies through multiple high-level meetings. 

However, Baxter said more has to be done to allow for private participation in rail transport and the operation of port terminals. 

Mining companies have resorted to trucking their material to ports outside South Africa, such as Maputo, to avoid logistical backlogs. 

This comes at a high cost for mining companies. For example, transporting coal to Richard’s Bay Coal Terminal via rail costs around $11 per ton, while trucking costs companies roughly $70 per ton. 

Miners can absorb this additional cost for now. However, if commodity prices decrease, trucking will not be viable for many companies. 

This may result in some companies closing their mines as they cannot get their product to market via Transnet’s rail and ports.

Thus, it is a priority for the Minerals Council to push the government to allow private companies to operate important rail corridors. 

5. Construction mafia has links to Eskom:

Minister of Electricity Kgosientsho Ramokgopa says Eskom’s procurement division has been infiltrated by organised crime with links to the KwaZulu-Natal construction mafia.

Despite previously downplaying the issues of crime at corruption at the embattled power utility, Ramokgopa is now saying that crime is a big part of the problem facing South Africa’s energy crisis.

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

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