Investor Perspectives

Is South Africa sliding backwards or making progress?

By Stef Terblanche

·          Published in The Intelligence Bulletin and The Monday Briefing,  August 2013

When releasing its Development Indicators Report for 2012 last week, the South African government put a positive spin on its findings, saying South Africa is “on the right track”.  However, comments that followed from others were mostly negative. And the picture painted in the media the past five years has been one of a country on a downward slide. But how do the major international surveys, international investors and others view South Africa?

Highs and lows of the report

When releasing the report last week the Minister in The Presidency for Performance Monitoring and Evaluation, Collins Chabane, delivered a statement  saying “the evidence suggest that indeed life has changed for the better since 1994 and the country is steadily making progress in the key priorities it has set for itself”.

“There are many assessments from time to time about how we are doing as government or as the country as a whole but the Development Indicators Report is the definitive assessment and it tells us we are on the right track and doing well,” he said.

The report is based on 85 indicators clustered according to 10 themes, including economic growth and transformation, employment, poverty and inequality, good governance, among others.

Focusing on a number of highlights in the report, Chabane emphasises the good progress being made in various aspects of education and health. While crime remains worryingly high, he says the “government is making an impact” on it. On the economic front the report shows South Africa has maintained stability, but growth has been hampered by the global crisis and industrial conflicts. However, Chabane says “data shows significant setbacks in our ability to reduce unemployment, poverty and inequality” while “unemployment remains a challenge, especially for the youth”.

The report boasts about government’s commendable success in delivering housing, water and sanitation, as well as the fact that the number of registered individual taxpayers grew from 1.7 million in 1994 to 14 million in 2013. It says the country's transparent Budget process is also highly regarded world-wide.

This is “the good news” singled out by Chabane and the government. Trends in respect of the other indicators were much more negative, and Chabane made no mention of them in his statement.

And public opinion has been much less optimistic over the findings of the report than the government. For instance a SAPA report published on News24 pointed out that less than a year before the next general election, public opinion on government's basic services delivery has sunk to its second-lowest recorded level, while service delivery protests hit an all-time high last year. It quoted Deputy Minister in the Presidency Obed Bapela saying that this was a worrying trend.

In the Daily Maverick Ranjeni Munusamy argues that South Africans have an increasingly negative outlook on the performance of government and that the country is also slipping back in the corruption perception index. She writes that the report “reveals a range of unfavourable indicators about the state of the country, which despite the best efforts by government, is difficult to project in a positive light”. She also raises the service delivery issue.

Before and after Zuma

Much of the of the positive trending started way back in 2004 or shortly thereafter, while much of the worst escalation in negative trends seems to coincide with the period after the administration of President Jacob Zuma took office. As far as the economic picture is concerned, it should be said in their defence that they took office shortly after the onset of the global recession and in the same year that South Africa went into recession. And the world is still battling to recover.

Nonetheless, drawing on the figures in the Development Indicators Report, Democratic Alliance (DA) finance spokesman Tim Harris, sketches a shocking picture. The number of discouraged work-seekers - who have given up all hope of finding a job - has increased by 1.139 million since 2009. And the country’s global competitiveness ranking as measured by the Word Economic Forum fell five places to 50th between 2009 and 2012. Foreign Direct Investment (FDI) decreased from R100.291 billion in 2008 to R1.673 billion in 2012.

In a number of other areas however, South Africa’s poor performance and problems cannot be blamed on recession and the subsequent global economic problems that also affect South Africa. But neither can the Zuma administration be blamed fully for all of it as a number of these negative developments were in the making since before Zuma took office.

However, also in this period South Africa also slipped 14 places on Transparency International’s Corruption Perception Index. The Zuma administration is struggling to end South Africa’s serious electricity supply crisis that almost crippled the country a year before he came to power. The period was also marked by the rise and fall of Julius Malema and the damaging debate centred on his demands for the nationalisation of South Africa’s mines with government being excruciatingly slow in providing certainty on this score.

Other negative events in Zuma’s time include the imprisonment of one corrupt National Police Commissioner and the sacking of another; a number of cabinet ministers being implicated in a variety of scandals; the governing alliance effectively blocking implementation of the National Development Plan; serious divisions and power struggles tearing the ANC and its alliance apart; rising labour militancy and unrest resulting in the deaths of 44 people at Marikana, escalating wildcat strikes, the torching of Western Cape fruit farms, investment in the mining sector falling off the cliff, and the entire labour relations dispensation becoming unstable; attempts to curb the independence of both the judiciary and the media; the cost of living spiralling out of control especially in the two categories that directly affect most people, namely transport and food; service delivery protests rocketing to new highs; municipalities’ financial management reaching crisis levels with only 9 municipalities out of 278 receiving clean audits in 2011-2012 (17 if the 60 municipal entities are added); corruption reaching record levels; the Nkandla and Guptagate controversies that both implicated Zuma; unemployment rates rising to their highest levels; successive economic ratings downgrades by international rating agencies; and more.

Before the Zuma administration took office there were also ample bad news events such as the electricity crisis, the deaths of scores of people in xenophobic violence across the country, former President Thabo Mbeki’s AIDS denialism, and the arms scandal among others.

The sum total of all of this was that the euphoria over the South African “miracle” of 1994 and the feel-good era of Nelson Mandela’s presidency was soon overshadowed by an ever growing litany of negatives. The outlook for South Africa seemed to be ever poorer with investors said to be increasingly giving it a miss in favour of other safer bets.

Positive side

Every coin, however, has a flipside. In South Africa’s case there also is a more positive side. Earlier this month Brand South Africa CEO Miller Matola reminded the National Press Club that recent global reports showed the country in a favourable light.

He cited the World Economic Forum (WEF) Global Competitiveness Report in which South Africa outperformed its BRICS peer nations in 6 of the 12 pillars of competitiveness used by the WEF. Matola said the report categorises South Africa as the most competitive economy in sub-Sahara and observes that the country is in the second stage of development — the efficiency-driven range.

According to the WEF report the five most problematic factors for doing business in South Africa were an inadequately educated workforce, restrictive labour regulations, inefficient government bureaucracy, an inadequate supply of infrastructure, and corruption.

Matola also noted that South Africa had  risen two places from 41st in 2012 to 39th this year in the World Bank’s Doing Business report, while the World Academic Summit Innovation Index — a new indicator — ranked South Africa fourth and the only African country in terms of attracting investments from business for execution in areas of innovation and research.

But some have also been sounding a note of caution about South Africa’s continued competitiveness. Speaking at the Africa Day business networking seminar in Cape Town recently, Wesgro chief executive Nils Flaatten predicted South Africa would come under immense pressure to retain its position as the most competitive African economy given the ease of doing business elsewhere in Africa improving through regulation transparency, and predictable administered prices and labour costs.

SA in international surveys

The above, however, is by far not the full picture. There are a growing number of important international surveys that measure the performance of countries across a wide variety of factors, all of which most certainly will help form the perceptions of investors and other observers. What do these say about South Africa?

World Bank/International Finance Corporation’s Doing Business Report 2013: The latest report ranks South Africa 39^th – well in the top quarter - in this annual survey of the cost and difficulty involved in doing business in 185 economies around the world. South Africa scored particularly well in respect of credit extension, investor protection, payment of taxes, obtaining construction permits, and starting a business. Weaknesses were singled out as cross-border trading, and electricity access. The survey looks at regulations applying to the full life cycle of a business, but does not include variables such as corruption or availability of skills.

Global Competitiveness Index (GCI): As mentioned already, the latest GCI report published by the World Economic Forum in September 2012 ranked South Africa 52 out of 144 countries, placing it well in the top-performing half. It was also ranked the second most competitive country in Africa after Tunisia (32nd), and third among its BRICS peers, beaten only by China (29^th) and Brazil (48^th). However, since 2009 South Africa has slipped back five places.

In the latest survey South Africa scored exceptionally well in respect of factors such as its market size, quality of its institutions, strength of auditing and reporting standards, efficacy of corporate boards , protection of minority shareholders' interests, efficiency of legal framework, intellectual property protection, property rights, judicial independence, its financial market development, regulation of securities exchanges, soundness of banks, availability of financial services, financing through the local equity market, business sophistication, innovation, good scientific research institutions, and strong collaboration between universities and the business sector in innovation.

However, South Africa scored poorly in respect of its labour market efficiency where it was ranked 113th. Despite its economy being the second most competitive on the continent, the country’s pay to productivity ratio is ranked among the worst countries featured in the WEF’s rankings at 134th place. The index is compiled by leading academics and a global network of research institutes from publicly available data and by polling business leaders in 144 economies.

Grant Thornton SA’s Emerging Markets Opportunity Index (EMOI): Published in February this year, the latest EMOI report  ranks South Africa 14th out of 26 countries and the only African country to be ranked in the top 15 worldwide. South Africa is ranked as the leading emerging economy in Africa, place also ahead of Nigeria as a potential investment destination. The index is based on analysis of a variety of indicators from Grant Thornton's International Business Report, the International Monetary Fund and United Nations Human Development Report.

Africa Competitiveness Report: In this 2011 WEF report South Africa scored second place on the African continent and was rated as comparing favourably with innovative countries such as India and Brazil.

The Heritage Foundation’s Economic Freedom Report: The most recent report published in January this year ranked South Africa’s economy 74th out of 177 countries – well in the top half globally and 6^th out of 46 countries in sub-Saharan Africa – as being "moderately free”. The index is published by The Wall Street Journal and US think tank the Heritage Foundation and uses 10 benchmarks to measure the economic success of the 179 countries. These include business freedom, trade freedom, fiscal freedom, government size, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labour freedom. With a score of 61.8 South Africa’s economic freedom score is slightly higher than the world average of 59.6.

Transparency International’s Corruption Perceptions Index (CPI): The CPI measures the perceived levels of public sector corruption in a 176 countries around the world. South Africa was placed 69^th in this November 2012 report, with a score of zero being highly corrupt and 100 being least corrupt. South Africa has slipped several positions in this survey over the last number of years, but is not perceived to be among the most corrupt countries as many commentators would often have us believe .

IT industry Competitiveness Index:  This survey, compiled by the Economist Intelligence Unit, compares the extent to which 66 countries enable a competitive environment for their information technology industries. In the most recent such survey South Africa was placed 47^th, a good ranking but still leaving much room for improvement, especially since slipping back from 37^th position in 2008.

South Africa has also done well in a number of other surveys too, such as the Press Freedom Survey done by Reporters Without Borders which ranked the country a very respectable 52^nd out of 179 countries. But it has slipped back after previously being among the top 50, but government plans to control the media more tightly and laws such as the Protection of State Information Act have had a negative effect. In the Global Gender Gap Index compiled by the World Economic Forum South Africa was ranked 16th out of 135 countries.

While the media’s reporting on a succession of specific negative events, the views of a variety of commentators, and the popular perceptions (sometimes misconceptions) of people in general tend to often present a highly negative picture of South Africa, it is clear that there is another more sober and more positive side to the picture as well. While it has many problems to deal with, South Africa still offers value for money, security and opportunity as an attractive investment destination. 

 Economic and social stability threatened

Marikana lesson not learnt

By Stef Terblanche

·         Published in Leadership magazine's online bulletin on 11 June 2013

In October last year, a multi-sectoral stakeholders’ meeting convened by the president announced measures to prevent a recurrence of the Marikana events. Yet, almost eight months later, the mining sector remains beset with serious labour problems, government wants to deploy a 'peacekeeping' force, the economy is under siege, and many other associated issues remain unresolved. Clearly, the lesson of Marikana has not been learnt.

To define the Marikana tragedy – and subsequent labour-related developments – simply as a labour relations or mining sector issue, is to miss the point completely.

That is why two months after Marikana, responding to rising investor and public concerns, President Jacob Zuma convened the high-level meeting of stakeholders from business, civic groups, government, security and labour.

A package of measures to be implemented urgently was announced to ensure a Marikana-like incident did not recur, that public and investor confidence in the economy and in social stability was improved, and that they would use their respective resources and capacities to build a partnership for development.

“In the context of the new pressures facing the economy, however, additional steps and sped up implementation are required to ensure that the nation’s economic and social goals are achieved,” it was stated, acknowledging that social, labour and economic issues were inseparably intertwined.

A fundamental problem underlying Marikana and similar areas, identified earlier, was the socio-economic plight and living conditions of mineworkers, many of whom lived as migrant workers under appalling conditions in shanty settlements.

The parties therefore recognised “the joint responsibility of the public and private sectors to improve the living conditions of working communities, including the role of mining companies and municipalities”.

A 'crack team' was to be deployed to municipalities to address housing and infrastructure in mining communities, while the Presidency was to establish a task force to bring together relevant government authorities with leaders from business, organised labour and communities to plan a new partnership “to urgently address the development of sustainable human settlements in key mining districts”.

The parties further agreed to urgently address socio-economic challenges in respect of income inequalities, promote greater social cohesion in communities, work toward measurable progress on infrastructure development and living conditions, fast-track commitments in the social accords agreed upon in 2011, advance social security and health insurance reform, and take action to address reckless lending and growing debt levels.

The explosion of illegal strikes and the like by non-unionised workers, as well as the violent competition for dominance between established and new unions, labour relations arrangements and the collective bargaining systems under the existing labour laws were other fundamental issues.

The parties recognised the importance of “supporting the systems of orderly collective bargaining” and “combating violence in public protests and industrial action”. They agreed to build confidence in labour market institutions.

The parties agreed that steps were to be taken to combat violence and lawlessness, to stabilise communities, and to build wider support for the law enforcement agencies in allowing them to do their work. They furthermore agreed to defend the values of the Constitution and the Bill of Rights.

The parties further agreed to urgently respond to impacts of the international economic crisis. And, there would be measurable progress in youth employment, support for companies and workers affected by the economic slowdown, as well as public employment programmes.

Announcing the package, the Presidency said that apart from the task teams, there would be further regular meetings in association with the National Economic Development and Labour Council for updates on progress made.

Almost eight months down the line, however, the economy is under serious pressure, labour relations are tense and on the verge of more serious turmoil, socio-economic pressures are mounting and the country seems to be moving into crisis mode.

It seems none of the lofty promises made at the 'stakeholders meeting' has been realised. It may be argued that the Farlam commission of inquiry into Marikana has yet to be completed, delaying dealing effectively with the root causes – but the country does not seem to have the luxury of so much time on its side.

In fact, South Africa’s prospects have seriously deteriorated over the past year in the face of unresolved labour unrest and violence; the threat of more strikes; unrealistically high wage demands; ongoing socio-economic pressures and escalating protests; serious production disruptions in a number of industries; shrinking manufacturing output; a sliding rand and rising inflation; weak commodity exports due to shrinking demand falling prices; declining business confidence; a slowdown in gross domestic product growth; downgrades in growth forecasts; international rating agencies warning that the outlook was becoming more negative, among others.

The World Economic Forum has ranked South Africa as having the worst co-operation in labour-employer relations out of 144 countries globally due to the high level of state control, rigid labour laws and loss of free market functioning, with the labour market expected to fracture further and untenable pressures in labour relations to continue mounting.

President Zuma’s response to date has seemed less than adequate.

When labour and economic pressures recently hit the ceiling, he responded with a media briefing where, instead of announcing detailed action plans, he merely called on all in South Africa to pull together; praised South Africa’s “excellent legal framework governing industrial relations”; raised the importance of a stable mining sector; said government had embarked on initiatives to stabilise and strengthen the mining industry and improve mineworkers’ living conditions; pointed out how the National Development Plan (NDP) envisaged growth of above 3.5% (the actual first quarter growth rate this year was 0.9%); and said solid tourism figures suggested there is change in South Africa and “we have a good story to tell”.

When ratings agency Standard & Poor's in March affirmed South Africa's sovereign credit rating at BBB with a negative outlook, the government responded similarly, saying that “the rating opinion did not take adequate account of the positive developments over the past six months” in South Africa.

Among these “positive developments”, government listed the ANC’s adoption of the NDP, aspects of the NDP being detailed in the 2013 Budget, and Zuma’s reaffirmation of economic policies in February.

But reaffirming policies is not the same as implementing them.

Furthermore, only weeks later, the NDP is on the verge of being sabotaged by the ANC’s labour and communist allies, with government already having backtracked on a number of labour and employment-related issues raised by the plan. (See our separate report.)

However, not only government but also labour – and to a lesser extent the private sector – are to blame for not carrying out the promises made in October last year:

Rival unions remain locked in a war for dominance on the mines, killing each other’s members, and a central bargaining system has yet to be established in the platinum mining sector – the red zone of last year’s problems;

The peace accord in that sector remains meaningless after the Association of Mineworkers and Construction Union (Amcu) and non-unionised strikers at Lonmin refused to sign it;

The National Union of Mineworkers (NUM), having been replaced as majority union at Lonmin by Amcu, now refuses to abide by the very winner-takes-all labour legislation its parent labour federation, the Congress of South African Trade Unions (Cosatu), wrote together with the ANC in the first place;

Unions continue making economically unsustainable wage demands such as the up to 60% increases currently being demanded by the NUM;

Economically damaging strikes continue; and

Labour legislation and the entire collective bargaining system remains out of touch with current realities, yet the government and ANC-aligned Cosatu cling to it, ruling out any revision, while the ANC-led government makes more concessions to Cosatu to secure its support in next year’s general election.

While government has again promised neutral assistance to the mining sector and unions operating in this sector, convening a team of ministers to intervene, it still openly sides with the ANC-aligned NUM, blaming Amcu for the violence and disruption.

Labour Minister Mildred Oliphant mooted a “peacekeeping force” n mining areas. But with the role of the police in the Marikana tragedy still to be fully established and acknowledged, Amcu is likely to view it as an attempt by the state to use force to try and inhibit the union's growth.

Almost three decades ago already, the apartheid government learnt that police or military intervention only buys dubious time; the solution still has to come from the politicians and the parties involved.

And, while heralding the importance of the mining sector and promising to assist mining companies in distress, government threatens to take away the mining licences of a company such as Anglo American Platinum when it needs to restructure and retrench workers as a direct result of the labour unrest and poor economic conditions.

Meanwhile, the crack team that would have been deployed to municipalities to address housing and infrastructure in mining communities is nowhere to be found by mining companies wishing to assist, nor is the presidential task force that was promised.

Many mineworkers, other workers as well as unemployed and impoverished South Africans continue to live in appalling conditions. A majority of municipalities remain unable to manage their finances and provide services, let alone improved housing and infrastructure. The list goes on.

The tragic lesson of Marikana has clearly not been learnt, and history seems likely to repeat itself.

Analysis

What went wrong with the Eskom-BHP Billiton pricing deal?

(Written for Mining magazine, April 2013)

By Stef Terblanche

The highly publicised saga of the special electricity pricing deal between Eskom and BHP Billiton having gone sour is like a marriage on the rocks.

On several occasions in the past two decades the two companies shook hands on sweetheart deals that allowed BHP Billiton to pay a special preferential price for its electricity. 

The South African government at the time sought to attract big industrial investments. BHP Billiton, or its predecessor, Gencor, wanted a good return on its investment. Cheap surplus electricity could make it happen, so Eskom became the proverbial bride.

But conditions have changed dramatically since then, and now Eskom wants out.

Using a substantial amount of electricity at around 2,000MW of national power output for its Richards Bay smelters, or about 9% of Eskom’s total output for its South African and Mozambican smelters combined,  the rate BHP Billiton is currently paying is well below the cost of generating it.

BHP Billiton, however, argues that the true price can only be calculated over the full life of the contracts. Energy Intensive User Group (EIUG) chairman Mike Rossouw agrees with that view, saying it makes no sense to work only with a “snapshot price at a particular point in time”.

Nonetheless, with Eskom currently seemingly paying more to BHP Billiton for the coal needed to generate one kilowatt of electricity than what the mining group pays per kilowatt for electricity used in its aluminium smelters, Eskom is of the opinion that the consequences of the deal has become a huge burden.

Eskom found itself under ever more pressure after the 2008 electricity crisis to deliver sufficient electricity to keep the wheels of industry turning and the lights burning in South Africa. As a result the state power utility says since 2009 it tried to renegotiate the terms of the deals with BHP.

On May 30, 2010 BHP Billiton issued this statement: “Eskom and BHP Billiton today announced that they have reached agreement on an amended power supply contract for the Mozal aluminium smelter in Mozambique. Discussions relating to the contracts for the supply of electricity to the Hillside and Bayside smelters in South Africa will continue over the coming months with the intention of concluding binding agreements before the end of Eskom's 2010/11 financial year.”

The latter never happened, and now BHP Billiton has dug its heels in. A deal is a deal, and needs to be honoured, it says.

In the same statement BHP Billiton said while negotiations would continue, “the BHP Billiton smelter contracts at Hillside and Bayside in Richards Bay will remain firm and binding”. Eskom, it said, would in turn maintain its “interruptibility” at the smelters in line with the provisions of the contract. To save power at peak times, Eskom periodically shuts down power supply to the smelter, as with other intensive energy users.

Subsequently last October Eskom submitted an application to the National Energy Regulator of South Africa (Nersa) to review the terms of the preferential deals. At present the parties are not negotiating.

But it was the tenacious probing of an enterprising journalist and the eventual intervention of the courts that brought the full extent and the finer details – previously shrouded in secrecy - of this increasingly unhappy marriage out into the open last month. Dirty linen was displayed, the public gasped in horror, tongues were set wagging, and dire warnings of all kinds followed.

But exactly how did this all come about and what went wrong? Are there any lessons to be learnt by South Africa’s mining industry which is one of the largest consumers of electricity in the country?

Eskom says the mining industry takes about 15% of its output, but EIUG’s Rossouw says the entire industrial sector that includes mining and related activities such as smelters probably uses around 40%.

The deal uncovered

Having been aware of a secret deal between Eskom and BHP, Jan de Lange, a mining journalist with Sake24, became determined to uncover the deal after spotting a R9.3-billion loss attributed to “embedded derivatives” in Eskom’s 2009 results.

When both companies refused to divulge any details, Sake24 and its parent, Media24, went to court using the Promotion of Access to Information Act (PAIA) to try and obtain information from Eskom. Media24 won both the initial case and Eskom’s subsequent appeal.

Energy analyst and technology publisher Chris Yelland, who has written an extensive analysis of the issue, says the first deal concerning BHP’s Hillside Potlines 1 and 2 was concluded in 1992. At the time BHP Billiton was still known as Gencor. Electricity supply was still regulated by legislation that was replaced with new legislation after 1994 and which also replaced the old Electricity Control Council with the National Energy Regulator of South Africa (Nersa). Since 1995 Nersa among other things has to approve all electricity tariff issues.

Yelland says the original contract was signed on 11 November 1992 at a time when Dr. Ian McRae was the CEO of Eskom, and subsequently came into effect on 30 July 1995 at a time when Dr. McRae was the first chairman and CEO of the newly established Nersa.

When asked about this an Eskom spokesperson said the deal was concluded before Nersa came into being in 1995.

“Prior to that, the Electricity Control Board regulated some aspects of the electricity supply industry but was not an economic regulator and its approval for the negotiated pricing agreements at Hillside and Bayside was not required. Eskom did follow proper and appropriate governance processes in terms of the legislation,” said the spokesperson.

Rossouw is of the opinion that the contracts were signed at the time with the necessary approval of the relevant authorities regardless of whether it was Nersa or not.

A second agreement for Hillside Potline 3 was signed in December 2001 between Billiton and Eskom and was to come into effect by 30 June 2004, says Yelland. In a written reply to our questions, Eskom said “a supplementary Hillside agreement was signed in 2003 which was approved by the regulator”.

Nonetheless, this deal was differently structured from the first one. But it still kept the price BHP Billiton paid well below what the public was being charged after Eskom’s 2008 electricity crisis and its rolling blackouts as well as below Eskom’s cost to produce this power.

The Hillside Potline 3 agreement had a suspensive clause that the special pricing arrangement had to be approved by Nersa by no later than 18 December 2001. In a letter to BHP Billiton dated 5 February 2002, Eskom confirmed Nersa’s approval.

At the time, from 1999 up to 2004, Dr. Xolani Mkwhanazi was the CEO of Nersa which gave the approval to Eskom and Billiton. Not long afterwards, in January 2005, BHP Billiton appointed Dr Mkwhanazi as chief operating officer at Aluminium Southern Africa which operated its Richards Bay and Mozambican smelters. In October 2008 he became chairman of BHP Billiton South Africa, a position he still holds. Dr Mkwhanazi is also a past chairman of the Chamber of Mines.

Rising costs

Given the low cost of producing electricity at the time and the high aluminium prices, these deals were beneficial for both parties. But neither deal was structured to keep pace with Eskom’s 2008 crisis, its need for a fast-tracked generating capacity expansion programme, the steep rises in the cost of producing electricity, or the changes in the aluminium price.

Yelland says because of the way the deal was structured the electricity rates for the Hillside smelters “were not cost reflective in any sense”. The problem arose when Eskom's operating costs shot up by 168% from about 15c in 2007 to the current 47c/kWh.

These rates have now become less than half Eskom’s current average cost of supply, and less than Eskom’s current cost of primary energy.

Reporting on the matter after Media24 won the court cases, De Lange calculated that BHP pays 23c/kWh at its Hillside smelters and 34c at its Mozal smelter in Mozambique. In comparison factories pay R1.61 and households pay R1.40. Eskom says the average tariff paid by other large mining companies is 56c/kWh.

According to research undertaken by ENF Consulting on behalf of Sake24 for a number of years the rate BHP paid Eskom did not cover the cost of Eskom’s primary energy, that is, the coal it bought to produce the energy. Of the 125Mt of coal used by Eskom every year, some 18% (between 18Mtpa and 20Mtpa) is sold to it by BHP Billiton.

However with steep increases in the price of coal since 2008, and with much of the hedging against the market price with Eskom’s cost-plus contracts starting to fall away, Sake24’s research found that Eskom’s primary energy since 2008 has increased by around 25% per year from R23.7bn in 2009 to R36.6bn last year.

De Lange has calculated that BHP Billiton’s Hillside deal has already cost Eskom R10.7bn. That is where the public outcry arose. With the constant steep escalation in electricity tariffs for ordinary household consumers, the public believes it has been footing this bill.

And there is more to come. De Lange concludes that conservatively Eskom’s primary energy cost will most likely increase by a further 15% per year over the coming years.

However, calculating the exact cost to all parties concerned is a very complex affair, and as Rossouw and Dr Mkwhanazi have pointed out, it cannot be isolated at a particular point in time, but should be viewed within the context of the total life of the contract. The contracts are to run for 25 years.

Risk sharing

In an open letter published in Business Day on April 3, Dr Mkhwanazi stated BHP Billiton’s view that “the Eskom contracts were negotiated on a risk-sharing basis and in terms of a recognised international model”.

He said Billiton had invested more than R60bn in its aluminium business in Southern Africa in direct response to incentives of the South African and Mozambican governments to promote industrial development. The pricing agreements were concluded “to ensure the financial viability of the smelters over the long term” and to absorb Eskom’s excess capacity (about 35%) at the time.

Dr Mkhwanazi denied that the pricing agreements have been detrimental to Eskom and other consumers, saying that due to the structure of the agreements, BHP Billiton for many years paid above the standard electricity tariff for industry.

“During the period of the contracts, we have paid more for the electricity than the cost of supply. As a result of these contracts, Eskom has generated significant additional revenues and benefits, which have contributed to the cost of establishing the electricity generation and transmission infrastructure in South Africa.”

“BHP Billiton expects our contracts to be honoured. As a business, we have a responsibility to fulfil our obligations to our employees, customers, suppliers and shareholders and the broader community of Richards Bay and KwaZulu-Natal,” he said.

In any case, Mkhwanazi says, to help Eskom maintain a reliable supply of electricity in the country, BHP Billiton in 2008 mothballed two potlines at its Bayside smelter, while it allows Eskom to interrupt supply to its smelters periodically without compensation for lost production. BHP Billiton also continues meeting its 10% power-reduction target.

Lacked transparency

Perhaps the Achilles heel of these agreements was the complete lack of transparency despite the fact that it involved a state-owned company funded with public money.

When De Lange started probing the deal he did so in the public interest. The general point of view was that Eskom being a public company, and given the fact that the general public was forced to pay ever more for its electricity while BHP Billiton as one of the single biggest consumers of electricity was allowed to pay tariffs below cost, the agreements undermined the public’s interests. Regardless of merit, the popular view was that vast profits were being made at the public’s expense.

Commenting after winning the appeal case Media24’s attorney, Willem de Klerk, said that the court’s decision showed that large corporations doing business with state entities may expect their commercial dealings to be placed under the spotlight. Claiming prejudice to their business would not be sufficient to prevent it.

Standard practice

Various commentators, including Dr Mkhwanazi, have pointed out that such preferential pricing agreements are nonetheless standard practice internationally.

An example is the current negotiations taking place in New Zealand between the owners of the Tiwai Pt aluminium smelter and the state-owned Meridian Energy for a preferential pricing deal. Last year Rio Tinto said the smelter could close if it did not get cheaper power from Meridian Energy, which would lead to significant job losses and a blow to the local economy.

And the Chinese chrome processor, Afro-Chine Smelting, has announced it was about to build six chrome smelters in neighbouring Zimbabwe. Before making the announcement, the Chinese company had been negotiating with the Zimbabwe Electricity Transmission & Distribution Company for uninterrupted power supply to the smelters. It is believed that a preferential pricing arrangement may also have been part of these discussions.

What’s at stake?

Mhkwanazi had made it clear that BHP Billiton expects the contracts to be honoured. Equally, Eskom has made it clear it wants them to be reviewed and changed due to the dramatically changed conditions.

“If the contracts are changed unilaterally, everybody is going to lose. The government, Eskom, Nersa, BHP Billiton and Eskom’s existing customers will all lose,” says Rossouw.

The potential losses for Eskom are obvious against the background of its need to fund an expensive capacity expansion programme and massive escalation in the cost of energy. If it cannot recover a part of these costs from BHP Billiton, it may seek to once again pass on the cost to other electricity consumers, a move that Nersa could block as it has already done with Eskom’s industrial power buy-back programme.

In a worst-case scenario a lack of any solution to the problem could seriously affect Eskom’s ability to build the required new power stations on time to meet anticipated future electricity demand. Already there are disturbing warnings that the country could once again run into serious electricity supply problems this winter. Then the entire country will be on the losing side.

On the other hand, although BHP Billiton has denied in the past that it has any intention of pulling out of South Africa, some commentators have in recent weeks expressed the opinion that, if the preferential electricity pricing agreements are not honoured, BHP Billiton may simply shut down the smelters and leave.

If that were to happen it would adversely affect the 3,000 people employed at the smelters, or the 20,000 jobs in South Africa BHP Billiton says have been created from the aluminium investments. In addition, says BHP Billiton, these jobs affect the livelihoods of about 33,000 people, with economic income for about 90,000 dependents.

Shutting down these smelters would be a huge loss for the economy. Hillside is one of the world’s most advanced and efficient aluminium smelters, produces high quality primary aluminium and it is the largest producer of standard aluminium ingots in the southern hemisphere, says BHP Billiton. And Bayside is the only producer of value-added primary aluminium products in Southern Africa, all of it used by the local market.

“Any unilateral changes to a signed and agreed contract would send absolutely the wrong message to the investor community,” says Rossouw about the potential consequences for South Africa. Many other commentators have issued similar warnings, as did Dr Mkhwanazi.

“Business needs maximum encouragement and support to make these long-term investments for the benefit of society. Risks have to be balanced before investment takes place. Legal due process, adherence to the constitution, sanctity of contract, regulatory certainty, certainty around fiscal provisions at the outset, nonretrospectivity and security of tenure are all essential,” says Mkhwanazi.

So, is there a solution to what seems to be a serious impasse?

“Absolutely,” says Rossouw. “The solution is that the parties, namely government, Nersa, Eskom and BHP Billiton, must sit down and negotiate a practical solution which, as far as I know, they have never done. And if Nersa finds itself to be conflicted, they can make use of an arbitrator.”

For the sake of everybody concerned, hopefully this advice will not fall on deaf ears.


© Copyright 2013 Stef Terblanche – No article or part thereof may be reproduced, printed or published without the permission of the author, while recognition must be given to the author and the publication that first published it.

Platinum: A whole new universe awaits

(Published in Deep SA, August 2012)

By Stef Terblanche

When a Hollywood movie-maker, an internet whiz kid, some space and computer scientists, a Texas billionaire, and a few other very wealthy people got together in April and told the world they were preparing to go into space to mine platinum on near-earth asteroids in quantities that would make South Africa look silly, one expected the world to take note.

And it did. Their announcement was carried in more than 2,000 news articles around the world in the days that followed.

Only, many of these took a tongue-in-cheek stance and seemed to dismiss them as a bunch of publicity-seeking crazies.

Publicity they may certainly have sought, but crazy they were not. In fact they – collectively going under the banner of a company called Planetary Resources – are dead serious in their quest to raise the necessary billions of dollars needed, develop the appropriate technology, mine the asteroids for vast quantities of platinum and create the world’s first trillionaires.

One also expected South Africa and its circle of blue-chip platinum miners to respond. After all, with them presiding over 75% of the world’s currently known platinum group reserves, the announcement by Planetary Resources potentially threatens this monopoly.

But either they shared the notion that these were crazy people, or they were busy with other far more depressing things, like simply trying to survive while preparing interim results in a very negative market. Most likely the latter.

As Northam Platinum spokesperson Memory Johnstone put it: “South African platinum companies are not really looking into that (space mining) right now, they are more concerned with just surviving at the moment. Platinum prices are down at the moment, so concerning themselves with space exploration for platinum is not really something they will consider right now.”

True, South African platinum group metals (PGM) production is down 25%, much of it due to labour unrest; the platinum price has fallen more than 16% over the past year and continues to slide; costs continue going up; executives of these mining companies have been facing something of a shakeup; and share prices have plummeted.

So when Planetary Resources made their announcement at the Museum of Flight in Seattle, Washington, South Africa’s platinum bosses probably were far too busy to be bothered.

Nonetheless, the ambitious US-based start-up company has formidable backing, and is dead serious. In fact, they have quietly been working at their plans for over two years now. In their announcement in Seattle - aimed at attracting investors and “the best brains” out there to participate in the venture - the group said that there are 9,000 asteroids larger than 50 meters in diameter in orbit near the earth. Some of them could "contain as much platinum as is mined in an entire year on earth”, they claimed.

And Planetary Resources is in a hurry to get to that vast orbiting treasure chest. It has committed itself to having its first prospecting telescopes in space within 24 months.

The players

Planetary Resources boasts a formidable A-list team of founders and funders, among them –

•     James Cameron, the Canadian film director-producer and deep-sea explorer who made the box-office hit “Titanic”;

•     Larry Page and Sergey Brin, the billionaire computer scientists who founded Google;

•     Eric Schmidt, an American businessman,  software engineer and the current executive chairman of Google;

•     Peter Diamandis, the founder and chairman of the X Prize Foundation who is widely held to be a key figure in the development of the personal or private spaceflight industry and who has created many space-related businesses and organisations;

•     Eric Anderson, a leading space industry entrepreneur who has led the development of commercial human spaceflight and the space tourism industry, selling more than $250 million in spaceflights including South African software billionaire Mark Shuttleworth’s space trip;

•     Chris Lewicki, a former National Aeronautics and Space Administration (NASA) Mars mission manager;

•     Tom Jones, a planetary scientist and veteran NASA astronaut;

•     Charles Simonyi, the chairman of Intentional Software Corporation and Microsoft's former chief software architect;

•     K. Ram Shriram, the founder of Sherpalo and a founding director of Google; and

•     Ross Perot Jnr, Texas billionaire and chairman of Hillwood and The Perot Group, whose father once ran for president.

One could hardly ask for more “heavyweight” than that, which is why sane and influential people everywhere should be taking serious note of their announcement.

In an interview with Space.com, Anderson said, "We are going to the source. ...The platinum group metals are many orders of magnitude easier to access in the high-concentration platinum asteroids than they are in the Earth's Crust."

It may be mere ironic coincidence, or a case of Hollywood-meets-reality, but it was co-founder and funder Cameron who wrote and directed the 2009 hit movie “Avatar” in which a fictitious precious metal called "unobtainium" is mined on Pandora, a fictional, lush habitable moon in the Alpha Centauri star system.

The technology

In developing the required technology, the group certainly has the right credentials with several of its members being aeronautical and computer scientists and engineers. Some of them previously worked on space programmes of NASA.

For now Planetary Resources will be focusing on robotic space exploration and getting exploration telescopes into place. In the course of the next two years the group hopes to launch between two and five space-based Arkyd-101 Space Telescopes that will be used for exploration to find the asteroids most feasible for mining.

The next phase – within five to seven years - would involve launching spacecraft with a more specific prospecting agenda to map out an asteroid in detail and identifying potential, relevant geological characteristics.

The third phase, within five to ten years, would see the company going from prospecting to actual extraction by the building small, relatively low-cost space craft to carry robots to the asteroids. These will mine them and bring back to earth the mined and refined platinum ore.

As the asteroids are believed to contain substantial quantities of water, the group intends using the water’s hydrogen and oxygen to create “fuel stations” in space to refuel the space craft to be used in the venture. This could also benefit NASA’s spacecraft involved in deep space exploration.

Planetary Resource hopes to launch its first spacecraft within 24 months.

The team says it will be making good use of technology already developed such as that used to take Cameron to the bottom of the Atlantic Ocean to film the sunken wreck of the Titanic, or the robotic technology used by petroleum company Shell to access oil in some of the deepest oceans.

Planetary Resources believes its initial customers are likely to include private research institutes and agencies like NASA.

The NASA fit

In fact, Planetary Resources’ plans seem to fit quite well with NASA’s own future plans. With NASA now retiring its space shuttle fleet and shifting its focus to deep space exploration, it will increasingly rely on private companies to build transport craft for cargo and crew and transport these to the orbiting International Space Station.

General Charles Bolden, the head of NASA, told me in an interview conducted with him when he visited Cape Town late last year that “one of the important challenges that NASA has from the National Space Act that established us in 1958 was to promote commerce and industry”.

“We just recently decided on a heavy-lift launch vehicle for example. We decided that we are going to rely on industry itself to build and operate space aircraft going into low orbit, taking both cargo and crew. That is a totally new industry that will grow up, hopefully not just in the United States.”

“One of the reasons why we think it is very important for us to now allow American industry to take over owning and operating the vehicles that go into lower earth orbit because we in America have been doing that now continuously for 30 years with a couple of interruptions when we lost Columbia and Challenger.”

“The shuttle programme was an incredible thirty-year technological era that I don’t think will be matched for quite some time but at the expense of not allowing us to explore, to go beyond lower earth orbit. So President Obama decided that we should follow along with the recommendations from previous administrations and turn over access to lower earth orbit to the commercial enterprises, and let us do the (deep space) exploration,” said Bolden.

Space prospecting

Exploration and distance prospecting of this kind is not quite new. In fact already back in 2000, Brad Blair of the Colorado School of Mines’ produced a paper on near-earth asteroids having a role to play in long-term platinum supply. He followed this with a paper in 2002 entitled “Space Resource Economic Analysis Toolkit: The Case for Commercial Lunar Ice Mining.”

Blair is described by colleagues as “dedicated to opening the space frontier for human settlement and commerce”, something he has been researching for over twenty years. He is also a professional space consultant to NASA, Bechtel Nevada, Raytheon and the Canadian Space Agency.

According to Blair high-grade PGM concentrations have been identified in so-called LL Chrondrite near-earth asteroids. He argues in his paper that space-based PGM sources will become available commercially over the next few decades owing to the technology growth that allows increased human activity in near-earth space.

He further argues – in line with what Planetary Resources are saying – that PGM deposits on asteroids will be sufficient to create its own viable economy. Until now iron meteorite samples have yielded evidence of substantial platinum deposits.

“Future economic work should include econometric estimation of short- and long-term demand elasticity for platinum, and extend the above analysis to the other platinum-group metals offered by asteroids,” says Blair.

“The breakthrough for space resources will come about when a sufficiently large market is found that justifies mining from a lower cost mineral source located in space. “The most commonly cited potential market is transportation fuels for earth-orbiting vehicles.”

The market

Planetary Resources does not shy away from the anticipated cost of the scheme which it says will run into billions of dollars. But, it says, the return will be an addition of “tens of billions of dollars to the US’ GDP annually." The company nonetheless hopes to bring down substantially the hitherto cost of visiting asteroids of between $1-billion and $2-billion.

The question is whether the platinum market can afford near-space mining. At present earth still has an abundance of platinum and PGMs certainly are not part of the current resource pinch.

An article in The Economist argued that “PGMs are expensive because they are rare. Make them common, by digging them out of the heart of a shattered planet, and they will become cheap.”

But Planetary Resources PGMs are high-priced simply because they are being used to narrowly. By expanding their application across more technology and industries because of greater supplies being available, will keep prices at viable levels, they argue.

And that is also what both the government and leaders in the mining industry in South Africa seem to think. In fact South Africa’s Department of Trade and Industry (DTI) is already thinking of creating a Special Economic Zone (SEZ) focused solely on platinum development.

The DTI’s director-general, Lionel October, has been quoted as saying that a DTI team was already engaging with various people to establish whether a central platinum hub with satellite zones would be economically viable.

PGMs have many wonderful uses. Platinum is used as a catalyst in fuel cells, and development of hydrogen fuel cells could open up a whole new world of clean energy, it is thought.

Anglo American CEO Cynthia Carroll also told the United Nations climate change convention’s seventeenth Conference of the Parties (COP 17) in Durban last December that by developing these fuel cells zero-emission electricity could be produced creating many new jobs and opening up all sorts of other opportunities.

Experts say the fuel cell technology derived from platinum can be used for a range of applications, from powering cell phones, to driving vehicles and even generating power in isolated locations, meaning there might just be a market able to absorb what Planetary Resources hopes to bring back to earth.

Anglo leads the way with fuel cell technology

Tomorrow’s power for today’s challenges

(Published in Mining, September 2012)

By Stef Terblanche

Turning challenge into opportunity may seem like a favourite cliché of motivational speakers and spin practitioners. But for South Africa’s mining industry it has become something of a survival tool, if not a way of life going all the way back to the early pioneering days of the diamond and gold rushes.

A national power crisis, rising costs, depressed market conditions, the need for jobs, regulatory and transformation issues, and switching to a greener economy are just some of the challenges faced by the mining industry.

To see how the industry responds to such pressures one need only look at the many innovative initiatives undertaken by mining companies in the wake of the 2008 power crisis.

One of these is the exciting work Anglo American Platinum (Amplats) is doing in conjunction with various partners and government in the field of platinum-based hydrogen fuel cell technology.

With just this one project issues such as stimulating demand for platinum, creating jobs, cleaner energy sources, energy self-sufficiency, environmental concerns, new technologies, mineral beneficiation, sustainable mining and more are being simultaneously addressed.

Anglo’s work in this regard started attracting wider attention when the company demonstrated a 150kw platinum-based hydrogen fuel cell power plant at the UN’s COP17 climate change conference in Durban last December. This was followed in May with Amplats announcing that it had launched the prototype of the first fuel cell powered locomotive for use in underground mining operations.

“This event marks a leap forward for fuel cells. The platinum-based hydrogen fuel cells, used to power the locomotive we are unveiling today, offer one of the most exciting opportunities for South Africa in the green economy. At Anglo American, we believe that with platinum at its heart, a South African fuel cell industry would support the country’s drive for jobs and help to meet its energy challenges,” enthused Cynthia Carroll, Chief Executive of Anglo American plc and Chairperson of Amplats at the launch.

In due course five fuel cell locomotives are to be produced and tested underground.

What are fuel cells?

Many people may be unfamiliar with this somewhat mysterious sounding “new” technology that promises to be the answer to so many things. So just what exactly is fuel cell technology?

The technology is not really that new, nor is it very complicated in theory. German scientist Christian Friedrich Schönbein first developed the principle of the fuel cell in 1838.

A year later the Welsh scientist Sir William Robert Grove published an article about it in the Philosophical Magazine and Journal of Science. In 1889 two chemists, Charles Langer and Ludwig Mond first used the term “fuel cell” to describe the device they had built using air and coal gas.

Their device was developed further by Cambridge scientist Dr Francis Thomas Bacon in 1932 into what was essentially the first alkaline fuel cell. Twenty years later various scientists undertook further development of the technology and by the 1980s car manufacturers, among others, started showing an interest in it.

In 1993 the Canadian Ballard company produced the first commercially viable fuel cell-powered vehicle. In 1997, Daimler-Chrysler, Ford and Ballard Power Systems formed a consortium to build fuel cell engines and drive trains for cars. In 2004 30 fuel cell buses built by DaimlerChrysler and Ballard went into service in Europe.

Today the diverse applications for fuel cells have included purpose-built vehicles, hospitals, schools, rural electrification, back-up power for telecommunications, combined heat and power applications for residential, commercial and industrial buildings, portable power and battery charging, and even in city buses. Many large vehicle manufacturers have fuel cell research and development projects these days.

According to information supplied by Mpumi Sithole, Media & External Relations Manager at Amplats, a fuel cell is essentially a gas battery that produces electricity as long as it is fed with hydrogen gas. It is a device that uses hydrogen (or hydrogen-rich fuel) and oxygen to create electricity.

They are more energy-efficient than combustion engines, as they extract more energy from the same amount of fuel, says the company.

Depending on the purity of the hydrogen used as fuel, emission of air pollutants or greenhouse gases may be zero or very little. The amount of power produced by a fuel cell depends on fuel cell type, cell size, operating temperature and pressure at which the gases are supplied to the cell, among other things.

Fuel cells have been used to provide auxiliary power on spacecraft for decades. They also have a broader range of application than any other currently available power source, says Amplats. Furthermore, fuel cells provide round-the-clock availability without any need to change or recharge batteries, which means less downtime and increased productivity.

The Smithsonian Institution describes a fuel cell as generating electricity by a chemical reaction taking place in two electrodes, the positive anode and negative cathode. Every fuel cell also has an electrolyte, which carries electrically charged particles from one electrode to the other, and a catalyst, which speeds the reactions at the electrodes.

The electrical current thus produced is directed outside the cell to power a motor or illuminate a light bulb, for instance.

While basic fuel cell technology is relatively simple to illustrate, building inexpensive, efficient, and reliable fuel cells is a different matter altogether. The biggest current obstacle to fuel cell commercialisation is the high cost, says Amplats partner Johnson Matthey.

Many different types of fuel cells have been developed, with differing technical details for each, much of it centred on the choice of electrolyte.

The main electrolyte types currently being used are alkali, molten carbonate, phosphoric acid, proton exchange membrane and solid oxide. Different types of fuel used also require different designs. Platinum catalysts are used in most types of fuel cells.

Suited to Africa

According to Amplats, fuel cells are well suited to the provision of distributed power in Africa. The attractiveness of fuel cells is that their most efficient fuel source, hydrogen, is an energy carrier and can be stored. Hydrogen is the most abundant element in the universe and any hydrogen-rich liquid or gaseous fuel can be used to provide the hydrogen for a fuel cell. Fuel cells can be deployed where they are needed, and use whatever fuels are available locally.

Amplats’ partner in the locomotive project, the US company Vehicle Projects Inc, has successfully developed a number of fuel cell vehicles in the US.

“A fuel cell locomotive incorporates the advantages of its competitors, namely catenary-electric and diesel-electric units, while avoiding their disadvantages. It possesses the environmental benefits, at the vehicle, of an electric locomotive but the higher overall efficiency and lower infrastructure costs of a diesel locomotive,” says Dr. Arnold Miller, who heads Vehicle Projects.

Miller was in South Africa in September to present a paper on the project at the Platinum conference of the Southern African Institute of Mining and Metallurgy at Sun City.

Dr Miller says the hydrogen for the locomotives would be produced on site on the surface at the mine and piped down to the underground locomotive for refuelling.

“For underground vehicles reversible metal hydride storage is the preferred type based on safety considerations. Reversible metal hydrides are low flammability, solid materials that use metal hydrogen chemical bonds to store hydrogen safely and compactly,” he says.

Amplats says fuel cells are relatively new in Africa with the complete value chain still under development and presenting significant opportunities for manufacture, assembly, installation, support, maintenance and fuel supply.

“At Anglo American, we believe that with platinum at its heart, a South African fuel cell industry would support the country’s drive for jobs and help to meet its energy challenges,” Carroll said. The company believes it will also promote knowledge transfer and export opportunities.

It stands to reason that Amplats would be focusing on new technologies involving the use of platinum, especially given the current downturn in the sector. After all, Amplats is the world’s top primary platinum producer, having contributed 42% of global supply in 2010.

The company says it is implementing its fuel cell strategy in order to drive demand for platinum group metals (PGM’s), specifically in South Africa.

“This is aligned to government’s beneficiation strategy of moving from an extractive economy to adding value where viable, and to potentially creating a new fuel cell industry,” it says.

Partners

Amplats has teamed up with various research, technology and manufacturing partners such as Vehicle Projects, Trident South Africa, Battery Electric, Johnson Matthey, Air Products, Doking, Dantherm and Clean Energy. The company has also established the Platinum Group Metals Development Fund (PGMDF) towards expanding industrialisation and beneficiation of PMGs. And it is also collaborating with the South African government.

The company believes fuel cell technology as a strategic and emerging industry is well aligned with the vision of the Department of Science and Technology and the company is working together with the Departments of Mineral Resources and of Science and Technology to encourage and support greater local beneficiation of platinum.

In fact the Department of Trade and Industry is already thinking of creating a Special Economic Zone (SEZ) focused solely on platinum development.

The DTI’s director-general, Lionel October, was quoted in one report as saying that a DTI team was already engaging with various people to establish whether a central platinum hub with satellite zones would be economically viable in line with the government’s Special Economic Zone Bill gazetted in January. The government was hoping through the licensing of SEZs it could industrialise outlying rural areas, attract foreign investment and boost job creation.

More projects

The fuel cell power plant demonstrated at COP17 and the fuel cell locomotive project, are but two of Amplats’ current projects.

A stationary 200kw fuel cell power plant installed near Lephalele in Limpopo on a Coal Bed Methane (CBM) site of Anglo American’s Thermal Coal business is used to provide electricity for the exploration operations in the area.

And a 50kw platinum based fuel cell was used to power Anglo American’s recent Mining Indaba gala dinner, held at Vergelegen Wine Estate in Cape Town. In conjunction with the SA government’s Hydrogen Economy Strategy (HYSA) Amplats also supports research in fuel cell related technologies in developing competence and capability locally.

Amplats and partners use these projects to demonstrate and showcase the fuel cell technology developed to date and the opportunities it could create for mining and the South African economy in general.

Focus on mining

Amplats has also initiated a “Fuel Cells in Mining” programme to investigate, develop, and pilot technologies that could improve current mining practices and where viable, adopt the technology. In this vein, for example, the fuel cell locomotive project aims to produce a fuel cell/battery hybrid that will operate more effectively and efficiently than current lead acid batteries.

“Technology is core to our approach to carbon reduction and energy saving activities. We have invested $180 million in low carbon technology. We are investing in technologies that will enable us to run cost efficient, carbon neutral mines in 20 years' time,” said Carroll.

Another project involves the development of the Dozer, a remote driven machine that performs a variety of functions in the underground environment that enhances the productivity and safety of miners.  And the Mining Cap Lamp project aims to produce a lamp that is as efficient in lighting as current products whilst providing a lighter more durable product that has an easy refilling mechanism to reduce overall costs.

Amplats, in conjunction with Dantherm, a Ballard subsidiary, is also investigating the opportunity and viability of providing fuel cell technology to power in-house residential housing projects.

But there are also challenges to the Amplats drive to promote the wider use of platinum through fuel cell technology. Last year scientists from the US-based Los Alamos National Laboratory and Oak Ridge National Laboratory published a paper claiming they had developed the use of a platinum-free catalyst in the cathode of a hydrogen fuel cell.

Having to use platinum catalysts has been singled out as one of the major factors contributing to the high cost of hydrogen fuel cells that has thwarted widespread use.

Nonetheless, it remains an exciting project and any challenges are likely to be met head on and overcome.

Some current global fuel cell technology developments

•                    Fuel cell technology is now so important that the US Senate now boasts a dedicated Senate Fuel Cell and Hydrogen Caucus with 4 co-chairs.

•                    Five hydrogen fuel cell taxis were built to transport VIPs during the recent Olympics in London.

•                    Danish car builders’ consortium ECOmove has unveiled an electric car able to travel 500 miles without refuelling.

•                    Mercedes-Benz in the US has purchased 72 fuel cell units to operate a portion of its Alabama plant’s lift truck fleet.

•                    Boeing is partnering with American Airlines and the US Federal Aviation Administration on a 737-800 airplane project as a flying test bed for environmentally progressive technologies, including fuel cell technology.

•                    South Korea’s Pyeongtaek Energy Service purchased 14 UTC Power fuel cell systems for energy supply purposes.

•                    California-based Life Technologies Corporation has installed a 1 MW Bloom Energy fuel cell system to power its company headquarters and other buildings.

•                    US company FuelCell Energy, Inc. was awarded a $3.8 million contract by the US Navy to develop and test a fuel cell power system for underwater propulsion.

•                    A major US defence supplier has ordered a 25-watt fuel cell  for testing in the use of a range of applications including soldier power, remote power stations, and unmanned underwater and aerial vehicles.

•                    NASA’s Kennedy Space Center entered a five-year Space Act Agreement with Cella Energy’s American subsidiary to make its micro-bead technology practical enough to be used as a fuel in most kinds of machinery, cars and even spacesuits and portable electronics.