JOHANNESBURG (miningweekly.com) – The time had come for the private sector to start making it clear that it wished to work with government to simplify mining policy and collaborate towards less regulation and greater implementation.

“Step up and get involved in providing meaningful information and honest comment,” thought leader Mike Rossouw urged in his keynote address at the Renewables & Mining Summit in Johannesburg on Wednesday.

He exhorted both mining and industry to be far more proactive in expressing their views on policy that was workable and policy that was not.

“I think we’re too silent and too hesitant to participate in the policy space. We can provide facts and information that government does not have,” the former Eskom adviser and Xstrata Alloys executive director told the conference, attended by Creamer Media’s Mining Weekly Online.

From being twice as wealthy as South Korea in the 1960s, South Africa had slumped now to having only a quarter of the wealth of South Korea, which had no natural resources at all.

South Africa, with its natural resource abundance, had the opportunity to do far better if it extracted and used its metals and minerals more efficiently and made better use of its human resources.

He outlined that nowhere in the world had it been possible to achieve the steeply inclining growth lines that the government had drawn in its future growth scenarios and that growth projections were too optimistic.

The reality was that only a 0.3% growth in labour created could be expected and that current realities were making it difficult to arrive at a sensible electricity growth plan for South Africa.

Mining companies were looking to reduce labour and the issue of productivity growth currently went way beyond mere output per unit of labour but now included mechanisation, automation and more efficient processes in general and much more efficient use of energy in particular.

High electricity costs had already resulted in reduced labour and less electricity use in mining.

Found universally, was that as a country used more electricity, its electricity prices dropped, and the trajectory on which South Africa now found itself put it at an electricity price level higher than its competitors.

Being electricity intensive but not competitive was unsustainable and as South Africa declined down the intensity curve and became a transitioning economy, it had to ensure that all future electricity prices were in line with those of the countries against which it competed, or suffer losses.

With electricity supply inextricably linked to mining, South Africa would be priced out of the market if its electricity price was higher and its productivity lower than those of its competitors.

South Africa’s mining and industrial sectors consumed 70% the country’s electricity compared with only 20% in the US, which was significant because the mining and industrial sectors normally needed to buy electricity at wholesale prices to survive.

South Africa was midway in the cone of electricity prices but would enter the bottom quartile if prices were not managed.

South Africa’s electricity price was on its way to 95c/kWh, which will create a serious problem for mining.

It was the legal obligation of the National Energy Regulator of South Africa to publish an electricity price path but it had not done so.

It also behoved Eskom to publish an electricity price path.

“It’s unacceptable that we’re confronted year in and year out with these massive swings in price increases. Every investor in mining, industry and power generation needs to know what the electricity price path is,” Rossouw said, flashing up a graph, which highlighted South Africa’s dependence on diesel-fired open-cycle gas-turbine (OCGT) plants to bridge the gap between what was needed and the capacity available.

Using normal forecasting methodology, a progressive closing of the gap was forecast from the beginning of 2016 as a result of additional non-Eskom generation and a lowering of demand.

The Council for Scientific and Industrial Research (CSIR) had projected upper and lower case scenarios that were lower than the standard model and currently, electricity demand was consistently even lower than the CSIR’s lowest forecasts.

This was of concern as it indicated lower economic activity.

A level for growth planning was thus urgently needed to avoid a situation where the country ended up with surplus capacity.

The change in the demand mix, as a result of the demand from mining and industry contracting and simultaneously diminishing lower-end consumer subsidisation, was also alarming.

“It’s an unsustainable model,” he added.

The only sector that had grown was the residential sector and then only during the short period in the peak, which the expensive OCGTs were serving.

South Africa, which had only a medium-term plan in National Development Plan, which extended to 2030, needed a longer-term plan driven by transformational economic growth, predictable political transformation and social transformation.