Eskom turnaround sustainable, says Minerals Council

Light bulb moment THE good news continued to flow at…

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Light bulb moment

THE good news continued to flow at the Junior Indaba mining conference after Minerals Council chief economist Hugo Pienaar said Eskom’s improvement was sustainable and the rand could strengthen further against the US dollar.

This followed on from yesterday’s presentation at which it was revealed the Department of Mineral Resources had finally signed the crucial service delivery agreement (SLA) for implementation of the country’s new mining cadastral system.

The fact that South Africa has had no load-shedding for more than 50 days has been met with deep scepticism by many commentators who believe this is part of the ANC’s attempts to curry support ahead of the elections to be held on May 29.

The specific allegation made is that Eskom has been burning huge amounts of diesel to maintain uninterrupted generation.

“Eskom is not burning more diesel,” said Pienaar. “In fact, they are burning much less diesel than this time last year.”

“This improvement is not a diesel story. It is actually about real plant performance which is starting to improve given increased maintenance over the past 12 months. So I don’t think this is an election gimmick. We think there’s real progress being made.”

Turning to the rand, Pienaar commented the recovery over the last two weeks to a nine-month high of R18 to the US dollar was mainly due to “foreign investors becoming less anxious about the outcome of our elections”.

He added that was the result, in particular, of the fact that the ANC was tracking higher in voter polls.

“Some of you may say ‘how is this a positive?’ but it all comes back to stability. There was this anxiety that if the ANC goes down to 40% that may open the possibility of a national coalition with the Economic Freedom Front and that – I think quite rightly so – would be detrimental for sentiment.”

Replying to questions, Pienaar said the rand could strengthen in the short term to around R17 to the dollar, but that there were still fundamental factors that would put a cap on far the rand could rise.

“In the near term the rand can swing wildly. If we get past this election and the market likes the outcome; there’s more ideas that the Fed could start to cut (interest rates) – then you could make a compelling story that the rand could go to R17 to the dollar but it’s not obvious that this is sustainable.

“You still have a fiscal problem in South Africa – debt that is too high; spending demand, and we are probably moving into a situation where we probably again will have a sustained current account deficit.”

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