NERSA to consider public opinion on the ESKOM proposed revenue application multi-year price determination 2013/14 to 2017/18 (MYPD 3)

Transcription

1 NERSA to consider public opinion on the ESKOM proposed revenue application multi-year price determination 2013/14 to 2017/18 (MYPD 3) MMC presentation to NERSA on 25 January 2013 to illustrate what the expected Eskom tariff increases will impact on this business!

2 Where is MMC in South Africa? Mn Ore Supply MMC Main Ports 2

3 We sell our products to customers all over the World Slide 3 3

4 30,000t per annum Production of Electrolytic Manganese 4

5 About Manganese Metal Company (MMC) Company has been in existence for 38 years Total workforce of 660 one of the biggest in the Mbombela / Nelspruit region The only remaining pure metal (Mn 99.9%) Manganese Ore beneficiating company outside China Of production, 94% is Exported and local consumption is 6% Local supply to companies like Columbus Stainless, Afrox and Hulamin Foreign currency averaging US$100M per year being earned for South Africa 5

6 We use an electrolysis process (energy intensive) to extract manganese from the ore to produce 99,9% pure manganese. 6

7 We pack to client specific product specifications. 7

8 We distribute our products to any destination in the world. 8

9 International Commodity Prices (all affected by global weakness) MMC s competition and major customer ave. US$ per ton Prices Downward pressure on MMC s prices 9

10 Industrial/Manufacturing (category) will effectively receive an annual tariff increase beyond 21% for the next 5 years! MMC falls under Key Industrial Customer Category 10

11 Electricity Cost as a percentage (%) of our Total Production Costs (21% p.a. increase for next 5 years) We have consulted with Eskom, Energy experts in South Africa and Internationally renowned experts on energy over the years to assist in reducing our energy cost wherever possible!!!! 11

12 Electricity Cost Increase at 21% per annum: Impact from 2013 to 2017 will be massive! 12

13 Impact on Future Profitability on this business! 13

14 Foreign Currency Being Earned for South Africa 14

15 Employment and Remuneration provided Large and well remunerated workforce will become part of the unemployed - dependent on social welfare 15

16 Company and Employee Taxes (Paid over 6 years) (Excluding VAT) Total of R350M contributed to the SARS over 6 years 16

17 Community investments Greater Nelspruit Rape Intervention Project: MMC donated an amount of R for the furnishing, equipment and buildings. Building maintenance work, Educational guidance and support for the children of Siyakhula Orphanage in Zwelitsha (On-going Project) Computer Donations to Mebala Women s residence-tut and other schools in Mbombela e.g. Khumbula High school R2 million spent on building a soccer field, basketball courts and a stadium at Ka-Magugu residential area, in 2002 A R2.5 mill contribution towards the building of the Penreach Shalamuka Science Discovery Centre, a first for this region, officially opened Sept 2012 Building of a pedestrian bridge for the Msogwaba community, opened May 2009 Purchase of a mobile clinic for Nelspruit branch of the SANBS, to support blood donation in our communities. 17

18 Contribution to the local economy by MMC We employ 660 Employees (3,300 dependants) We value-add 12 times the Raw Material (manganese ore from Hotazel) Beneficiation the dti priority US$ p.a. foreign currency earnings. R p.a. Investment in Local Economy R paid to SARS over 6 years. Once closed, energy intensive businesses such as these will never re-open under the proposed pricing model (MYPD 3)! 18

19 Comparative International Pricing Can South Africa compete at these price levels? International Electricity Price Comparison US Cents/kWh * source: NUS Consulting Group 19

20 South Africa is going to become one of the most expensive electricity suppliers. ( even with the abundance of coal within SA) Pre-power outages but post-build decision. Ranked cheapest amongst most trading partners. Currently middle of the pack More expensive than the United States! * source: NUS Consulting Group 20

21 Fundamental imbalance in electricity pricing will manifest if current Capex funding philosophy is allowed to continue. South Africa, with a energy fuel mix of 90% coal and with no carbon taxation, will still be pricing electricity at similar or higher levels to: Primary Energy Fuel Carbon Taxes Italy 48% Gas Yes Trading fees Australia 80% Coal Yes recent South Africa 90% Coal No - Pending Germany 43% Coal Yes UK 44% Gas Yes France 75% Nuclear Recent Deregulation US 44% Gas Mixed * source: NUS Consulting Group 21

22 Let s not forget what happened to other businesses in the last MYPD. (ZINCOR example) 22

23 CLAIM: ESKOM S proposed MYPD 3 price path is aligned with Government s objectives! When we examine the claim, from business perspective, in relation to the economy and the industry impact we cannot agree with that view and depict the impact in the following table:- Eskom proposed MYPD 3 Price path Eskom Objectives SA Economy Impact SA Industry Impact Support Economic growth and job creation Ensure that Eskom and the electricity industry remain financially viable and sustainable Continue to move towards cost-reflective tariffs Cover operating costs and enable Eskom to service debt related to funding the new build programme Enable Eskom to build up retained earnings for future expansion Create confidence that Eskom is a secure investment Include cross-subsidies for protection of low- income households 23

24 MMC s Proposal to NERSA Funding Model of the Eskom build programme is the issue driving the high increases! The energy funding model should be reviewed and based on models adopted by other emerging economies (e.g. New Zealand, Malaysia, etc.). A single digit tariff increase should allow for sustainability (for business)! Fundamentally parastatals should be an enabler! 5-year:- 21% increase (on industry) is not sustainable and the cross subsidisation model will have dire consequences. Mines and industries (beneficiation) are the economic backbone of the country and to make electricity the cause to cut-back or cease production is not the answer. The New Growth Path (for economic growth in South Africa) and ESKOM s hyper inflation increases are directly opposed to each other. South Africa as a destination of choice for Foreign Direct Investment (FDI) is losing its attractiveness as our competitiveness with the rest of the world is being eroded. 24

25 Our Plea as an Industrial Consumer! Our fate is in the hand of NERSA. Hyper-inflation increases on the ESKOM tariff of 21% annually will ultimately lead to closure of this local beneficiating business. The knock-on effect on the area of Nelspruit will be destructive. The New Growth Path and the developing of beneficiating industry resulting in Job Creation opportunities will have failed. Our Foreign 49% shareholder, after 40 years, has declared that their interest is for sale and is withdrawing their investment from South Africa. Essential Foreign Exchange of US$ 100 million p.a. will be lost. 25

26 In Summary Thank you NERSA for the opportunity to present and explain the ramification of the MYPD 3 application (by ESKOM) on our business and the economy as a whole in South Africa. It is a very serious consideration that NERSA has on its hands in terms of the approval of the ESKOM tariff increases (MYPD 3) on other Government initiatives such as New Growth Path and Job creation and at what cost to other industries! 26