businessday

Eskom supported the use of its huge procurement programme to stimulate local industry, but has warned that this means higher costs and therefore higher electricity tariffs.

The severe shortage of skills, limited access to funding and the high cost of local inputs such as steel, cement and chemicals all pushed up the cost of local procurement for the utility’s power station build programme.

Eskom chief operating officer Brian Dames said in Parliament on Friday that the option of procuring from “alternative, established suppliers” had to be available when necessary to ensure the integrity of Eskom’s capital programme.

Eskom, Transnet and Kumba Iron Ore briefed Parliament’s trade and industry committee on ways their businesses could contribute to achieving the goals of government’s new industrial policy action plan, which aims to launch SA on a new job-creating growth path.

Strategic new industries would be created through leveraging the procurement by state-owned entities to foster local business. The public sector will spend an estimated R846bn over the next three years on infrastructure.

Dames and Eskom acting CEO and chairman Mpho Makwana told the committee the establishing of new industries would entail additional cost in investment and skills development in the immediate future. “In the interim a portion of SA’s electricity pricing reflects this cost of local industry establishment,” they said.

“SA’s capital expansion could be procured internationally at lower cost but national imperatives guide high localisation, which adds a cost premium.”

Dames said Eskom had established a procurement process that facilitated localisation, empowerment, skills, job creation and industry development. The R426bn Medupi and Kusile coal- fired power stations alone were projected to create about 40000 direct and indirect jobs that would benefit about 160000 people. Eskom would also source about 57% of its procurement locally.

Dames said Eskom’s long-term plans for future “fleet procurement” — purchases of a range of items smoothed over a long period to ensure the sustainability of local industries — required clarity on SA’s future energy mix and its own funding model.

He also cautioned against locking state-owned enterprises into long-term commercial arrangements unless “significant localisation benefit” could be realised.

Kumba Iron Ore CEO Chris Griffith emphasised the importance of SA having a competitive steel sector with level playing fields and a well-run transport sector if it was to meet the aims of its industrial policy. “Making iron ore available to a broader spectrum of steel producers in SA should create opportunities for increased competition in the steel sector,” Griffiths said.

Increased electricity tariffs could make the iron ore and steel industries less competitive, while Transnet’s difficulties in funding its capital expenditure could jeopardise Kumba’s expansion plans.

Kumba spent R3,2bn (36,9% of its R8,7bn discretionary spend) last year at black-owned and black-empowered vendors.

Acting CEO Chris Wells said Transnet had spent R13,5bn of its 2009-10 procurement spend of R20,7bn at broad-based black economic empowerment companies. Its move to long term strategic fleet procurement would assist local enterprises by providing a stable pattern of demand. It planned buy 75-100 locomotives over a lengthy period.