Business booming for India and South Africa

The Kiepersol colliery is one of the many
successful South Africa-India business
ventures.
(Image: Jindal Africa)

The vast scale of the Richards Bay coal
terminal is still not big enough to hold
the coal supplies needed by India.
(Image: Richards Bay Coal Terminal)

Trade and Industry minister Rob Davies,
left, Indian president Pratibha Patil, and
South African president Jacob Zuma, right,
address the India-South Africa Business
Forum.
(Image: The Presidency)

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Janine Erasmus

South Africa and India have much to offer each other – this is the view of industry professionals and government representatives, who came together at the India-South Africa Business Forum, held in Pretoria as part of the visit to South Africa in May by Indian President Pratibha Patil.

President Jacob Zuma addressed the media after his first meeting with Patil, saying that South Africa has “once again extended an invitation to Indian business to invest in our infrastructure development programme, in which we are to invest more than R800-billion (US$103-billion) until 2014”.

Of this amount, R300-billion ($39-billion) will go towards energy and R260-billion ($34-billion) towards transport.

At a workshop held during the forum to discuss possibilities in mining and energy, Mbuso Dlamini, executive chairman of infrastructure development company Palace Group, said that with the country’s shift towards green energy, opportunities have opened up.

South Africa currently has an energy generation capacity of about 43GW, he said, of which more than 80% comes from coal. Under the Integrated Energy Plan, which will balance the country’s needs with its greenhouse gas emissions, that capacity will expand to 80GW by 2020, with 14GW drawn from renewable sources.

“This is a big task,” said Dlamini, “and we’ll need partners to help us. India’s production is a massive 180GW, and more is planned, so that country has the experience and expertise we need.”

He mentioned that South Africa will be focusing on solar, wind and biogas energy sources, but will have to rely mainly on its coal resources for the foreseeable future. The country has a low potential for hydroelectric power generation.

“We will have to refurbish existing infrastructure, which will create yet more opportunities,” said Dlamini. “The president has indicated that billions are to be pumped into infrastructure, and that includes substations and similar structures.”

He said that independent power producers will also have an important role to play, especially once the Independent Systems and Market Operator (ISMO) comes into operation.

This proposed state-owned entity will buy electricity from generators and sell it to customers on a wholesale level, independently of national power utility Eskom. The body will also operate the integrated power transmission system.

The establishment of the ISMO will help to relieve some of the financial and logistical pressure on Eskom, and will open up the energy generation market to independent producers.

One of the envisaged ISMO’s key functions will be to maintain a balance between supply and demand of electricity, and it will also be involved in concluding electricity import and export agreements.

The ISMO Bill, which provides for the establishment of the body, was tabled in Parliament in March 2012.

Dlamini said that although the Western Cape currently relies heavily on the Koeberg nuclear power station, plans are in place to install infrastructure that will allow the region to receive power from the rest of the country, should the Koeberg facility go offline.

“We want to take the power to every user,” said Dlamini, “all the way from the Waterberg (in Limpopo, and site of much of South Africa’s coal reserves) down to Cape Town. We need to connect people to the national grid, and we all know that if more people pay for electricity, the price will come down.”

For this, he estimated, a spend of R300- to R500-billion ($39- to $64-billion) is needed.

Distribution is managed by municipalities but, said Dlamini, despite a number of starts and stops the arrival of regional electricity distributors, or Reds, is not far off. Six Reds are in the planning, and they will combine Eskom’s distribution function with that of South Africa’s 187 municipalities. Certain functions, such as the ability to disconnect non-paying customers, will remain with the municipalities.

This move is expected to address and resolve issues such as the highly fragmented structure of the industry, the wide disparities in electricity tariffs, and the uneven spread of electrification across the country.

Opportunities for coal export

Jitin Bhatia, the director of business development at INSA Coal Holdings, described his company’s operations in South Africa.

INSA, a South Africa-India partnership, was formed out of an equal partnership with India’s Action Group – one of the country’s most diversified business conglomerates – and the South African Sephaku Holdings. The latter company was subsequently unbundled with its subsidiary Incubex Minerals taking over as the other 50% shareholder of INSA.

The company was set up with a view to identifying, obtaining and developing coal projects in South Africa. Its active prospecting operations, based mainly in Mpumalanga province, started in February 2010.

Although it considered other options including Indonesia and Australia, the Action Group chose South Africa as its business destination, said Bhatia, for a number of reasons.

“The financial institutions here are very strong,” he said, “and several of them have operations elsewhere on the African continent, which opens up other opportunities. The stock exchange in Johannesburg is also outstanding.”

He named political stability; a strong human resource pool, especially in technical and production capabilities; the country’s strong mining reputation and expertise; its relatively low population density; and its wealth of mineral resources as other contributing factors.

“We now have 22 coal blocks,” he said, “and these are not connected to Eskom in any way, so we’re not taking their coal.” A coal block is an area for which a company has received a mining license to extract the resource.

Bhatia said that the ease with which the Action Group was able to set up shop in South Africa has led to requests for partnerships from Indian public sector companies.

“There are immense opportunities for exporting,” he said. “In 2011 South Africa’s coal exports out of the Richards Bay coal terminal were 65-million tons, and India’s shortfall for coal was 140-million tons. So we can take all your exports, and more, of any grade.”

Bhatia stressed that there were also opportunities for South African companies in India, especially in highly specialised operations such as shaft sinking.

Great opportunities

Chemical engineer Tony Zebert, a South African working for Jindal Africa, said his wife thought he was crazy when he resigned from his secure job at fuel producer Sasol to join the local branch of one of India’s biggest companies.

But, said Zebert, the Jindal Africa country head in South Africa, he was convinced that there were great opportunities ahead, and he hasn’t been disappointed.

“My goal is to help make the two economies into one of the world’s powerful groupings,” he said, “as I believe they can be.”

Jindal Africa is a part of Indian multinational giant Jindal Steel and Power Limited, a leading force globally in the steel, power, mining, coal to liquid, oil and gas, and infrastructure sectors.

Jindal owns the Kiepersol thermal coal mine in Mpumalanga, from which it obtains metallurgical grade anthracite coal. The deal, concluded in 2009, marked the first completed purchase of a coal mine in South Africa by an Indian entity.

Since then, Jindal has announced that it plans to invest $300-million ($39-million) to develop new and existing mines in Africa.

“We’re here to stay,” said Zebert, “and we’re even building our own office block on William Nicol Drive.” This road runs through the business district of Sandton, north of Johannesburg, and is popular as a location for corporate headquarters because of its accessibility to Sandton and nearby freeways.

Jindal mines the coal and sends it to India for further processing.

“There are more opportunities like this,” said Zebert. “In Mpumalanga there are huge dumps of discarded, low grade coal. We just need a way to get it out of there, because India will use it.”

Steel and power are the foundations of any economy, said Zebert, and Jindal is planning to play a role in both those industries.

“We aim to build our first power plant in Botswana, and I would dearly like to build a steel mill in South Africa.”

He added that the company is looking at mining coal in Mozambique.

“This has the potential to supersede South Africa in coal exports,” he said, “and in Mozambique there are fewer restrictions – we can build and own our own railway. We’re also interested in limestone in Madagascar, and copper in Zambia.”