Energy tariff increases to slam brakes on auto industry competitiveness – AIDCEC

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The Eastern Cape Automotive Industry Development Centre (AIDCEC) has warned that the 15% electricity tariff increase, effective from April 1, will slam the brakes on the South African automotive supply chain’s drive to achieve greater levels of global competitiveness.

The AIDCEC says rising input costs could stunt growth in terms of volumes, particularly in exports, which, in turn, would make it difficult for the automotive sector to achieve its targets in terms of inclusiveness, localisation and job creation.

AIDCEC CEO Thabo Shenxane says the tariff increase will also have a negative effect on the Eastern Cape economy, driven largely by automotive manufacturing.

“As South Africa’s leading producer of vehicles and its biggest exporter, accounting for around 49% of South Africa’s vehicle exports, the Eastern Cape and, by extension South Africa’s supply chain, will be under even greater pressure to produce at competitive prices.”

National Association of Automotive and Allied Manufacturers executive director Renai Moothilal views the Eastern Cape automotive manufacturing sector as a vital cog in the overall South African automotive sector and says it needs a competitive electricity system to ensure the sector’s wellbeing.

“Not too long ago, cost-effective and stable electricity input was a competitive advantage of South Africa’s automotive value proposition.

“This is no longer the case, and the sector cannot keep absorbing such increases. The losers in this case will be regions that dominate auto production, such as the Eastern Cape.”

Shenxane says the tariff increase will have the most pronounced effect on small manufacturing companies and facilities.

“Electricity costs contribute more to the overall operating costs of small businesses than to that of larger establishments, and another significant cost increase could be the final blow for already struggling businesses.

“Some companies have still not recovered from the effects of the ongoing pandemic, and they are struggling to regain lost business and having to operate under the Covid-19 restrictions.”

The AIDCEC says that according to its experience, electricity costs generally make up between 5% and 10% of total operating expenses for medium to large auto manufacturers, and up to 20% for smaller companies.

In the automotive sector the metal, glass and rubber processing facilities will be impacted the most as they have higher energy consuming processes.

The AIDCEC reports that around 13% of the automotive firms that supply directly to vehicle manufacturers fall into this category in the Eastern Cape.

AIDCEC energy management project manager Elmar Thiart says every industry or company with high energy consumption will have to continue evaluating alternative energy sources, or alternative methods to create the same product, in order to ensure long-term sustainability.

“A focus on low-cost energy improvement opportunities could assist in optimising ways in which resources and equipment are used, in addition to monitoring the behavior of employees based on their mindset towards energy efficiency.

“Where capital is made available, high-impact projects with a low payback can be implemented.

“It is also critical that companies check that they are on the correct tariff charge and that they are aware that reduced rates on tariffs may be negotiated with the municipality.”

Shenxane adds that in order to ensure a stable power supply network, Eskom should be allowed by government to work alongside independent power producers to help with energy supplementation where it fails to meet demand.

“Investment in renewable resources in the short term to add to the supply network may be most expedient.”

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