sa power shortage to go on for years

JOHANNESBURG, May 29 (Reuters) - The power shortage that has slowed South Africa's growth and frightened investors will go on for years, the head of state-owned electricity utility Eskom warned on Thursday.

Eskom [ESCJ.UL], which produces about 95 percent of South Africa's electricity, has rationed power through a process called load-shedding since January, when the national grid virtually collapsed and millions were plunged into darkness.

Large gold and platinum mines shut down for five days.

The crisis has rattled investors, who worry government will veer to the left after a decade of pro-business policies. There are also fears power outages could darken the 2010 soccer World Cup in South Africa.

"We are going to be in this for years," Eskom Chief Executive Officer Jacob Maroga said in a presentation in Johannesburg. "The threat of load-shedding is with us for some time."

Eskom has blamed its problems on factors including the failure of the government to invest in electricity generating plants, maintenance problems at its existing facilities and wet weather that affected coal supplies.

It has embarked on a 350 billion rand ($46 billion) infrastructure expansion programme to meet growing demand for electricity and asked President Thabo Mbeki's government and consumers to help foot the bill.



PRICE INCREASES

Eskom's proposal to double electricity tariffs over a two-year period, however, has provoked a stiff backlash from the ruling ANC and its labour allies, who argued that such hikes would worsen the plight of the poor and stoke inflation.

The utility has since backed off the demand, agreeing in principle to raise tariffs gradually over a five-year period.

It was lambasted by representatives of local government and business this week at public hearings convened by the National Energy Regulator of South Africa, which must approve any increase in electricity tariffs.

It is scheduled to do so next month.

Kris Kumar of the Chief Financial Officers Forum for Metros, a group representing local government officials, said Eskom should be permitted an increase of only two to three percentage points above CPI, which is currently just above 11 percent.

"Eskom must obtain loans to make up the shortfall on its capital expansion programme," Kumar said at the hearings on Thursday, according to the SAPA news agency.

Eskom's management has played down hopes it could increase its reserve power supplies quickly and has asked that consumers be patient while it builds new generating capacity over the next five years.

Mines, a cornerstone of the economy, are operating with about 90-95 percent of their normal power supply. Statistics South Africa reported this week that mining production had dropped 22 percent in the first quarter, trimming GDP growth.

The power grid is expected to remain vulnerable during the coming winter months, when electricity use tends to peak.

Maroga said the utility's effort to raise its coal reserves had hit some snags, with power stations reporting an average of 18 days of reserves. That is below the targeted 20-day reserve margin. "It is actually slower than anticipated," he said.

Eskom has been hurt by a spike in the price of coal, which it uses to generate electricity.