by Mike Rycroft, Energize
ACTOM celebrated its 120th birthday recently the Royal Johannesburg Golf Club. Dr Robert Nkuna, Director General in the Presidency, other dignitaries and invited guests attended the event.
Mervyn Naidoo, the company’s CEO, said that the event was both a celebration and a milestone. The company we know as ACTOM began life in 1903 as the British General Electric Company (GEC). It manufactured electrical machinery and equipment in Cape Town. Naidoo honoured the firm for its ability not just to survive for over a century, but to grow despite multiple industrial revolutions, technology changes, a global health pandemic and economic cycles. It had done this, he said, by reinventing itself and remaining relevant to the market it serves.
Naidoo spoke to Energize during the event.
Energize: In your speech you mentioned the African free trade area. How do you see that supporting or encouraging the growth of the energy industry in Africa, and how will ACTOM take advantage of this?
Naidoo: Africa has a population similar to India and China, and it is projected that by 2050, the economically active population of Africa will overtake those of India and China. At present, the African continent generates only about 10% of the electricity that China generates. Africa’s low amount of generation causes it to be an importer of products, rather than producing the goods it requires itself, resulting in a massive trade imbalance. As the economically active population of Africa grows, the demand for products will increase. The continent has many natural resources such as iron-ore, copper, aluminium, lithium, among others, that get used in the manufacture of various electrical products. In many cases, though, the raw materials are exported and reimported as finished goods. The fact that we have the raw materials, the workforce, and the economically active population, should stimulate demand for locally manufactured goods. We need to use this growing demand, enhance it, and build the continent’s manufacturing capability.
ACTOM sees this as a major opportunity that could be exploited. We own the intellectual property (IP) for the products we manufacture, be it transformers, high voltage equipment, electric motors, switchgear, boilers, alternators, batteries and associated products, and that gives us a competitive advantage. Because we own the IP, we can transfer it to other countries and manufacture our products there. ACTOM has bought shares in companies in strategic areas. For example, it has a business in Zimbabwe, called GEC Zimbabwe; another in Namibia called ACTOM Namibia; another in Zambia, and has recently bought a low voltage business in Kenya. The intention is to establish industrial hubs using these companies. These industrial hubs are then platforms for growth of the ACTOM Groups offering into the broader geographic region.
Zambia is in the copper belt. We invested in the business, and have transferred technology and IP into the business, to expand our product range and ultimately service the copper mines in Zambia and other countries in the region. The same is true with the company in Kenya. That will become an industrial hub serving East Africa. The East African market includes the countries of Ethiopia, Tanzania, Rwanda, Burundi, and Uganda. Together, the population of these countries and the region is approximately 500 million. And they all have a huge demand for electrification products such as generation, transmission and distribution. Expanding that market will trigger other areas of growth as well.
Another example is the firm in Kenya that manufactures equipment for data centres. Demand for data triggers demand for power equipment to support the data centres. ACTOM is strategically positioning itself to take advantage of the African Continental Free Trade Area (AfCFTA).
Energize: In your speech you stated that ACTOM was involved in all areas of power generation. Could you please elaborate?
Naidoo: Starting with solar, the company handles the substations needed on site. Typically, power is generated at a low voltage and then stepped up to the transmission voltage by means of an ACTOM transformer. The substation will also contain our protection equipment and switchgear. We considered manufacturing solar PV equipment, as we actively need to remain relevant in the market, but we decided that we could not manufacture everything ourselves. And, with a highly commoditised product like solar PV, it did not make sense for us to become involved in that sector. Technology in this field changes quickly and a plant built today would be obsolete in three to five years. We decided to rather partner with a company which does mass production and incorporate their product into our systems.
In wind generation, we have the ability to manufacture most of the electrical components, including alternators, although we have not yet done so. We manufacture a range of MV alternators that could be used in wind farms, so the expertise is here. We have the capacity to manufacture transformers for wind farms and have already supplied hundreds of pad-mounted transformers to wind farms. These transformers feed the collector substation that connects to the grid. We do every element of the collector substation, transformers, switchgear, protection, etc. The distribution substation increases the voltage to the transmission substation, and we also offer the equipment that goes into the transmission substation.
We are also involved in nuclear power and recently assisted in Koeberg power station’s steam generator replacement, where we were subcontracted by Framatome to undertake various activities on the project. We also manufacture boilers via our John Thompson Boiler (JTB) division. JTB is an international brand that manufactures a range of boilers from small to industrial size. At utility scale, we do offer support and maintenance. We are one of two companies maintaining boilers in Eskom’s coal-fired power stations currently. We also manufacture boilers for co-generation plant such as used in the sugar industry.
In various projects we team up with partners, depending on the project. We have a few relationships, Lesedi is one of them, and we teamed up with them in the Ankerlig project, supporting Koeberg, where we manufactured equipment that Lesedi is installing there. Besides manufacturing and servicing product, we also do operations and maintenance (O&M) of power plan and associated systems. We have been involved in the construction of a 25 MW woodchip fired power station at Ngodwana, and today we do the O&M of the plant through ACTOM Lesedi power services.
Energize: Do you see an increase in on-site O&M power generation?
Naidoo: These days, companies tend to focus on their core business and at times opt to outsource aspects such as power generation to competent partners. Companies want to invest in their core business and don’t want non-core equipment on their balance sheets and prefer to enter into supply agreements for what’s needed. ACTOM is growing in this area.
By 2035 South Africa is projected to need over 100 GW of dispatchable power available, from a mix of generation technologies. Many power plant developers are private equity companies, which have no desire to be involved in the construction, operation and maintenance of plant. So they would outsource the construction to an EPC company, which we are, and then once the plant is built they would contract the operation and maintenance to a specialist company, and that is where we see a gap in the market, and are positioning ourselves to grow in this area. The commercial conditions of a power purchase agreement (PPA) are quite onerous, and penalties for failure are severe. It is not just about maintenance but having the ability to source spares and repair items, as well as having the ability to do predictive maintenance and anticipate failure. ACTOM has the IP to carry out this type of operation.
In the coal-fired generation field we are actively involved in air filtration incorporating electrostatic precipitators as well as bag filter technology. We are also involved in the refurbishment of cooling towers.
Energize: You also mentioned re-industrialisation as a challenge facing South Africa. Re-industrialisation requires energy and skills. Where do you see the demand being met?
Naidoo: Existing generation equipment has been largely neglected. Companies such as ours service power stations across the board and we are starting to see improvements in reliability. I am optimistic that there can be a marked improvement in generation capacity as backlogs in maintenance are addressed. We are seeing major interventions to turn around the current crisis. There are also numerous bankable projects in the pipeline that will boost power generation capacity.
Why do I say we should reindustrialise? The Covid pandemic caused huge disruption with many manufacturing companies shutting down during lockdown, some of which never reopened. So globally, what happened was that we had a period when there was no procurement, and then suddenly people needed to procure equipment, and there was a marked backlog in T&D and generation. This has resulted in increased product lead times, given the extensive supply chain disruptions, due to Covid, as well as the war in Ukraine and other global factors.
Generally, there are backlogs worldwide and we are starting to find that as a country you can’t rely on imported product. When there is a crisis, countries look to service their internal demand first. We are living in a volatile world and could be heading back into a world of restrained trade, like in the 1980s, so we need to seriously consider reindustrialising. ACTOM manufactures quite an extensive range of products. We have found that products which were not economically viable to manufacture in South Africa over 15 years ago are now in certain instances viable to localise and resuscitate manufacturing in South Africa. This is the case, given increased logistics costs, extended working capital cycle costs, exchange rates and a range of other factors. ACTOM as a Group actively seeks to ensure that locally produced products are cost competitive.
The ACTOM Group views education and skills development as a critical pillar for sustainability. The company therefore is actively engaged in educational initiatives at schools where we have mathematics and science programs, and this is followed through to tertiary institutions and training centres. For a number of years, the company has been working with high schools around Ekurhuleni (its home base) to support learners from Grade 8 and higher with the mathematics and science curriculum. We actively support youth development initiatives in an effort to ensure that skills are aligned with areas of demand. The company actively seeks to increase employment opportunities for youth, which will increase our economically active population, which is a key catalyst for economic growth in our country.
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