by Dr. Tobias Bischof-Niemz and Johan van den Berg

Eskom’s current debt is R350-billion, and it needs to raise a further R150-billion over the next three to four years. This is almost certainly impossible, even with a government guarantee. It would appear that Eskom cannot stay afloat without a gargantuan bailout by the South African government.

NERSA’s low electricity price increase announced in December 2017 has passed most of the responsibility for funding Eskom from the electricity customer to the taxpayer and the fiscus. It’s been widely reported that Eskom would have already run out of cash without an emergency bridging loan by the PIC of R5-billion in early February 2018 and a further R15-billion by the end of the month.

But there is a simple way to stabilise electricity prices, cast off Eskom’s crippling debt and boost South Africa’s credit rating, while maintaining public sector control of critical assets in the electricity sector.

The Eskom generation fleet consists of 15 coal-fired power stations. They all have a limited lifetime, and were built to serve the country and economy before being retired and replaced. Scheduled decommissioning dates start soon, and end in 2050 or later. Given that these assets were meant to be extinguished over time for the common good, we can choose to do so in the most beneficial manner. The value of the power stations does not stem from their steel and metal, but from the fact that they are able to produce electricity over the residual lifetime of the plant. If we can manage to sell the Eskom coal fleet at the “net present value” of this residual lifetime value, we will be able to raise enough money to pay back the Eskom debt. This can be done as described below.

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The nascent private power industry and its substantial financial backers are reeling from Energy Minister Mmamoloko Kubayi’s recent apparent hit-and-run attack on them.

Last week, the industry was shocked to hear Kubayi announce they must all renegotiate their previously-agreed tariffs down to 77c/kilowatt-hour.

This would get them their long-delayed power purchase agreements with Eskom by November.

Looking for clarity, they learnt that Kubayi had left for the Brics summit in China and would take leave afterwards, said Mark Pickering, managing director of solar industry lobby group Sapvia.

“The minister drops this massive bombshell, then promptly leaves for China. After that, we are told, she is on leave for two weeks,” he told City Press.

The department and the minister’s spokespeople said they could not confirm the minister’s itinerary.

“The lawyers are really clear – there is no legal basis for this,” Pickering told City Press.

The department of energy simply endorsed Eskom’s attempt to “squash” South Africa’s flagship public-private partnership initiative – the renewable energy independent power producer (IPP) purchase programme – he said.

Kubayi’s announcement affects 27 projects representing at least R60 billion in capital expenditure.

“By setting a date and a price, you contradict the idea of a negotiation,” said Pickering.

“What is left to negotiate? It is absolutely clear that it is Eskom trying to squash the IPP office. To our astonishment, the minister has bought Eskom’s line hook, line and sinker,” he told City Press.

Eskom seems to be winning the battle on other fronts as well.

Coincidentally, the National Energy Regulator of SA (Nersa) is this week holding a hearing on complaints that the renewables sector lodged against Eskom months ago.

Despite the industry’s objections, it would be a closed hearing, said Pickering.

Not only had Oliver Wyman failed to approve the payments – it had red flagged them and recommended a legal review of the entire contracting process 
28 AUGUST 2017 - 13:31 STEPHAN HOFSTATTER
Eskom has admitted it lied when it defended making payments totalling R1.6bn to Gupta linked financial advisory firm Trillian and global consultancy McKinsey.

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May and June 2017 will go down as two of the most dreadful months in the history of the South African power utility Eskom. Its credibility in the eyes of the public has reached rock bottom after a series of well-publicised scandals.

Following the suspension of the then acting Eskom CEO, Matshela Koko, over a large contract allegedly benefitting his step-daughter, the nation was stunned by the reinstatement of the former CEO, Brian Molefe, who had previously left the utility under a cloud. The saga also forced the power utility to face the wrath of the parliamentary portfolio committee on Public Enterprises.
Highly damaging revelations followed from leaked emails, corroborating the findings of the Public Protector that Eskom’s leadership had allegedly irregularly assisted the Gupta family’s Oakbay Investments in securing the Optimum mine and the associated coal supply contract. The emails apparently also highlighted indefensibly close links between the Guptas and specific Eskom board members and executives. To top it off, the R4-billion Duvha boiler replacement was inexplicably awarded to a Chinese company, at a much higher cost than proposed by its competitors.
The scale of these alleged transgressions and the initial unwillingness or inability of government to deal with these matters has generated the impression that there are other agendas at play. It suggests that, like many other state-linked entities, Eskom has been taken over by persons furthering individual interests at the expense of the national good, a phenomenon now referred to as state capture.
This further raises the suspicion that the brazen taking of sides in the rollout of new generating capacity is also driven by other motives. Koko and Molefe have been outspokenly pro-nuclear and have blocked the long outstanding conclusion of power purchase agreements with successful bidders under the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP). The power utility appears to have also promoted the distorted narrative that renewables are chiefly responsible for job losses at Mpumalanga coal mines.
The latest REIPPPP projects offer vastly reduced power purchase tariffs compared to the early rounds. Most renewables are now clearly cheaper than the cost of new coal and nuclear. Therefore Eskom’s opposition to REIPPPP on affordability grounds sounds decidedly hollow. The perception has therefore been created that Eskom is part of an effort to sabotage the renewable energy sector, which is the nuclear industry’s chief competitor in South Africa’s future energy landscape.
By late June, after Molefe and Eskom board chair Ben Ngubane left, Lynne Brown, the minister of public enterprises, had clearly had enough of the scandals at the power utility and the associated public outcry. The Eskom board was reconstituted, and with it came the appointment a new and favourably received interim CEO, Johnny Dladla.
The deep crisis that Eskom is embroiled in requires drastic action. The new board must be firm and decisive in dealing with the scandals. The public needs to be convinced that no efforts are being spared in prosecuting those that have done wrong, and in recuperating irregular expenditure.
The power utility continues to be a key enabler of South African economic and social development, and its functionality and effectiveness remains a national imperative. The bulk of Eskom’s employees and the broader public support that goal.
While at this stage not directly compromised in the manner of Eskom, the nuclear industry too is in need of deep introspection. The sector has failed to condemn the irregularities and presidential interference in the nuclear procurement process to date, which saw Russian developer Rosatom allegedly placed in a dominant position over its competitors.
The Western Cape High Court ruling that the Russian nuclear agreement is invalid is viewed in some quarters as merely a speed hump rather than a call to return to the drawing board. NECSA board chair Kelvin Kemm’s defiant pronouncement in Moscow that the nuclear deal will be finalised before year end, probably to Rosatom’s advantage, is the worst thing the nuclear sector could do right now. Whatever the intention, such sabre rattling will merely harden the opposition from a public seemingly skeptical of all things nuclear.
There are respected people working in the nuclear field who genuinely believe that nuclear technology has a role in the future South African energy mix. These nuclear advocates have to now recognise that rehabilitating their sector requires the rebuilding of public trust, and honest attempts to allay concerns about costs, safety and potential corruption associated with new builds.
The renewable energy sector has been riding high on the back of positive international sentiment and the successful implementation of projects from the first three REIPPPP phases. That ride is however about to get much bumpier as the sector runs into opposition from unions and government.
While this opposition is to some degree based on misinformation, possibly planted deliberately, the renewable industry also needs to re-evaluate its tactics. Green hype and crude PR are no longer going to cut it, and current and past mistakes are about to be exploited ruthlessly. As with nuclear, sober engagement and diplomacy are now crucial to take the renewable energy sector forward to its rightful place in South Africa’s energy landscape.

​Source..... EE Publishers

Energy Intensive User Group of Southern Africa (EIUG) believes there is policy, legislative and regulatory space to introduce new electricity pricing arrangements to help restart of idle mining and process-industry activities, as well as encourage new investments to absorb Eskom’s surplus, which it sees persisting for a number of years yet.
Amid flat demand and rising supply, the State-owned power utility claims to have up to 4 000 MW of surplus available on a daily basis and has indicated that the excess-supply situation will persist until at least 2021 – a marked departure from the recent past, when it resorted to rotational load-shedding to avoid a national blackout.
The organisation is, therefore, supportive of Eskom’s initiative to promote mining and industry electricity sales and reports that its members are engaging with the utility to explore opportunities to reopen mothballed plant. “These sectors are major contributors to the South African economy. There is the potential to grow significantly and continue to be and become even more important as a catalyst for economic growth and job creation.”​
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The National Energy Regulator has approved an electricity price hike for 2016/17.

The National Energy Regulator (Nersa) approved a 9.4% electricity hike for 2016/17 on Tuesday.
Eskom submitted an application to Nersa in November last year to recover R22.8bn, which the utility said it used to avert load shedding.
The decision comes after extensive consultation with government, unions, small and intensive users, who engaged in public hearings in six provinces, according to Nersa chairperson Jacob Modise.
“The public interest was also considered as well as input of stakeholders,” he said.
Nersa evaluated the “regulatory clearing account” (RCA) balance for the first year (2013/14 period) of the third multi-year price determination (MYPD3) amounting to R22.8bn.
Energy expert Chris Yelland said Nersa allowed only half of what Eskom claimed for due to reduced sales , i.e. Eskom only received R6.2bn of the R11.7bn it had claimed for due to reduced sales.
“Nersa also only allowed a small part of what Eskom claimed for diesel, i.e. R1.3bn compared with the R8bn Eskom claimed for diesel,” he said.
The hike will kick on 1 April.
Nersa said based on the available infomation and the analysis of Eskom’s RCA application for the first year of the third Multi-Yar Price Determination (2013/14), the Energy Regulator decided that:

1. The RCA balance of R11.2bn be recoverable from standard tariff consumers, local Special Pricing Agreements and international consumers in the financial year 2016/17.
2. An amount of R10.256bn be recoverable from standard tariff consumers for the 2016/17 financial year only.
3. The average tariff for standard tariff consumers be increased by 9.4% for the 2016/17 financial year only.
4. The amount of R983m be recoverable from Eskom’s local SPA consumers and international consumers for 2016/17 financial year only.
5. Eskom must submit a new MYPD application within three months, based on revised assumptions and forecasts that reflect the recent circumstances.

Finance Minister Pravin Gordhan said at his press briefing ahead of his 2016 Budget Speech last Wednesday that tariff increases should only be approved if they are necessary, and not just to make things more comfortable.
“Regarding tariff increases, are they necessary or just comfortable in a particular environment?” Gordhan asked. “We need to improve governance, financial management and state-owned entities’ contribution to the developmental agenda.”
In the Budget Review, Treasury said “further efficiency improvements are necessary at Eskom to ensure moderation in future tariff increases”. “SOEs are not sacrosanct,” Gordhan said. “We are willing to take a tougher look at them.”
His comments came a day before Nersa was scheduled to announce possible electricity price increases through a tariff hike to fund Eskom’s shortfalls. It postponed its announcement to this Tuesday.

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​Fin24

There have been many references to the White Paper on the Energy Policy of the Republic of South Africa recently – this is what it said.
“Eskom’s present generation capacity surplus will be fully utilised by about 2007,” the Department of Minerals and Energy under Penuell Maduna wrote in December 1998.

In a document entitled White Paper on the Energy Policy of the Republic of South Africa, the Department of Minerals and Energy (DME) explained this figure was based on Eskom forecasts for an assumed demand growth of 4.2%.
The document is available on the DME website.
It outlined the state of South Africa’s energy sector in 1998, warned that although 2007 seemed like a long way off, long capacity expansion lead times require plans be put in place “in the mid-term” so the needs of South Africa’s growing economy can be met.

The DME and Eskom turned out to be spot on.
By 2007, electricity demand exceeded supply and South Africa’s power utility was forced to implement load shedding to prevent a national blackout.
Yet despite clear recommendations from the DME, the government didn’t act quickly and begin building additional capacity.
“Timely steps will have to be taken to ensure that demand does not exceed available supply capacity and that appropriate strategies, including those with long lead times, are implemented in time,” the paper said.
“The next decision on supply-side investments will probably have to be taken by the end of 1999 to ensure that the electricity needs of the next decade are met.”
Sadly, the next supply-side decision was only made in 2004, and further delays at Eskom caused construction of Medupi to only begin just before South Africa’s power woes began in 2007.
Source of the delayOne of the reasons the government didn’t react quickly on Eskom’s recommendations was that it didn’t recognise the urgency of the situation.
“When Eskom said to the government, ‘We think we must invest more in terms of electricity generation’, we said, ‘no, but all you will be doing is just to build excess capacity’,” former President Thabo Mbeki said at the time.
“We said, ‘not now, later’. We were wrong. Eskom was right. We were wrong,” Mbeki said.
Another reason for the delay in construction of new high-capacity power plants was because the government wanted to break Eskom’s monopoly, the DME said.
“For many decades Eskom has carried the responsibility of supplier of last resort, effectively enjoying a de facto monopoly on the construction of new generation capacity,” it said.
It explained that the government intended to steadily increase competitive pressures in the power generation sector with the aim to improve efficiencies and reduce electricity prices.
With the benefit of hindsight it is clear now that the government’s plan to create a competitive power generation environment had the opposite effect of what it intended.
Prices went up, demand far outstrips supply, and the soonest we can hope for sufficient additional capacity to come on stream is 2017.

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South African electricity tariffs are set to increase on average by 12.69% on 1 April 2015 for consumers who purchase directly from the state-owned power utility, Eskom.


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Eskom is in trouble – with seemingly nowhere to turn. The utility is in a funding crisis but government will no longer foot the bill.

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