Green too ex­pen­sive for Eskom

The trou­bled power util­ity can barely af­ford to com­ply with says pub­lic en­ter­prises min­is­ter

CityPress - - Business - PE­TER LUHANGA busi­ness@city­

Eskom has been ac­cused of “reck­lessly” mak­ing re­new­able en­ergy part of the power grid, blam­ing the gov­ern­ment for forc­ing it to do so.

“They are div­ing in head first,” said Sizwe Pamla, na­tional spokesper­son for labour fed­er­a­tion Cosatu.

His re­sponse fol­lows an an­nounce­ment this week by the power util­ity that four coal power sta­tions will be shut down to make way for in­de­pen­dent sup­pli­ers of re­new­able en­ergy.

Pub­lic En­ter­prises Min­is­ter Lynne Brown said in a par­lia­men­tary brief­ing this week that 1 500 jobs at each of the four power sta­tions would be in jeop­ardy.

How­ever, Eskom spokesper­son Khulu Phasiwe said there were be­tween 600 and 800 work­ers at each of the power sta­tions.

Cosatu has now asked the gov­ern­ment to sus­pend its con­tracts with re­new­able en­ergy power sta­tions un­til there is greater clar­ity about pos­si­ble job losses.

Pamla has spec­u­lated that Eskom in­ten­tion­ally an­nounced this to spark anger against the gov­ern­ment, which is en­forc­ing the de­ci­sion to ac­com­mo­date in­de­pen­dent power pro­duc­ers (IPPs).

“We have not pre­vi­ously been op­posed to IPPs, but if we move in a cer­tain di­rec­tion, it has to be one that pro­tects jobs and the

Eskom es­ti­mated that a to­tal of R340 bil­lion would be re­quired to fully meet en­vi­ron­men­tal com­pli­ance obli­ga­tions. This would sig­nif­i­cantly in­crease the price of elec­tric­ity – and it was un­sus­tain­able and un­af­ford­able, con­sid­er­ing the eco­nomic en­vi­ron­ment, Pub­lic En­ter­prises Min­is­ter Lynne Brown said this week.

Ad­dress­ing Par­lia­ment’s Port­fo­lio Com­mit­tee on Pub­lic En­ter­prises about the per­for­mance and chal­lenges fac­ing six state-owned com­pa­nies un­der her depart­ment, Brown said Eskom’s new Medupi Power Sta­tion alone faced an ad­di­tional cost of R40 bil­lion for flue-gas desul­phuri­sa­tion in­stal­la­tion.

The coal-fired fleet, she said, was age­ing and many sta­tions were un­der­go­ing midlife re­fur­bish­ments.

She said it was there­fore only pos­si­ble to al­lo­cate a frac­tion of the cap­i­tal ex­pen­di­ture bud­get for power gen­er­a­tion to emis­sion­sre­duc­tion projects.

Also, she said, costs for Eskom’s emis­sions-re­duc­tion plan ac­counted for about 20% of the to­tal third mul­ti­year price de­ter­mi­na­tion cap­i­tal ex­pen­di­ture bud­get – that is R8 bil­lion of the to­tal bud­get of R41 bil­lion. This is after most of the cap­i­tal ex­pen­di­ture costs of the emis­sions-re­duc­tion pro­gramme have been de­ferred to the fourth mul­ti­year price de­ter­mi­na­tion cap­i­tal ex­pen­di­ture pe­riod from April 2018 on­wards.

In ad­di­tion, she said, reg­u­la­tory un­cer­tainty re­gard­ing the Na­tional En­ergy Reg­u­la­tor of SA (Nersa) had an im­pact, too. Mul­ti­year price de­ter­mi­na­tion de­ci­sions posed a sig­nif­i­cant chal­lenge to Eskom’s rev­enues and the state-owned com­pa­nies’ abil­ity to meet debt pay­ment obli­ga­tions.

She said Nersa had ap­proved only a 2.2% price in­crease in its lat­est de­ter­mi­na­tion, and the court case re­gard­ing the le­gal chal­lenge on the Reg­u­la­tory Clear­ing Ac­count, which would al­low Eskom to claim back un­ex­pected costs, still re­mained un­re­solved.

De­spite the chal­lenges, Brown said, Eskom had con­tin­ued to main­tain a pos­i­tive fi­nan­cial per­for­mance. The com­pany posted a net profit of R4.6 bil­lion in the 2015/16 fi­nan­cial year.

“Fur­ther­more, the com­pany is pro­jected to post a profit for the fi­nan­cial year end­ing in March 2017,” said Brown.

“Eskom op­er­ates in a com­plex and highly reg­u­lated en­vi­ron­ment and the pol­icy de­ci­sions de­ter­mine whether the state-owned com­pany will be op­er­a­tionally or fi­nan­cially sus­tain­able. The chal­lenges fac­ing Eskom are the un­cer­tainty re­gard­ing the role of the com­pany in the fu­ture build pro­gramme, the ad­verse ef­fect of the gov­ern­ment,” said Pamla.

Gideon du Plessis, gen­eral sec­re­tary of trade union Sol­i­dar­ity, crit­i­cised Eskom for not ini­ti­at­ing dis­cus­sions with trade unions re­gard­ing job losses.

The four af­fected power sta­tions are Kriel, Ko­mati, Hen­d­rina and Cam­den, all sit­u­ated in Mpumalanga. Th­ese age­ing coal power sta­tions are all sched­uled to reach the end of their life spans by the 2020s, but Phasiwe said plans were afoot to ex­tend their run.

Hen­d­rina (which pro­duces 2 000 megawatts) will be shut first – at the end of 2018, when the coal con­tract with the Gupta-owned Tegeta ex­pires.

Two units of Ko­mati (1 000MW) have al­ready been shut. Ko­mati was con­nected to the na­tional grid in 1966.

Kriel (3 000MW) was built in 1979 and will reach the end of its life span in two years.

Cam­den (1 600MW) was con­nected to the grid in 1967, was shut down in 1990 and then re­con­nected be­tween 2005 and 2008 for an­other 10 to 15 years.

South Africa’s power net­work can pro­duce 45 000MW and elec­tric­ity de­mand is be­tween 30 000MW and 35 000MW.

– Aldi Schoe­man

in­de­pen­dent power pro­ducer pro­gramme, and high en­vi­ron­men­tal com­pli­ance costs,” she said.

About SA Ex­press air­line, she said the com­pany was fac­ing se­ri­ous chal­lenges that were more struc­tural than op­er­a­tional.

Its fi­nan­cial sus­tain­abil­ity is faced with prof­itabil­ity and liq­uid­ity chal­lenges, and a de­lay in rais­ing loans since March 2015. The state-owned com­pany is un­able to ful­fil its debt pay­ment obli­ga­tions.

“SA Ex­press was ex­pected to pay R150 mil­lion to the lenders by Fe­bru­ary 24, fail­ing which, the guar­an­tee pro­vided by gov­ern­ment would be trig­gered, re­quir­ing pay­ment within 30 busi­ness days,” she said.

She said her depart­ment sup­ported the state-owned com­pany’s re­quest to rene­go­ti­ate with Rand Mer­chant Bank and Ned­bank to pay them a re­duced amount of R58 mil­lion, and pay the rest in in­stal­ments based on a pro­posed re­pay­ment pro­file sup­ported by fi­nan­cial pro­jec­tions un­til Jan­uary 2018.

On op­er­a­tional chal­lenges, she said many of SA Ex­press’ air­craft re­mained on the ground be­cause of main­te­nance is­sues.

On Denel, she said the com­pany re­mained a gov­ern­ment flag­ship on how to im­ple­ment a turn­around strat­egy and it held an im­por­tant les­son for the state on how to op­ti­mise part­ner­ships with the pri­vate sec­tor.

“Over the past three years, Denel has posted prof­its. And the trend has re­mained up­wards. In the 2015/16 fi­nan­cial year, the com­pany posted a profit of R395 mil­lion,” she said.

Brown said Denel, for the first time, was ranked among the world’s top 100 global de­fence man­u­fac­tur­ers.

About Alexkor, she said its busi­ness sus­tain­abil­ity from di­a­mond de­posits was a chal­lenge.

The busi­ness model needed to be re­vis­ited to di­ver­sify the busi­ness by ven­tur­ing into other min­er­als op­tions, in­clud­ing coal, as well as more down­stream ben­e­fi­ci­a­tion.

On the SA Forestry Com­pany, she said busi­ness sus­tain­abil­ity was af­fected by tough tra­di­tional mar­kets and an in­abil­ity to ac­cess new mar­kets be­cause of a lim­ited prod­uct of­fer­ing.

Transnet re­mained an im­por­tant com­pany in the rein­dus­tri­al­i­sa­tion of the South African econ­omy through im­prov­ing the per­for­mance of strate­gic cor­ri­dors, Brown said.

Since 2007, Transnet had im­ple­mented an ex­pan­sion pro­gramme that re­sponded to South Africa’s in­dus­tri­al­i­sa­tion re­quire­ments, she said.

“All our state-owned com­pa­nies within the port­fo­lio of the depart­ment of pub­lic en­ter­prises have thus far recorded a profit of R5.4 bil­lion for the 2015/16 fi­nan­cial year. It is also im­por­tant to note that the state-owned com­pa­nies are cre­at­ing di­rect em­ploy­ment for ap­prox­i­mately 120 000 peo­ple.”

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