Eskom in a tight squeeze
It increasingly appears as if Eskom will be the beneficiary of a Government bailout, but the power utility may find its donor upping the ante on several key deliverables such as the ontime commissioning of the 4 800MW Kusile power station.
That’s the import of new Minister of Public Enterprises Lynne Brown, who wasted no time expressing her disapproval of Eskom’s poor track record in respect of projects, running costs and its inability to fill key executive positions.
Speaking at Eskom’s full-year results presentation on 11 July, Brown said: “We need to raise our game above the horizon and do something extraordinary as growth and investor confidence and jobs depend upon it.” The poor performance in generation and the repeated delays in the commissioning of the Medupi power station were “concerning”, she added.
It was a breath of fresh air from the minister who succeeds Malusi Gigaba in a difficult portfolio that also includes the management of SAA, the national carrier. SAA is living off a R5bn guarantee from Government but it’s unlikely there will be further bailouts. Eskom will find Brown’s department, as well as the National Treasury, similarly watchful of sending in good money after bad and will certainly link subsidies closer to performance.
“I have instructed the board to give a thorough report on the delays [of Medupi and Kusile] and to provide new timelines on the expansion programme as a matter of urgency,” said Brown. “We must ensure that lessons learned from Medupi 6 [the unit due to be commissioned in December] which should be incorporated into the commissioning of subsequent units and those of Kusile,” Brown said.
Medupi’s first 800MW unit should have been commissioned earlier this year but has been delayed by a number of well publicised contractor problems relating to boiler welding and control and instrumentation. Kusile is planned to start adding to the national grid in 2017.
Against this background, a Government bailout of Eskom is crucial if not inevitable. According to Eskom chairman Zola Tsotsi, Government support will play an important role in soothing the nerves of credit rating agencies such as Standard & Poor’s and Fitch.
“Basically, rating agencies are saying that they are looking for signals that indicate to them that ‘sovereign’ [Government] is there to support Eskom,” he said. “That is what we are very busy with, talking to sovereign and engaging in fruitful discussions around how to mitigate this particular matter. I have to say that Government has been extremely forthcoming at this juncture to the extent that we feel confident that we can turn around the impression of the rating agencies to uplift our rating as a company,” he added.
In addition to ‘sovereign support’ it’s also likely the National Electricity Regulator of South
Africa (Nersa) will raise the tariff after it emerged Eskom suffered a R225bn shortfall when it was granted only half of the tariff increase for which it applied (16%). Nersa is due to report back on Eskom’s application for
a higher tariff at the end of July.