Eskom in a tight squeeze

Finweek English Edition - - INVESTMENT - BY DAVID MCKAY david@min­ingmx.com

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.

Zola Tsotsi

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