Hotshot trio fail SA

FIASCO: NO ESKOM SOLUTION FROM MANTASHE, GORDHAN AND MBOWENI

By working together, they could have secured SA’s energy and economic future.

SA’s state power utility Eskom is the biggest challenge facing the country. Mess up Eskom and you mess up the country. And it looks as though key players are doing just that.

The past two weeks will be remembered as the start of a cataclysmic economic crisis caused by the failure of three powerful men to spend enough time in a room to find a comprehensive solution that would turn the current crisis facing the utility into a great opportunity for SA’s energy and economic future.

By refusing to align their policies and strategies, the three ministers are responsible for triggering a crisis that could be resolved on the streets.

The ministers had a golden moment to take the first step by releasing SA from the stranglehold of a debt-laden Eskom.

But they failed to combine their respective policies into an integrated framework for transitioning to renewables, transforming Eskom and managing the utility’s ballooning debt.

On October 18 Minister of Minerals and Energy Gwede Mantashe announced a new energy plan (the integrated resource plan).

This was an opportune moment to set the country on a new trajectory in terms of energy generation.

The lowest cost option – only renewables plus gas – was rejected. In addition to unlocking renewables and gas, the plan provides for 1 500MW of coal-fired power, despite the fact that nearly all the biggest financial institutions in the world are divesting from coal.

On Tuesday, Minister of Public Enterprises Pravin Gordhan announced a new roadmap for Eskom. The focus was on unbundling and to create a “transmission entity”.

There was also reference to a “just transition”, without saying how it will be funded, to manage the consequences of decommissioning coal-fired power stations.

Mostly importantly, there was no reference to how the utility’s R450 billion debt will be managed. Finance Minister Tito Mboweni delivered his medium-term budget on Wednesday. The expectation was that he would set out how National Treasury planned to manage the power utility’s debt.

A restructured entity is expected to handle, at most, R200 billion worth of debt. Eskom’s debt is north of R450 billion. That leaves R250 billion worth of unserviceable debt.

Expectations were high that Mboweni would relieve Eskom of R250 billion worth of debt so it could be freed up to restructure.

He didn’t. He wants to see the restructuring plan implemented before he considers debt relief. There were alternatives.

On the debt front, as recommended by the Eskom sustainability task team, the R250 billion should have been ring-fenced with agreements on funding flows to ensure it is “ratings neutral”.

It was recommended the funds would come from sources, including the budget, revenues and carbon finance conditional on accelerated decommissioning.

Without this kind of arrangement, Eskom is redirecting funds for maintenance and operations into servicing debt. If this continues it will face system collapse.

The lowest cost option to meet future energy needs should also have been selected. The fact that it was rejected will cost SA an extra R100 billion when it needs the cheapest energy with maximum security of supply.

The misalignment between the three ministers has produced an outcome that is out of line with President Cyril Ramaphosa’s promise of a low-carbon, inclusive, climate change resilient development path. – Republished from The Conversation

Eskom holds R250bn of unserviceable debt