Eskom pulls the plug at older stations
Several units shut down, cutting capacity to meet demand
● Eskom has taken several units at some of its oldest power stations out of service permanently because it can’t fix them or can’t afford to, cutting the capacity it has available to meet demand for electricity at a time when its power stations are performing worse than ever despite the money and effort spent on maintenance in the past few years.
However, it promised at the release of its interim financial results on Thursday that it is working with equipment suppliers to fix the defects at its newest power stations — Medupi and Kusile — that have seen them deliver only about 70% of the power they are supposed to supply, even though the utility is still in dispute with those same suppliers about who is to blame for the defects.
Announcing the results, Eskom revealed that its “energy availability factor” (EAF) had fallen to a shockingly low average of 69.9% for the six months to September, down from 75% in the same period last year, despite the money and effort it has been spending on maintenance. The EAF measures how much of its capacity is actually online to supply demand, excluding power station units that are offline for planned maintenance or have tripped due to unplanned incidents of one sort or another.
Environmental issues — unacceptably high noxious gas emissions — have contributed to the outages as has the age of the power stations (which have an average age of 37 years) and the lack of investment in replacing worn-out equipment in recent years, during which most of Eskom’s capital investment has gone on its new build projects.
However, head of system operations Bernard Magoro said although the reliability of the power stations was very low and the power system was very tight, Eskom was not planning any load-shedding between now and the end of the financial year in March.
The old units that have been taken offline — at the Hendrina, Grootvlei and Komati power stations — are no longer included in Eskom’s approximately 46,000MW of capacity, even though they have not been formally decommissioned.
CFO Calib Cassim said Eskom’s financial troubles are closely tied to its operational troubles, and even though it has committed to take R33bn of costs out over the next three years, it has limited scope in its revenue base to do so.
The results showed a R1.3bn profit for the first six months, but Eskom’s financial results tend to be seasonal, reflecting higher tariffs and lower maintenance in the first half, and executive chair Jabu Mabuza said the power utility expected to make a R20bn loss for the full year to March — the same as the R20bn loss in the previous financial year — with much of the burden of debt-servicing costs and wage settlements falling in the second half.
The utility, which now has just R5bn of cash reserves in the bank, isn’t making enough operating profit to service the interest on its R454bn of debt, which at R38bn was the second-highest cost item for Eskom, after its primary energy costs. But it is also struggling to collect debt it is owed by municipalities and by nonpaying Soweto customers, with the payment rate by municipalities now only 78%, down from 93% four years ago, and total arrears debt now heading towards R30bn by year-end.
The government has committed R138bn over three years to bail out Eskom and enable it to service debt and has published a policy paper, but plans to restructure the debt are still unclear and Mabuza said no plan had yet been discussed with Eskom’s bondholders. The utility has now used up all but R16bn of it R350bn government guarantee facility for its debt.
Mabuza will relinquish his executive responsibilities to newly appointed Eskom CEO Andre de Ruyter, who takes office on January 15. Mabuza said on Thursday that a rigorous process had been followed: “We are satisfied that Andre is the man for now.”
Ratings agency Moody’s, which downgraded its rating on Eskom’s unguaranteed debt to deep in junk at B2 on November 5, said: “Eskom faces significant challenges with complex problems that are not easy to solve.”
These included very high indebtedness and weak liquidity coupled with limited revenue growth, poor plant performance with intermittent load-shedding, nonpayment by municipalities and high investment requirements associated with an ageing fleet as well as Medupi and Kusile still facing delays and increased costs.