The people vs Eskom


By Jonathan Erasmus

It’s unanimous: Eskom is the most hated organisation in South Africa. If you have attended or have been watching the public hearings held by the National Energy Regulator (Nersa) on whether Eskom should be given a 45% tariff increase over three years, you will realise that Eskom does not even trust itself – despite asking South Africans to cough up another trillion rand.

Even the Rastafarians booked a hearing slot to tell Eskom to “fix what needs to be fixed”.

The problems at Eskom are common knowledge: from state capture to massive overspending on capital projects and paying high premiums on coal, gas and diesel to politically connected friends, and employing more than three times the needed staff – each earning on average R800,000 per annum – as well as failing infrastructure, poor sales, poor maintenance and a debt burden so high it needs lines of credit just to pay the interest on the debt. Eskom, it is unanimously said “is not sustainable”.

The hearings have also unearthed an otherwise-muzzled voice in South Africa – largely due to its being linked to the embattled pro-Jacob Zuma nuclear lobby – with some business forums calling on the government to scrap or seriously rein in the Independent Power Producer Programme, calling it too costly.

Eskom Power station

Business and agriculture chambers lined up – from Middelburg, the Karoo, Virginia to Pietermaritzburg. They have called for a complete reorganisation of Eskom, an overhaul of how it works and, like in the case of Agri-Western Cape, the breaking up of Eskom and sale of portions to private enterprise to break the parastatal’s “monopolistic stronghold” because the national power company is literally too big to be allowed to fail.

Eskom’s request comes under two headings: the Regulatory Clearing Account (RCA) and the Multi-Year Price Determination application (MYPD).

The RCA is what Eskom calls a “balancing mechanism between what was awarded by Nersa on the basis of a forecast (MYPD), and what actually materialised”. In other words it’s a tool that allows them to take from the consumer if they didn’t reach the sale targets anticipated when previous Nersa increases were requested. For this, Eskom wants a once-off R21.6bn.

This is over and above the already approved RCA of R32.7bn which comes into effect in April, raising tariffs by 4.4%.

For the MYPD4, as it is known, Eskom wants 15% per annum for three years or R788bn over the three-year period.

All the chambers, without exception, predict a catastrophic ending.

As Linda Grimbeek of the Kruger Lowveld Chamber of Business and Tourism which incorporates Mbombela, said: “We are flat broke and left with zero tolerance for any more of this.”

The Nelson Mandela Bay Business Chamber said: “If approved, Eskom and South Africa’s economy will collapse,” adding that it will lead to “the utility death spiral” going into “full motion”.

It said the MYPD4 application provides “no leadership, no vision, no ideas, no solutions, no hope”.

Melanie Veness, CEO of the Pietermaritzburg Chamber of Business was as unforgiving: “With a qualified audit and questions about its going-concern status and with several of Eskom’s top executives being asked to appear before the judicial commission of inquiry into state capture, energy experts are speculating that over R500bn has been lost to corruption in the last 10 years. [With] the current state of our electricity infrastructure and the load-shedding that has been imposed on citizens, it would be remiss of any of us not to question the efficiency of Eskom. No private-sector business’s shareholders would ever tolerate results like this – decreasing sales; bloated staffing; ballooning debt (over 1,000% in 10 years) and financial losses. Quite honestly, it’s shameful and it’s embarrassing for all South Africans.”

The Middelburg chamber pointed out that Eskom’s request for a clawback in the Regulatory Clearing Account (RCA) was because lower sales had resulted in lower revenue.

“Eskom specifically asked customers to use less electricity and now, in the RCA, is asking for a claw-back because their customers listened to them,” said the chamber.

Eskom has admitted that the money it is seeking won’t plug its dire financial state, with a further R50bn required “from somewhere”.

In their attempt to sell Eskom’s increase to the public, their own submissions paint a dismal picture of an organisation in deep decline.

It admits that its sales of electricity are declining due to “increasing prices [leading to] energy efficiency improvements [by the consumer] and the shuttering of industry because the prices simply did not make the business competitive anymore. They also noted the deteriorating state of its equipment and therefore reliability was hurting its sales.

The enigmatic energy consultant Ted Blom has criss-crossed the country attending all but one of the eight hearings. His goal: get Eskom to admit to its crimes – which they have not done; get Nersa to acknowledge that the Eskom applications are defective – which they have; and force the regulator to refuse the increases until an independent forensic report is authorised, by Nersa, to comb through Eskom’s submissions.

 Ted Blom

In his various submissions Blom calls Eskom “de facto corrupt and inefficient, while the regulatory framework is historically ineffectual”.

“I thought we (Eskom) had a financial constraint and a financial issue, I thought we were over-populated and over-staffed. I never realised the generation plant was in such a disgusting state of repair. Eskom is playing with our lives. You asked what happened to the maintenance budgets and it seems Eskom has stolen so much money for themselves, they can’t even keep themselves going – they’ve got no money to do the maintenance,” said Blom when addressing Nersa in Port Elizabeth.

He said he was “shocked” to see that Medupi availability factor was at about 50%: “Good God, it is a brand new plant! What could you have done to have messed it up so badly? And then Kusile at 17%! It shouldn’t even be in commercial operation at that level. Really we are paying for stuff that doesn’t work.

“Eskom has a management and political-will problem. The assets are there, they used to work and now they are all messed up,” said Blom.

Both the Pietermaritzburg and Nelson Mandela Bay metros called for the scrapping of the Independent Power Producers (IPP) programme stating that, in these dire times, it added 13% to Eskom’s electricity price, 17% of generation costs, while contributing just 6% to power generated.

The Helenvale House of Rastafarians chairperson Samuel Benson said he “can tell Eskom now”, electricity theft will increase, and called for more green energy.

Their view was shared by Desmond D’Sa from the South Durban Community Environmental Alliance (SDCEA): “No increase should be given at all. We need to take people off the grid through renewable energy to cut down on coal burn and agree to the Paris Accord.”

Even the Minerals Council of South Africa’s conclusion on the increase is dire. “It is the Minerals Council’s considered view that Eskom would lose a critical part of its mining (baseload) customers, and its income would suffer severely. The result will be the collapse of Eskom; an accelerated ‘death spiral’.”

It was only Agri Western Cape that acknowledged that consumers have little choice. “It does seem as if consumers will have to make some kind of additional direct contribution… because the unintended consequences of delaying the process may further along prove to be even more severe.”

Nersa is expected to make a decision in March.

Share this article:

Reader's comments

Like to add your own comment ? Please click here to subscribe - OR -
 
Submitted by : Rod Gurzynski of Cape Town on 2019-02-23 17:43:57
Renewable energy has absolutely nothing to do with Eskom's financial woes. The 'scrap expensive renewable energy' meme has been injected into the twittersphere Bell-Pottinger style, from which dark hole it emerges like mushrooms, even inside noseweek.

Disclaimer

While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the authors nor the publishers of this website bear any responsibility for the consequences of any actions based on the information contained therein.