The Free State's Lethabo power station. File photo by Mujahid Safodien/Getty Images
Public Enterprises Minister Pravin Gordhan and Finance Minister Enoch Godongwana are locked in conversations about how to secure funds for Eskom’s future diesel supplies and settle its debt.
Several senior sources in Eskom and the treasury privy to the discussions said these discussions have become fervent because suppliers no longer trust Eskom to pay on time and this will lead to load-shedding beyond stages five and six.
“They are discussing ways they can have payment arrangements with petrol companies and our suppliers so that we can limit further load-shedding,” said the source in the treasury.
“What happens is that the suppliers have lost confidence in Eskom and would rather make arrangements with the ministers knowing that they will pay.”
Responding to questions in parliament on Wednesday, Gordhan said the government had identified 50 million litres of diesel to make immediately available to Eskom from PetroSA while the power utility awaits a more permanent solution to its diesel supply woes.
Diesel is used to run Eskom’s two open-gas cycle turbine power plants, Ankerlig and Gourikwa, during peak periods and during emergency situations to feed electricity into the national grid.
Through discussions with Eskom’s board, the treasury and diesel suppliers, they have found a short-term solution that will help the utility for 15 days.
“A number of options were identified. Those options are currently being evaluated by the treasury team and we expect a response soon,” said Gordhan, who also referenced discussions with Mineral Resources and Energy Minister Gwede Mantashe on keeping the diesel flowing.
“We are going to do our best to ensure the supply line stays in place to ensure an adequate supply for Eskom,” said Gordhan.
He said that Mantashe and PetroSA had given the undertaking that sufficient diesel would be made available at all times for Eskom, one of PetroSA’s biggest customers.
Eskom spokesperson Sikonathi Mantshantsha said the utility welcomed PetroSA’s diesel and would be able to decrease load-shedding from stage four to stage three.
In September, Eskom’s chief operations officer, Jan Oberholzer, said the power utility’s financial troubles will worsen this year because it has burnt more than R7 billion of diesel.
“So we have got R350 million left of the original year’s budget and we are only midway through the year. It is a serious concern, so we are going to overspend.
“And it’s really a tough place where we find ourselves. You don’t have money and you need to use your emergencies because you do not have the capacity to supply the demand of the country,” he said at the time.
By June this year, Eskom was already announcing budget shortages for diesel when it said the escalating cost of fuel, coupled with the high demand for emergency power generation, compelled it to burn diesel at about twice the rate it had budgeted for.
This is after Eskom increased load-shedding to stage six in August and September.
Rotational load-shedding up to stages four and five was implemented in the past week.
Eskom announced last week that it had already spent more than R11 billion on diesel and would only be able to order supplies in April 2023.
This meant that the country would be subjected to longer stages of load-shedding, because Eskom uses diesel to power the two open-cycle gas turbine plants, which are a critical source of emergency electricity generation.
They are needed to compensate for the loss of capacity caused by breakdowns at Eskom’s coal-fired power stations.
PetroSA is not the only supplier of diesel to Eskom, but it provides the power utility with about 60 million litres a month. Gordhan said some diesel from PetroSA is delivered through a pipeline and some by truck.
Two sources in Eskom said the problem lies in the vast amounts of diesel used to avert load-shedding, the failure to pay suppliers and the trust deficit growing.
However, Sikonathi said the utility does not buy diesel on credit.
Now Eskom has had to go back to the treasury with cap in hand to ask for money.
In 2021, Eskom argued that reporting to the treasury on procurement was causing a bottleneck.
In March this year, Jainthree Sankar, Eskom’s chief procurement officer, told parliament’s committee on public enterprises that Eskom had to be able to demonstrate to lending organisations that it can conclude procurement in a shorter space of time and complete projects timeously.
Swift changes were made to the Public Finance Management Act’s supply chain management processes to allow Eskom to approve contract variations without the treasury’s approval.
The power utility said in May that the new instruction note will assist in “providing agility and control in the procurement and supply management process to Eskom, which will assist in unlocking some of the bottlenecks in our attempts to speedily resolve some of the pressing operational challenges”.
Based on the treasury’s records, some of these deviations and expansions included purchasing agreements for diesel, which ran into hundreds of millions of rands.
Part of Eskom’s failure to get more money for diesel lies with the National Energy Regulator of South Africa (Nersa), which has previously dismissed Eskom’s attempts to recover all diesel costs through annual tariff increases. The power utility says these are still not cost-reflective.
Eskom has asked for a 32% increase in the cost of electricity from April 2023.
Nersa is set to determine its tariff hikes for next year in December.
Nersa has argued that if Eskom was run more efficiently, it would not have to resort to overspending on diesel.
The treasury is waiting on Nersa to consider the energy regulator’s tariff hike decision before deciding on the bail out amount for Eskom.
Another treasury source said the amount would be informed by the price tag of the funds needed to make Eskom viable.
It’s not clear where the treasury will get the money to give to Eskom — although Godongwana has previously said that the government is in the process of designing a new debt relief programme for the power utility.
“As together with other reforms, we’ll ensure that Eskom is sustainable. This programme will allow Eskom to focus on plant performance and capital investment and ensure that it no longer relies on bailouts,” Godongwana said during his mid-term budget speech last month.
The treasury confirmed that it will relieve Eskom of a portion of its close to R400 billion debt, which has fed into the state power utility’s near collapse and the country’s growth-killing energy crisis.
The treasury is leading a process to design a debt relief programme that will address Eskom’s financial problems and help to restore its efficiency.
25/11/22: This article was amended for clarity.
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