To enjoy the full Mail & Guardian online experience: please upgrade your browser
11 Jul 2014 18:50
the first unit of new power plant Medupi, under construction in Mpumalanga, will only be fully commercially operational by mid-2015. (Reuters)
Although Eskom turned a R7-billion profit, according to its
results released on Friday, the state-owned entity has warned that this will not be
sufficient to plug the R225-billion revenue shortfall it faces over the next
The country, in the meantime, faces continued power
constraints as the first unit of new power plant Medupi, under construction in
Limpopo, will only be fully commercially operational by mid-2015. This is in
line with Eskom’s commitment to synchronise the unit – unit number 6 – to the
electricity grid by December this year, after which it will take six months
before it can supply sustained electricity to the network.
The rest of the plant’s six generation units will only be completed and become operational between 2019 and 2020, according to Dan
Marokane, head of group capital at Eskom.
To ensure unit six could be completed by the end of the
year, resources were diverted from the next unit schedule to come on line, unit five. This has seen the gap between the
completion of the two units increase to between 10 and 12 months rather than
the six months Eskom had anticipated, said Marokane.
‘School fees’ paidBut the “school fees” paid in solving the technical
issues on these two units means that Eskom does not expect a repeat of these
problems at the remaining four units, according to Marokane. Eskom was looking
at optimising its construction approach, including concurrent construction of
the remaining units, to ensure a recovery to six-month intervals between the
commissioning of the remaining units, he said
Marokane did not elaborate on how the delays are
impacting on cost overruns on the project. Construction delays have already
increased Medupi’s price tag from R91-billion to R105-billion, excluding
Eskom has submitted a comprehensive sustainability report aimed at
solving the company’s long-term funding difficulties, which is the subject of ongoing
discussions with various government departments, acting chief executive Collin
Matjila told a briefing in Johannesburg. As part of the plan, Eskom is pursuing an
adjustment under the regulatory clearing account (RCA) administered by the
National Energy Regulator of South Africa (Nersa). The RCA allows for the claw
back of over or under-recovered costs, by Eskom, during a tariff determination
period, provided these costs are deemed prudent.
The strain on the power system, exacerbated by delays in the
construction of Medupi and its sister power station Kusile, have forced
Eskom to ramp up its use of diesel-fuelled, open-cycle gas turbines (OCGTs). The
cost of running these plants has doubled over the past year to R10.6-billion.
It remains to be seen if Nersa will deem the additional costs incurred
prudent, given that they have been driven, in part, to stop the power gap
created by the construction delays at Medupi and Kusile.
But Matjila said Eskom was convinced it had a case.
“We believe that we have a case to make for the prudency of
our expenditure on the OCGTs, but the decision obviously lies with the
regulator,” he said.
Maintenance costs to keep its existing power plants running
at their limits have also increased, rising to R13-billion from R10.6-billion
in the previous financial year.
Sustainability planAlongside additional money from the RCA, Eskom was pursuing
a broad range of options in its sustainability plan, according to finance
director Tsholofelo Molefe.
These included alternative sources of funding, such as
possible equity or quasi-equity instruments and exploring additional borrowing
options. The ability to borrow sufficient funds at affordable levels was, however, constrained by recent credit ratings downgrades according to
Molefe. Other options included the reprioritisation of capital expenditure
within the R251-billion budget. But this could negatively affect
operational sustainability and impact security of supply, she said. The
company had also already embarked on a business productivity programme to
reduce costs and drive efficiencies.
The impact of a ratings downgrade on Eskom was particularly
acute. The company’s credit rating is linked to that of South Africa’s
sovereign rating, which was recently downgraded. Eskom has been placed on credit
watch by ratings agency Standard & Poor’s. If it is further downgraded in
the coming 90 days, to sub-investment grade, Eskom’s cost of funding could rise
between 30% and 40%, said Molefe.
A key feature of future sustainability for the company would
be the move to “cost reflective tariffs” after the national energy regulator granted
Eskom an 8% tariff increase in its most recent application. Eskom had applied
for a 16% hike.
The tariffs allowed had “serious consequences for our
business and further sustainability”, said Eskom board chairperson Zola Tsotsi.
Eskom’s revenue shortages could not be made up by the efficiency
drives, he said.
“However, migration to a cost-reflective tariff remains the
main solution to ensuring the sustainability of the South African electricity
industry, and indeed of Eskom,” he said.
Create Account | Lost Your Password?