Eskom crisis: Government co-owns the problem

Eskom has asked government for yet another bail out – this time in a cash injection of R3-billion. 

Without it, or a way to recover the cost, the utility says it will not buy more diesel to keep the lights on.

In response to questions at Eskom’s quarterly state of the system briefing on Thursday afternoon acting financial director Caroline Henry, said the company needed the cash injection, and although the Eskom board had already agreed to break the budget on diesel of late, it had reached its limits. 

“It’s irresponsible to borrow and spend if you don’t know you are going recover it.”

Asked why the utility doesn’t simply use the guarantees at its disposal she said: 

“Guarantees are used sparingly to access funds. We certainly will not be burdening our balance sheet further without certainty on receiving money and how the tariff profile is going to unfold.”

The national treasury last year announced a rescue packackage to help ease Eskom’s financial issues in the medium to long term. 

The national energy regulator too has approved the utility R7.8-billion through hiking electricity tariffs. 

Peaking plants, run on diesel, are meant to be used for a limited period. But the loss of full capacity at its Majuba power station means it had to use more diesel to keep the lights on and subsequently has put the utility’s financial health under stress. 

At the rate Eskom currently uses diesel, such a cash injection would only foot that bill for three months.

‘We need government support’
The cost of diesel is not the only factor and Eskom’s financial strain is owed to reduced sales, increased debt, cost overruns with respect to its new build programme, and tariffs that do not reflect costs. 

Chief Executive Oficer, Tshediso Matona said: “We cannot get ourselves out of this situation, we need government support in a number of dimensions – the government co-owns the problem.”

But, seemingly irrespective of the funding, he said Eskom will have to take hard decisions in order to ensure the sustainability of the national power system and most days in the near future will experience load shedding. 

“We have arrived at a turning point, I think, where we can turn to do the same things as in the past and make the problem bigger and [take] much longer to sort it out. Or we can do the right thing,” said Matona who took up the position just over three months ago.

He emphasised that South Africans needs to accept that the problems the system faces are complex and will take a long time to overturn. “We have to live with this reality,” he said. 

Deferred maintenance
Matona said Eskom has been able to keep the lights on through deferring maintenance and running open cycle gas turbines on diesel. 

Deferred maintenance, he said, means that: “Our equipment is so unreliable, the risk of breakdown is an ever-present reality.”

Eskom would need breathing space of at least 5000MW in order to do the required maintenance without having to load shed. The first unit of Medupi, which missed a deadline of synchronisation in December last year, when it does come online will bring just 600MW on to the system.

Forced maintenance at Koeberg power station in February will take one of two generators, accounting for 900MW, out of the system. As Koeberg is a nuclear station its maintenance is enforced by the national energy regulator and not Eskom and would be shut down if it deviated from the schedule.

“We have decided as a company, and we are supported by government, to do the right thing. And that means getting down to our maintenance religion and implementing it properly.”

Matona, who has headed the utility for over three months, explained that Eskom had an exemplary maintenance schedule, but it had not implemented it as required for a number of years, even after the 2008 crisis. This was despite budget being allocated for it. 

Some of the times where maintenance was deferred, he pinpointed the 2010 World Cup and the elections. Although he emphasised there were other factors.

“The system remains vulnerable, any extra load or any fault in the system pushes us over into load shedding, said Matona. If the system loses 1000MW (that’s typically two or three of its total 87 units) at any time it forces the company into load shedding. It’s not whether or not load shedding will be part of our lives, it’s how do we cope with it?’ the CEO said.

“It will not be reversed overnight, we are probably going to require as long as it took to create this problem to overcome it. Here we are talking about years and years.”

Finance Minister Nhlanhla Nene this week told press that Eskom, not government, must be responsible for day-to-day operations. 

Analysts have also warned that, as far as investor sentiment is concerned, a cash injection would be the worst possible solution from treasury.

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