Eskom’s board convened a “marathon”, six-hour emergency meeting on Monday, as load-shedding was dramatically intensified during the course of the day — a stark reminder of the troubles plaguing the embattled utility.
The board met with the utility’s executive management and Public Enterprises minister Pravin Gordhan, after an additional seven power generating units tripped within a period of 5 hours, the company said in a press release late on Monday evening.
“We remain uncomfortable about the stability of the generating system but will keep the country informed of our progress over the next few days in providing better assurance about electricity supply,” Eskom board chairperson Jabu Mabuza said in the statement.
The board was provided with a detailed analysis about breakdowns in Eskom’s new build programme and at its fleet of older power stations.
“The Medupi and Kusile power stations – the core of the new build programme – are continuing to show a lack of reliability to contribute meaningfully to Eskom’s generating capacity, which is a serious concern,” Eskom said.
The board will institute an urgent review to establish when “realistically” these projects will be completed, and the extent of the design and other operational faults. It will also determine what steps can be implemented to minimize the escalating costs as well as to increase output Eskom said.
Trouble at the new build power stations appears to be a particular challenge for Eskom. An investigation by EE Publishers last week revealed that a key Eskom subcontractor responsible for the design, supply and installation of ash handling systems at its Medupi and Kusile power plants had run into major financial trouble.
The company, Clyde Bergemann Africa (CBZ), is also is a service provider to Eskom for ongoing boiler cleaning and soot blowing services and spares on operational coal-fired generation units at Medupi, Kusile and a number of other Eskom power stations. These systems are crucial to the functioning of power stations, and if not functioning properly, can severely impact the availability and performance of coal fired power stations according to the report.
The board will also conduct an audit of the entire system to understand the technical problems at “a granular level” and to avoid further unexpected crises.
At least four of the units had been returned to service by Monday evening, according to Eskom, with the remaining three expected to be back in service by Tuesday morning.
Eskom’s acting head of generation Andrew Etzinger said the generators that went out on Monday were spread across the fleet, and were unrelated to one another.
Load shedding intensified from the planned stage two outages, which require that 2 000 megawatts be cut from the system, to stage four, which requires 4 000 megawatts be shed. Eskom had originally indicated that six generating units had gone down.
Before load shedding was ratcheted up, the company had forecast that it was likely to be short between 1001MW and 2 000MW for this week – starting February 11, according to its weekly systems status report. This is also the likely scenario expected for the weeks ahead until 4 March.
Eskom – which has been labeled the greatest threat to the country’s economy – does not only face operational difficulties. The company is expecting a R20-billion loss for the current financial year, while it labours under almost R420-billion in debt.
Its application to the national energy regulator of South Africa (Nersa) for more money has been met with scathing criticism from the public and business at large. Eskom is asking for an increase in tariffs of 17.1%, 15,4% and 15,5% in the coming three years.
In a bid to address its problems, President Cyril Ramaphosa announced during his state of the nation last week, that the company would receive further financial assistance from the state – the details of which will be outlined in the upcoming budget.
Eskom has proposed that the state take R100-billion of Eskom debt onto its own balance sheet. Economists and analysts have warned that this would potentially raise the state’s own debt to gross domestic product (GDP) levels and increases the likelihood of a credit ratings downgrade from ratings agency Moody’s.
Ramaphosa also said the company would be split into three separate business units housing its generation, transmission and distribution arms. The proposal, which was first mooted in government policy aroud two decades ago, is largely seen as the first step towards bringing in greater competition in the energy sector – particularly on the generation front, where independent private producers could pit themselves against Eskom’s monopoly.
But this idea has long been resisted by labour unions who are opposed to privatisation of Eskom. The company’s costs are also seen as too high – particularly what it spends on coal procurement and its wage bill — with Eskom estimated to be over staffed by about one third. Unions have warned they will oppose any attempts to cut staff at the utility.
In a statement on Friday Moody’s said that, while the decision to separate the group’s divisions paved the way for more transparency on how revenue and costs are allocated across the business, “in and of itself, it does little to address Eskom’s financial challenges”.
With debt of R419-billion — or 8.5% of 2018 GDP – of which R252-billion is government-guaranteed, Eskom’s financial trajectory “will have a significant bearing on the government’s fiscal strength” it said.
Financial support to Eskom accompanied by measures that durably stabilizes its financial health would be credit neutral it said. However financial support that came before measures aimed at making savings at Eskom materialise —particularly as these would entail unpopular decisions on electricity tariffs and cost cutting — would be credit negative, Moody’s warned.