Some tips for Eskom’s new boss

 

 

The public’s frustration with load-shedding has given the impression that Eskom’s multiple crises are beyond the government’s ability to resolve.

It’s easy to fall into the trap of pessimism, especially because the government has, on several occasions, undertaken to halt load-shedding, only for it to return.

Here are some of the basics that need to be done to add to what could be on the list of Andre de Ruyter, Eskom’s new chief executive.

First, Eskom has to make sure the maintenance of power plants are done on time. Scheduled maintenance should not be missed because the consequences of short cuts tend to be dire. The public should be informed of the maintenance schedule.

Second, the completion of the Medupi and Kusile power stations should be fast-tracked without overspending. Eskom must enforce the obligations of contractors. There must be no secret arrangements between contractors and those overseeing them. Without Medupi and Kusile being fully functional, Eskom has no future given the age of most of its power stations. But Eskom has admitted it has a problem in deciding how to invest further in the two power stations to deliver the 9 600 megawatts expected of them.

Third, there must be zero tolerance to corruption. The government’s anti-corruption framework is one of the strongest in the world. Given the need for competitive, transparent and cost-effective procurement in state-owned companies, Eskom was supposed to be ruthless in tackling corruption.

But we know, as state capture has taught us — and might continue to teach us if it continues in other guises — that it doesn’t matter how sound the legislative framework is. Once people capture even the oversight mechanisms, the governance system breaks down. Thankfully, some in government have not given up on innovating new ways to prevent corruption. A few government entities now adjudicate tenders in the open, in full view of the public and the media. Eskom might want to consider implementing this strategy as a preventive measure.

Fourth, the coal procurement division of Eskom must never buy coal under the guise of “emergency”. Coal constitutes the biggest procurement spend for Eskom. It’s the company’s lifeblood. But spot contracts, or emergency supply contracts, the most expensive and the clearest evidence of inefficient procurement, are costing from double to triple what it should be paying under normal circumstances.

It is difficult to understand how executives of companies who benefit from such deals sleep at night. It’s one of the mysteries of human behaviour when someone takes pleasure in milking a sick cow and believes it is good business.

Officials who precipitate a crisis that results in the emergency procurement of coal should be shown the door. Emergency procurement has contributed to 14% of Eskom’s coal inflation.

Fifth, Eskom must not buy power from independent power producers at costs it won’t recover from consumers. Eskom must, therefore, not make projections based on what it believes the National Energy Regulator of South Africa (Nersa) should grant it in terms of the tariff structure. It must always work on the basis that Nersa is adverse to higher prices. Eskom’s costs in all its business units must be anchored on lowest tariff increase possible.

The average weighted per unit costs for all renewable energy increased to 206 cents a kilowatt this year compared to 200 cents a kWh in 2018, according to Eskom’s annual report.

Some reports suggest some independent power producers charge as much as 400 cents a kilowatt. These costs must be contained.

Sixth, Eskom’s lowest cost of production should be the benchmark and it should not be forced to up the costs. Eskom should, however, co-operate with renewable energy producers by giving them wheeling services on a cost-efficient basis.

Seventh, given its poor financial position, Eskom should focus on modernising its coal-fired power stations and maintaining its existing renewable and nuclear energy production. It should not be involved in new investments in gas and nuclear production. Gas and renewables should be left to private players with the capital and the risk appetite to invest.

Eskom should focus on improving the efficiency of its power stations and fit them with technologies to reduce carbon emissions while producing baseload electricity at the cheapest costs possible.

Finally, Eskom should restructure its human skills and personnel costs to make sure that they have the minimum number of people relative to power produced.

The increase in Eskom’s headcount to 46 665 in 2019 from 31 458 in 2006 means contribution to per employee to a power station’s nominal capacity has deteriorated from 1.2 to 0.9, according to Eskom’s latest annual report.

Vuslat Bayoglu is the executive chairperson of Canyon Coal, an exploration, mining and processing company

Vuslat Bayoglu
Guest Author
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