/ 11 March 2022

More money won’t end Eskom’s load-shedding woes

Blackouts Cripple South Africa Again
Slow-moving vehicles line the streets as traffic lights stand without power during a load-shedding power outage period in Pretoria. (Waldo Swiegers/Bloomberg via Getty Images)

Eskom is running out of options: it’s emergency diesel reserves are near-depleted and, even if the power utility was given all the money needed for more diesel, it couldn’t burn it fast enough to keep the lights on.

Chief operating officer Jan Oberholzer warned this week that if Eskom keeps burning diesel — used to power the gas turbines when the ageing coal-fired power stations break down — the parastatal risks a total crash and even more rolling blackouts.

Oberholzer was addressing the media after Eskom announced the implementation of stage-four load-shedding. 

He said the utility has been using “an awful amount” of diesel, nine million litres a day, to keep the power on. But, to prevent diesel reserves from depleting and to protect the integrity of the electrical system, “proactive implementation of load-shedding is required”. 

The high rate of Eskom’s diesel usage comes as fuel costs are set to soar amid a war-induced price shock, which chief financial officer Calib Cassim earlier in the week flagged as a potential source of cost overruns.

By Wednesday, crude futures were priced at $126 a barrel in the wake of the decision by the United States to impose an immediate ban on Russian oil and other energy imports. 

“We only have a certain amount that we can afford from a liquidity perspective. So this will put pressure,” Cassim said. 

He said that Eskom, which has already blown its R3-billion budget for its open-cycle gas-turbines, is looking for options to hedge its diesel prices. “I guess the timing couldn’t be worse, but we have already started those discussions.” 

Cassim said on Wednesday that Eskom has only so much liquidity to meet all its other operation and debt-service commitments “so there will have to be trade-offs”.

The risk to South Africa’s energy system begs the question whether the treasury will drop its “tough love” attitude towards state-owned entities and provide emergency funding to Eskom.

Finance Minister Enoch Godongwana told the Mail & Guardian he is not aware of his department having received any requests from Eskom for emergency funding. Nor has the utility indicated any potential risks posed by Russia-related price hikes.

When asked whether the treasury would consider giving Eskom the money if it asked for it, Godongwana said the question was an academic one.

Eskom’s ability to access funding is complicated. The utility reports to the treasury on procurement matters — a stop gap that has been put in place to avoid the mismanagement of public funds that characterised the state-capture era.

“This was never previously a requirement for them to go via national treasury. They had a blank cheque to follow their own budget, determined by Nersa [the National Energy Regulator],” energy expert Ted Blom explained.

The treasury has helped Eskom where it can, approving the utility’s emergency procurement of equipment to fix its decaying coal-fired units, which are at the heart of South Africa’s 14 years of load-shedding. Eskom is one of the entities with the highest number of applications to deviate from the treasury’s procurement regulations.

Godongwana’s department has also recently given Eskom R136-billion to pay off its sizeable debt, which has been identified by ratings agencies as a significant threat to South Africa’s economy. Eskom has been provided with a further R88-billion until 2025-26.

Eskom may benefit from further fiscal intervention, Godongwana said in a press briefing before his maiden budget speech last month. But this will require action from Eskom’s side, including selling some of its assets.

Blom said the framework governing Eskom — the Electricity Regulation Act and the National Energy Regulator (Nersa) Act — does not make provisions for emergency funding for diesel.

“It can’t be done in the normal course of business. In the normal course of business, the Electricity Regulation Act and the Nersa Act do not provide for bailout, or additional or emergency funding.”

A bailout may be possible, Blom added, but “it is not a natural switch that can be flipped on and off, just because of the high diesel prices or because of the extra diesel consumption”.

Clyde Mallinson, an energy consultant, said that even if Eskom had an infinite amount of money for diesel, it couldn’t squeeze more usage out of it than it currently can. Until South Africa is able to have more generating capacity, it is a foregone conclusion that load-shedding will persist.

“Even if they had the money for the diesel, they can’t get the diesel to the plants quickly enough. The storage facility they have to store the diesel is big enough to run diesel for two weeks. That is if it is only running diesel for three or four hours a day,” Mallinson pointed out.

“If they run for 24 hours a day, then they run out of diesel in two or three days. And they can’t bring the diesel in quickly enough. They will have to bring 80 trucks of diesel a day if they are running those things 24/7.”

Eskom may argue that it is prudent to burn diesel to avoid load-shedding and its cost to the economy, Mallinson said. 

Oberholzer seemed to confirm this position, saying on Wednesday: “We all agree that it is unsustainable and we need to get out of this situation. But for us, burning diesel and having a financial bloody nose is better than putting the country into a higher stage of load-shedding.”

But burning diesel at a high rate means Eskom will have to again ask Nersa for higher tariffs to make up for the high cost of burning diesel.

Mallinson added: “And then Nersa will say, ‘Well why didn’t you run your coal fleet. Then Eskom will say that the coal fleet is broken … So Eskom is in an unenviable position at the moment.” 

Moreover, Eskom has little control over where it buys additional power. The department of mineral resources and energy is in charge of procuring energy builds, as was the case with the controversial contract with Turkish-led consortium Karpowership SA. 

Eskom has to buy power from winning bidders of tenders put out by the department. 

“They are not in control of the procurement process of what new capacity is built,” Mallinson said. 

“They are tasked with trying to produce electricity from the old fleet and the OCGTs [open-cycle gas-turbines]. They are running out of money. They are running out of logistical capabilities. And, worst of all, they are running out of willpower.”

The country is in “a very frightening position”, Mallinson said, adding that the current conditions should be treated as an emergency. “They are desperately trying to keep it from being called an emergency when, in my opinion, it desperately needs to be called an emergency.”

But, Mallinson noted, the first phase of emergency procurement happened two years ago with the Risk Mitigation Independent Power Producer Procurement Programme, which has yet to bear fruit.

“So yes, money would be useful now,” Mallinson said, “but it actually wouldn’t solve load-shedding … At the moment money wouldn’t help.”

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