/ 22 June 2023

Eskom has its eye on COP billions

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Finance Minister Enoch Gododngwana. (Dwayne Senior/Bloomberg via Getty Images)

Eskom has approached the treasury to hasten the process for it to access funding that was donated to South Africa by wealthy countries at COP26. 

At the climate change conference in Glasgow in 2021, a group of international partners pledged $8.5 billion to accelerate South Africa’s just energy transition. 

Eskom, which is looking for ways to fund its proposed gas-fired power plant in KwaZulu-Natal, which is projected to add 3 000MW to the national grid, has approached treasury to allow it to embark on the project without incurring extra debt or loans.

One of the funding models presented to the treasury involves Eskom being cleared to use some of the money donated by wealthy countries at COP26 to fund the project. Another is the use of a public-private partnership or a power purchase agreement with an independent producer through a bidding  process.

According to a highly placed source in the cabinet, the power utility wants to bypass the treasury’s strict conditions for using the funds allocated for just transition projects to build the gas-fired plant.

“The request by Eskom is for the treasury to fast-track the process to release the money received from the wealthy nations to fund the gas plant that is in KZN. This will ensure that Eskom is not taking up new debt but a loan that is accepted nationally,” the source said.

Last week, Finance Minister Enoch Godongwana appointed a consultant to come up with a plan by August to allow Eskom to accept billions in loans designed to help it initiate its renewable projects.

“The government is looking at best mechanisms to disburse the $8.5 billion International Partners Group funding, without negatively impacting Eskom’s balance sheet,” the treasury said.

There have been many discussions about when South Africa will receive the money and how it will be used.

The just energy transition investment plan was endorsed by the cabinet last year and was shared with the International Partners Group, which comprises the EU, UK and US. 

Eskom needs the money

Eskom, has asked the treasury to reconsider its debt relief conditions which prevent it from incurring more debt, to facilitate the building of the gas plant.

Eskom’s main aim is to stabilise the grid, to enable it to accept power from renewable sources, such as solar and wind.

The gas-fired 3 000MW power station in Richards Bay is part of its plan to alleviate power shortages in the long term. 

The utility has been unable to start new projects because of its negative balance sheet and the treasury’s debt relief conditions.

In his budget speech in February, Godongwana said the government would assume some of Eskom’s debt but on condition it did not take on any more loans for three years, unless given written permission by the finance minister.

Eskom told the Mail & Guardian that the projects it has planned would require a lot of money over the next three years and that it would not be possible to complete them on its current balance sheet.

“Eskom is in discussion with the treasury about a different approach. A public-private partnership, independent power producer model, or something based on that, is likely to be the model for the project.

“The utility’s immediate focus is on getting clarity on its role, after which a financing model and detailed business plan will be developed before it approaches the market,” it said.

The utility added it anticipates it will take two years to develop the Richards Bay project and three more to implement it. 

Using the just energy transition funds would not be going against the agreement to lower carbon emissions as gas had been added to the EU’s clean energy list.

During COP27, the EU argued that gas should be regarded as a transitional fuel because it produces fewer carbon emissions than coal and oil.

“Gas has since been added as part of the nationally determined contributions for South Africa and is in line with the plan to decrease carbon emissions by 2050,” said the department of mineral resources and energy.

Eskom hopes to deliver electricity from the gas project to the grid by the end of 2028. The generating capacity would be equivalent to three phases of load-shedding.

Ministerial approval

In January last year, Eskom proposed the gas power plant in Kwa-Zulu Natal to Mineral Resources and Energy Minister Gwede Mantashe. 

Mantashe, who is an advocate of gas, forwarded the request to the National Energy Regulator of South Africa (Nersa), which published the proposal for comment. 

It was rejected by several environmental groups, who argued that important information was missing from the application and that there had not been enough consultation.

Nersa rejected the request for technical reasons, saying Eskom had not followed the correct procedures for approval in December.

However, in February, Nersa did an about-turn and approved the project. That was later overturned by a court. Nersa does not have the legal powers to change its own decisions.

The minister of forestry, fisheries and the environment, Barbara Creecy,. has signalled her support for the gas plant and given the plan environmental approval.

Defending the project as part of Eskom’s drive to reduce its carbon footprint by using gas as a “transition fuel”, Creecy said in court papers South Africa was an emerging economy that had to “balance the competing need for continued economic growth with its social needs and the protection of the environment”.

Her support was rejected by environmental groups, which took Mantashe and Eskom to court over approval of the project. 

Melissa Groenink-Groves, of Natural Justice, said this week  a gas power plant had the potential to “have worse climate change implications than a coal-fired power station when considering the full life cycle of the power generation process”.

Wage negotiations

To avoid strike action, Eskom has agreed to pay 80% of its staff a 7% increase annually for the next three years, as well as a R10 000 once-off cash bonus this year and next year.

But the utility does not have the money to do this, another reason why it is urging the treasury to hasten the release of some of the $8.5 billion.

Eskom said it hoped the negotiations would encourage employees to work harder to decrease load-shedding, which would attract clients to the utility and help it raise revenue.

“The wage agreement will give Eskom an opportunity to address our operational challenges which, in turn, will give us more revenue that will be used, among other things, to fund the salaries.

“The idea seems to be that better operational performance — thanks to employees having been incentivised by the wage increase — will lead to a decrease in load-shedding and an increase in electricity sales, which will pay for the additional payroll,” it said.

Mandisa Nyathi is a climate reporting fellow, funded by the Open Society Foundation for South Africa.