Eskom has announced a staggering loss of R23.9 billion for the financial year ended March 2023. (Waldo Swiegers/Getty Images)
Local manufacturers and engineers fear that Eskom will award tenders to foreign contractors as the utility addresses the electricity grid’s constraints.
The concern comes after manufacturing contractors complained to the utility for previously choosing foreign contractors for projects they were qualified to do.
The utility plans to unbundle its company into three divisions to enable Eskom’s transmission department to make money that will finance expanding the grid.
The transmission division would open a competitive energy generation sector, where electricity producers sell to the national grid.
Proconics Holdings’ group executive Louis Hal, an engineering company providing engineering solutions, called on the government to work closely with Eskom and private contractors to create a conducive environment for private sector participation in infrastructure construction to ensure all parties are involved.
“Eskom’s transmission infrastructure plan is critical for the energy transition in South Africa, and delays in implementation will jeopardise the country’s energy security. engineering, procurement and construction (EPC) contractors can help Eskom to meet its transmission infrastructure targets by delivering projects on time and within budget,” he told the Mail & Guardian.
The unbundling, announced by President Cyril Ramaphosa in 2019 during his State of the Nation address, will see Eskom split into transmission, generation and distribution in the hopes of resolving some of its troubles
Eskom justified its position for choosing foreign contractors in the past as a supply-and-demand choice because importing skills from other countries was more affordable than the cost of local contractors.
For example, The Infrastructure Research Development Centre recently criticised Eskom for bringing in Italian engineers to help sort out maintenance issues. Minister of public enterprises Pravin Gordhan at the time said it was because of a brain drain.
Local companies need Eskom support
Hall added that Eskom’s support would help the utility save on expenses.
“There is a risk that these Eskom transmission tenders could become dominated by foreign EPCs. South African EPCs, that fully support the government’s transformation targets, can build most of the infrastructure if given the necessary support by Eskom and the government.
Eskom’s acting chief executive Calib Cassim told the M&G that Eskom’s transmission development plan requires 14 000km of new transmission lines across SA over the next decade, at an estimated cost of R210 billion.
Philippa Rodseth, executive director of the Manufacturing Circle, which represents 50 of South Africa’s largest industrial businesses, said the growing concern that the local manufacturing sector will be left out of Eskom’s R210 billion transmission development plan.
“The tendency not only within Eskom but more broadly across government is to question or mistrust local industry’s capacity and capabilities, and they seem hell-bent on appointing foreign engineering, procurement and construction contractors at the expense of domestic contractors.”
She added that the belief that Eskom is “fixated on putting its transmission rebuild business offshore” was reinforced by the Request For Information (RFI) it put out, “to our surprise in late June, which placed local companies at a serious disadvantage”.
Rodseth added that manufacturing contractors perceive Eskom to have little interest in ensuring local content in huge infrastructural projects and that it is determined to appoint foreign EPC contractors at the expense of domestic contractors.
Leaving no one behind
Energy Council chief executive James Mackay told the M&G that the lack of skills in the country needs to be looked at holistically, before projects begin to ensure that no one is left behind.
He added that to address the skill challenge, the country needs to update its skills shortage policies to ensure that local manufacturers and engineers are adequately trained to handle the challenges that affect the country, which will limit reliance on foreign talent.
“We have got good plans around expanding the grid about unbundling our sector, we have got market codes being written, we’ve got wheeling codes being written. But really the one area where we don’t have enough focus is how we’re going to create skilled personnel to drive industrialisation in green energy,” he said.
He said the country needs to invest in the construction industries, manufacturing and clean technology, component design pieces and provide training for the working class in those fields.
“We’ve got a lot of opportunities, but this is the one area where we’ve got to do a lot of work.”
The insufficient transmission infrastructure is hampering South Africa’s efforts to end load-shedding and to meet its ambitious targets to reduce carbon emissions.
Grid constraints
As South Africa works towards transitioning its economy from high carbon to low carbon, the country’s electricity transmission grid is proving to be a notable constraint.
Grid limitations in the sunny Northern Cape are expected to prevent any new renewable projects from being developed in the foreseeable future.
According to Eskom, 7 442 megawatts of green power has been connected to the grid, with 4 000 megawatts coming from solar energy and 3 442 megawatts coming from wind energy compared with 70 gigawatts envisioned by the Integrated Resource Plan to come online in the next decade.
The development of the transmission grid has been defined as a top priority in terms of the Just Energy Transition Partnership, which is underscored by a historic $8.5 billion compact between South Africa, the US, the UK, France, Germany and the EU.
According to a study by the CCIR, these are serious constraints on the transmission grid which prevent many renewable energy projects from feeding into the grid because of capacity constraints in the northern part of the country.
This means renewable energy cannot reach its full potential in South Africa to provide the needed capacity to eliminate load-shedding.
Eskom has been struggling to get adequate funding for grid expansion for years, and building transmission lines to renewable projects far outside major metropolitan areas is extremely difficult as they must cross private and public land.
Mandisa Nyathi is a climate reporting fellow, funded by the Open Society Foundation for South Africa