ESKOM – CRISES OR INCONVENIENCE?
For the average citizen the regular load shedding is an inconvenience. When your electricity is cut for two hours during peak time while you are cooking dinner or watching the end of a rugby match and a crucial try is about to be scored it is still an inconvenience rather than a crises.
However, when you read about factories and mines having to shed jobs or worse still closing down as a direct result of the Eskom problem then this is no longer an inconvenience it is a crises. It certainly is not what ANC Secretary General Gwede Mantashe called a “positive crises” it is a catastrophe.
Nor can the crises be, as President Zuma said, blamed on “apartheid”. Apartheid was without a doubt a despicable form of government responsible for many ills in South African society but this is not one of them. This is a problem created and perpetuated by the ANC led government.
It is correct that since 1994 an additional 4.5 million houses are being provided with electricity an increase of 41% of household which has increased from 44% to 85%. This only accounts for a 5% increase in electricity consumption.
Professor Christo Viljoen a professional engineer and former member of the Eskom Board and the Electricity Control Board (now NERSA) recently reported that “In 1994 South Africa had a 37.6 GW generation capacity and if retained and available would have eliminated today’s blackouts” he carried on to state “On 5 December when the present load-shedding was implemented, Eskom could only deliver 24 GW of the 28 GW needed. 37% of the capacity inherited from the ‘apartheid government’ was lost”!
This loss was despite the fact that Majuba Power Station and one generator at Camden Power Station, which had been contracted before 1994, were brought online increasing Eskom potential to a possible 42 GW an increase of 11%.
So, how did the crises happen? Quite simply it was caused through ineptitude.
This ineptitude was caused because as with the other state owned enterprises Eskom was allowed to lose focus, namely to produce electricity. Rather than retain the well qualified and experienced engineers the government started to offer packages to existing senior employees and used it as a dumping ground for deployed ANC cadres. All of these appointments were done in the name of transformation, all part of their grand design to “appoint cadres to key centres of power”.
There can be no doubt about this when on 14 May 2015 the ANC regional chairperson in Johannesburg stated that Eskom must listen to them because “we put them there” confirming the ANC’s practice of conflating party and state. His statement now confirms my worst fears that the management of Eskom are political appointments and has nothing to do with their ability to produce electricity.
We now see power stations not producing to capacity as a result of no maintenance or at best shoddy maintenance. During the recent NERSA public hearing into Eskom’s application for a price increase it was revealed that about 50% of the maintenance performed is of such a poor standard that it has to be redone.
Over and above this Chris Yelland an electrical expert has calculated a 3GW loss by Eskom for ‘non technical’ reasons, the politically correct term for ‘illegal connections and non payment of accounts’, this is the equivalent of Kriel Power Stations optimum capacity. Only now is any action being taken to correct this after years of ignoring the problem.
Not only is availability and capacity down due to inefficiency but no new capacity has become fully operational as a result of planning by the ANC led government.
In 1998 the governments White Paper on Electricity forecast that there would be a shortage by 2007, we experienced our first load shedding in 2008.
Eskom‘s engineers proposed that a 1,2GW power station, equivalent to Koeberg, should be built every 18 months or one, equivalent to Kriel, should be built every three years. However, the ANC cabinet with Penuell Maduna as minister placed a moratorium on the building of power stations. This was only lifted six years later when it was too late.
This was when the decision to build two power stations Medupi and Kusile was taken. A 4800 MW pump storage station was planned in the Drakensberg, near Ladysmith at a cost of R8.9 billion for commissioning in January 2014. Medupi was due to begin production in 2012 with the final generator coming on line in 2015 at a cost of R69.1 billion. Kusile was budgeted to cost R80.6 billion with the first unit to be commissioned in June 2012 and completed during 2017.
At present not only are these power stations way behind schedule but also well over budget. Ingula is now only expected to come on line in 2016 and the price has escalated to R23.8 billion 167.4% above budget. Medupi is still not operational, five years behind schedule, the first generator is still being synchronised and is expected to be connected to the grid in the near power future. The full power station is now only expected to be operational in 2021 at a revised cost of R154.2 billion, 123.2% above budget. Kusile is in the same position and is also only due for completion in 2021, four years behind schedule and 113.6% over budget at R172.2 billion.
Over and above the capital over runs Eskom has also paid penalties to mining company Exxaro under a coal supply agreement for the long-delayed Medupi power station. According to Exxaro it received just under R1.6-billion and R352-million in penalties from Eskom, in 2013 and 2012 respectively. The penalties would continue to mount in 2014 and probably in 2015.
The question that needs to be answered is ‘Why can’t Eskom complete a project on time and in budget’? The answer simple, Eskom prefers to do its own project management rather than leaving it to a professional project management company. Eskom do not have the skills to handle such a project.
The South African economy can no longer afford this situation. With unemployment currently at 35.6% the country has to have a growth rate of 8% of GDP per annum in order to create the necessary jobs However in fact all we hear is of mining and steel companies reducing operations and shedding jobs. The cost and unreliability of electricity is one of the major factors.
Both the ANC and the African Union have been calling for Africa, more specifically South Africa, to rather beneficiate raw materials and crude steel. With our enormous wealth of raw materials this is the logical way forward. However, at present we do not have sufficient electricity to mine the raw material or produce steel, how can we therefore hope to invest in beneficiation? This is compounded by our stringent labour laws and other legislation that deters foreign direct investment. In reality not a single new furnace built in South Africa since 2008.
Rather than creating much needed jobs South Africa is shedding them by the thousands. Unemployment figures released today, 29 July 2015, show that in the first six months of the year unemployment increased by 321 000 to 5.2million people. A perfect example is Evraz Highveld Steel and Vanadium which at its peak produced 1million tons of steel per annum, employed 6 500 people and earned millions of US dollars in foreign exchange. At the beginning of the month they announced that they would not be producing any steel in the foreseeable future and would be retrenching half of their existing 2 200 employees. And no, it is not white South African capitalists that made the decision. The company in now Russian owned and managed, government now wants to appoint a Russian company to supply a nuclear power station!
Over and above this there are many other retrenchments in the pipeline by the mines and manufacturing companies. Rather than taking action to solve the problem the ANC emerged from their weekend Legotla with an appeal to business to be patriotic and not retrench workers. True patriotism would be to solve the Eskom fiasco
There are a number of immediate steps that can be taken to rectify the situation thereby resolving Eskom’s cash flow problems and increasing the electricity supply.
- Offer tax incentives to those companies willing to invest in producing power for their own use and are able to sell their excess production to the national grid;
- Broadening the power generation to expand both the quantity and size of the IPP’s, independent power producers, who would ensure that new sources of power resources are built quickly and on budget;
- Adopt and implement this long overdue bill which would remove the electricity transmission grid from Eskom and place it in a separate state owned entity;
- Privatise Eskom through the sale equity to the private sector even if the government retains the majority shareholding or possibly selling of a number of the existing power stations;
- Publish a policy document to clarify the conversion of the diesel turbines to gas turbines and what further gas producing units are planned in the near future;
- Fast track the completion of Medupi and Kusile power stations preferably through handing over the project management to private sector project managers rather than the current in house Eskom project managers;
- Introduce a transparent procurement process to ensure that new projects, coal and diesel are obtained at competitive prices rather enriching dubious middle men;
- Place a moratorium on the payment of bonuses to senior management until such time as Eskom is financially sound. The R63 Mil paid over the past seven years should be investigated to assess the possibility of recovering them;
- Stop paying golden handshakes to those employees responsible for the current crises in Eskom such as the R15 million paid to the ex chief executive who presided over Eskom’s current shambles;
The likely hood of the government introducing these measures are unfortunately minimal, the Trade Unions are not interested in the unemployed they only look after their employed members and the government is scared that heaven forbid these private enterprises will be efficient and make a profit.
Until next time,
This newsletter is published by Clive Hatch former Leader of the Opposition in the Mpumalanga Provincial Legislature and former DA Provincial Leader. These views are my personal views and do not represent those of any other person or organisation.