Eskom looks to plug R191bn shortfall

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Johannesburg - South Africa is considering options that will enable Eskom to expand its strained power-generation network and close a 191 billion-rand funding shortfall.

“We have indicated the volume of shortfalls that Eskom is faced with,” Minister of Public Enterprises Malusi Gigaba said in a presentation at the company’s office in Johannesburg today.

“We will need to begin anticipating the challenges we will confront by 2018-2019 when the current build program comes to completion.”

The utility needs to find 191 billion rand to fill a funding shortfall created after the national energy regulator allowed it to raise prices by an average of 8 percent in each of the five years through March 2018.

That’s half the rate the company said it needed to help pay for new generating capacity.

Nersa, as the watchdog is known, is assessing Eskom’s accounts to see whether revenue and costs are above or below forecast in the pricing application, which may result in revised fees.

“The tariff can not be ruled out providing Eskom had been prudent in carrying costs,” Gigaba said.

“The situation that we are facing requires that we look at all the options to be able to face the challenge of meeting demand.”

Energy costs climbed 25 percent to 31.3 billion rand in the six months ended September from a year earlier, with expenses from running open-cycle gas turbines more than tripling to 2.3 billion rand, Eskom said on December 6.

South Africa’s inflation rate was 5.8 percent in January.

Eskom generates about 95 percent of the nation’s electricity, with about 85 percent of the total being from coal.

 

Power Emergencies

 

The utility is spending 500 billion rand to replace aging equipment and add plants to avoid a repeat of blackouts that affected homes, mines and factories for five days in 2008.

Eskom used emergency measures to ask industrial users to cut power consumption twice last week after four generating units went down for unplanned maintenance.

Companies including Glencore Xstrata Plc, BHP Billiton Ltd. and Anglo American Plc have operations in the country.

Discussions are being held between the Department of Public Enterprise, Department of Energy and the National Treasury over the funding of Eskom’s next wave of power generation that will include nuclear, Gigaba said.

After delays including labor strikes and contractors missing deadlines, the company expects to complete the first unit of the planned 4,764-megawatt Medupi power plant in the second half of this year.

About 23 percent of Eskom’s 42,500 megawatts of installed capacity has been out of service this year, according to Bloomberg calculations made using the utility’s data.

No Money

“We are not yet out of the woods,” Chairman Zola Tsotsi said.

The system will remain constrained going into the country’s winter season, which runs from about April through August, and will remain so for the next few years, until Medupi and the similar-sized Kusile coal-fired plant are completed.

The funding constraints mean that Eskom hasn’t undertaken extensive work on studying the construction of a third large coal-fired power plant, chief executive Brian Dames said.

“You know we don’t have money to build another coal plant so we have done limited desktop engineering so we’re awaiting a government decision and once that is done then obviously we’ll have to look at that,” said Dames, who will step down from the position next month.

“All of these power stations are pretty much the same age and all of them are going to come down at about the same time and we would need big baseload capacity.” - Bloomberg News


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