Companies / 19 March 2019, 06:00am / Edward West and Kabelo Khumalo
CAPE TOWN/JOHANNESBURG – Cash-strapped Eskom could be set for a $480 million (R6.9 billion) cash injection as the BRICS-owned New Development Bank (NDB) was considering an application from the utility for a loan to finance its cleaner air technology at the Medupi power plant.
The loan will come in a difficult period as the utility struggles with severe operational problems that have led to renewed load shedding, crippling financial problems and escalating debt.
Last week, Eskom escalated rolling blackouts to stage 4 for the second time this year as Moody’s readied itself to provide its assessment of South Africa’s investment rating next week.
Medupi, which has 4 800 megawatts of designed installed capacity, is one of the biggest coal power generating facilities in the world.
Although the power station was built with considerable cost and time overruns, only three of its six units have been commissioned.
The project that requires NDB funding involves retrofitting Medupi with flue gas desulphurisation units to reduce sulphur dioxide emissions to fall within the requirements of South Africa’s environmental legislation.
Yesterday, Eskom confirmed that the loan was for all Medupi units and associated balance of plant equipment.
The utility said the three operational units were performing below design capacity due to boiler design defects.
It said the technology for the new flue gas desulphurisation units would be acquired through an open enquiry. The new technology is water intensive.
Medupi is being supplied with water from the Mokolo Dam and will later be supplemented by the Mokolo and Crocodile Water Augmentation Project pipeline, which is still be built by the Department of Water and Sanitation.
Eskom said the environmental impact assessment was in progress for the Mokolo and Crocodile Water Augmentation Project Phase 2, and construction was scheduled to begin in September 2020.
Maarten Ackerman, the chief economist at Citadel, said investors were concerned that the government would not be able to resolve the current crisis at Eskom.
Ackerman said there was simply not enough spare power capacity to keep the economy going in case of missteps.
“The task team and rapid review of Eskom’s situation requested by Public Enterprises Minister Pravin Gordhan are important, but it will take time to begin the process of fixing Eskom’s immediate problems,” Ackerman said.
“In the meantime, the country is facing blackouts on a more regular basis, which means that there is a risk that Moody’s could possibly downgrade South Africa’s credit rating at the end of this month. In my view, however, they’re more likely to change our outlook from stable to negative.”
The economic consequences of the blackouts were laid bare this month when the Absa manufacturing purchasing managers index showed the steepest contraction in February, the worst since October, with executives blaming the rolling power cuts for the sentiment.
Professor Raymond Parsons of the North West University Business School said the latest developments confirm that the Eskom situation had now become an albatross around South Africa’s neck and the biggest single threat to economic prospects.
“If this all continues it is inevitable that downside risks to South Africa’s growth in 2019 will rise and forecasts of growth this year will have to be cut to well below the recent already modest Budget forecast of 1.5 percent,” Parsons said.