FILE PHOTO: Steam rises at sunrise from the Lethabo Power Station, a coal-fired power station owned by state power utility ESKOM near Sasolburg
WITH the release of the PwC report on Tegeta coal contracts, and the reinstatement of Brian Molefe as chief executive, it is very difficult to keep up with Eskom happenings. Some of the following may appear dated, but is still very relevant.

On April 26, Business Report headlined sharp Treasury officials querying Eskom’s increase in the contract price of coal from Tegeta Resources, from R13.50/GJ to around R20/GJ, a simple increase of 50percent. Not surprising as Tegeta is a Zupta investment vehicle; the surprising aspect was the units (GJ or gigajoule; 1 GJ = 0.0341 tons), used to define the coal price, units understood by few outside the scientific community, least of all by Eskom management.

More surprising was Tegeta confirming their supply of one coal sample for an Eskom combustion test, to establish energy content. As any miner would confirm, the skill in mining is separation of mine output into consistent streams, for thermal coal the principal quality being energy content, expressed in megajoules per kg, or MJ/kg: the mass reference is necessary as that is how coal is delivered and accepted. Then, to check the critical energy content, combustion tests are conducted to arrive at the MJ/kg property, actually identical to gigajoules per ton, or GJ/t.

That engineering trivia explained, we see how Eskom attempts to obfuscate its sole shareholder in favour of the Zupta cronies. Coal is delivered by the ton, but paid for by an assumed energy content while that parameter is never checked: Eskom simply avoids telling anyone, outside their procurement cabal, as to how much they pay per ton of coal and to whom.

If Eskom were to properly buy coal in terms of GJ, they would never, ever, perform a single combustion test on a coal sample, but conduct continual sampling and testing, say, once per hour on a flow of coal. Otherwise, they become an easy mark for coal conmen who deliver black rock instead of coal. Clearly, intensive combustion testing is not Eskom procedure and all those suppliers on GJ-nominated contracts are permitted to cheat, with the Eskom system simply assuming that, say, 22GJ/t coal has been delivered, and paid for, while actual coal quality was unknown.

Disturbing theory

To check a disturbing theory of R-billion’s of malpractice I referred to the Eskom Financial Report (2015-16). After processing the appropriate data, I found that the average price paid by Eskom for coal in the reported period was around R25/GJ. This implies that Eskom paid, on average, export coal prices (in rands/ton) for non-export product. Further, power stations which were forced to use substandard coal would have to operate coal-processing plant flat out, probably even reducing generator output, exacerbating equipment failures as well as power shortages.

The data accessed should have been mutually consistent, checked by simple cross-calculation; however, typical of Eskom’s modern practices, there is little consistency. The accountants might have closed the circle in terms of financial numbers, but the technical numbers do not stack up. In particular, Eskom reports on thermal efficiency (the efficacy with which fuel energy content is converted into electricity) as a coal property, rather than an outcome of power station operation.

More alarmingly, that efficiency is reported at 31percent while one would expect a minimum of 33 to 34percent, even after allowing for the efficiency penalty imposed by the dry-cooling of some 25percent of total capacity.

That difference may appear as insignificant, but it translates into millions of tons of coal every year.

There is no suggestion that all Eskom’s coal suppliers participated in the Great Coal Scam. International mining houses, such as Exxaro and Anglo American, could never afford the potential damage to their corporate reputations in cheating the country’s population, both rich and poor. This was, indeed, Brian Molefe’s accusation against Glencore’s then Optimum Mine, the basis of his imposition of a R2bn penalty, now seen as a means of persuading Glencore to declare Optimum’s bankruptcy, leaving the mine to be then sold to Tegeta.

The mining majors were probably being paid R350 to R400/ton for a coal grade marginally below the export grade which currently commands a price of R700/ton, but that is fully graded, washed, and delivered to Richards Bay, while all the power stations are sited on coal fields, consuming run-of-mine coal.

To estimate the nature of the underhanded dealings we must assume that around 50percent of the total value of coal contracts are above board. Some R55bn was spent on coal in 2015/16 at an average price of around R480/ton, inferring the scam coal sold at over R600/ton, at around 60percent profit, an alchemist’s dream of turning coal dust into gold dust at a rate of around R10bn a year. This is seriously prejudicial to the cost of power but Nersa expresses little concern!

Financial year 2015/16 saw the start of a new Eskom scam, this time a means of enriching the executives rather than the Zuptas. Certain executives were awarded Eskom shares, how or why is not stated. Who is authorised to simply give away national property? Eskom has only one shareholder, the Republic of South Africa. The legality of the share scheme must be challenged as extraordinarily suspect.

Good news

The one item of good news in the Annual Report was that Independent Power Producers ran at an average load factor of 30percent, load factor being the average power produced relative to total installed capacity. This compares with the 10 to 15percent load factor of wind energy in North Europe. Maybe SA gets something right.

Another issue, outside the Annual Report, is the chairperson of the Eskom Board, Ben Ngubane, announcing that decommissioning old power stations was merely “a scenario”. Clearly, this man has lost his remaining marbles as much-needed shedding of obsolescence takes many months of careful planning and years in execution.

And Ngubane’s ridiculous reinstatement of Brian Molefe as chief executive defies imagination, but will he finally ask Molefe where to find the shebeen in Saxonwold? We can only guess that Koko failed to follow the board’s instructions on the coal scam and that Molefe must return in order to keep it in operation.