#BudgetSpeech2019: Tito Mboweni's Eskom nightmare
Confronted with Eskom’s rising costs and falling revenue, Mboweni will have to provide Eskom with a massive bailout or face plunging the country into darkness. Almost everyone agrees that this will be the most challenging and tricky budget speech since democracy.
Mboweni is also expected to provide more details on how Eskom will be unbundled in the coming financial year.
An NGO known as the Anti-Poverty Forum on Friday urged Public Protector Busisiwe Mkhwebane to investigate the signing of an agreement between 27 independent power producers (IPPs) and Energy Minister Jeff Radebe in April last year.
According to the letter, seen by Independent Media, the signing of the agreement could see a potential R1.4 trillion wiped off Eskom’s balance sheet over 20 years.
According to the organisation, Eskom is facing financial meltdown due to the “systematic encroachment of private hands and politicians”.
“Over the years, Eskom has found itself having accumulated debts of over R419bn as a result of greed and now the cash cow has been depleted so that it can no longer honour its debts,” said the NGO in a statement.
The Anti-Poverty Forum alleges the bulk of the power utility’s R419bn debt is as a result of three main contracts that Eskom has had to fund: namely the Introduction of Renewable Energy Independent Power Producers (RE IPPs) in South Africa, Medupi and Kusile coal-fired power stations.
The organisation further alleges that R93 million a day is paid by Eskom to the IPPs.
“So Eskom, which is already producing power, is forced to buy power from these IPPs, who are not even negotiating fair prices with Eskom but are proposing predetermined prices as agreed with the Department of Energy and National Treasury as per the Power Purchase Agreement. They sell it back to consumers at a loss of either R21bn per year or R34bn per year.
“The money eaten away by the IPPs makes it difficult for Eskom to save money for maintenance of its coal fleet which requires roughly R200m per month per power station. Eskom has detailed planning for maintenance and the schedule for implementation of the maintenance programme.”
Ted Blom, an energy analyst at Mining and Energy Advisers, agreed a bailout was on the cards.
“A bailout alone won’t solve any of the problems. Having some audits might help, but there is a need for forensic audit as well. There is a lot of money that has gone missing.”
According to Blom, Mboweni would have to find the money in other departments.
“Even if budgets are cut, in order for Eskom to get out of the doldrums it would need at least R200bn which is close to 20% of the country’s budget.”
Dave Nicholls, former head of Nuclear at Eskom, did not think splitting up Eskom would solve the problem. Instead, he feared it would cause new problems.
According to Nicholls, if the unbundling went ahead the newly formed entity would be given a five-year contract to set its own prices.
“If they do that, the prices would shoot through the roof. We were here in 1998 when Eskom was going to be broken up. It never came to fruition because people realised that the devil is in the detail,” he said.
Chris Campbell, the CEO of Consulting Engineers South Africa, said the unbundling would be confirmed, but with an undertaking that it was not privatisation or retrenchment.
“The ruling party needs the support of Cosatu and will not risk the relationship so close to the elections.”
He thought the unbundling would create the opportunity for better management and controls with the generation side of the business opening up to independent power producers.
“There will be a need for more efficiency and how Eskom does this in the future is anyone’s guess but the election will be behind us as well,” he said.
This week, Minister of Public Enterprises Pravin Gordhan announced that international experts would be brought in to investigate what was wrong at Eskom’s power stations.
The company doing so was identified as Enel. According to the group’s website it operates in 35 countries across five continents.
However, Campbell disagreed that South Africa lacked the engineering expertise.
“We do have the right engineers with the appropriate skills. The problem is that you need a good mix of young engineers and old engineers. The more experienced engineers need to be able to mentor and transfer some of their knowledge to the next generation. I am not sure that there is a good balance between the two.
“What you should also be aware of is electrical engineering has been identified as the number one scarcest skill in the country,” said Campbell.
According to Matshela Koko, a former group CEO of Eskom, a lack of technical expertise had contributed to the problems.
“A leadership with technical expertise can decide on how best to handle the maintenance.
“Eskom has enough engineers that have experience of 15 to 20 years to do the job. Eskom has lost technical leadership from the top because there was a witch-hunt that was informed by the falsehood of state capture,” he said.