Eskom needs a new light switch

2013-12-08 14:00

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Utility seeks new CEO as it faces a tough test next year, with mounting debts and costs, and Medupi’s woes looming large

Eskom may be facing a leadership crisis just as it enters the crucial countdown to switching on the Medupi power station late next year.

The switch-on is intended to hopefully end South Africa’s six year-long power problems.

Eskom CEO Brian Dames announced his resignation on Thursday for “personal reasons”.

It came mere months after Eskom’s financial director, Paul O’Flaherty, left the company.

While Eskom is looking to “timeously” replace Dames, it has at last found a new financial head in Tsholofelo Molefe.

Chairperson Zola Tsotsi said at the power utility’s presentation of its interim results on Thursday that Molefe is the current group executive for customer relations.

O’Flaherty had initially been replaced by acting financial director Caroline Henry.

Public attention will now be focused on the search for a new CEO of Dames’ calibre.

Public Enterprises Minister Malusi Gigaba released a statement “noting” the resignation and promising to expedite the search for a replacement.

Dames denies being pushed even though Gigaba had earlier promised that heads would roll if the Medupi station was delayed again.

This was shortly before Dames announced it would be delayed to the second half of 2014.

Dames had been with Eskom for 22 years before he became CEO in 2010 in the middle of the power crisis.

Eskom has managed to keep South Africa’s lights on since 2008 with a combination of demand reduction, refurbishing old power stations and delaying the maintenance of other stations.

The costs of this approach are now mounting in the form of expensive emergency diesel generation and an average capacity availability of 78% among Eskom’s fleet of ageing coal- powered stations.

However, delays with the construction of the enormous new Medupi station along with the now inevitable catch-up of maintenance led to Eskom declaring an emergency situation late last month.

Eskom had kept the lights on “by the skin of its teeth”, Tsotsi admitted on Thursday.

Eskom’s results for the half year to the end of September highlighted the financial grip the company is in.

In February, energy regulator Nersa only allowed Eskom annual tariff hikes of 8%, while Eskom had asked for 16%.

Capital expenditure has been trimmed and Dames said Eskom is likely to borrow an extra R50?billion on top of its colossal, nearly completed, R300?billion debt programme.

Eskom has already secured R266?billion of that debt and will make up the difference with bonds.

Eskom’s stand-alone credit rating is already too low to access this kind of debt and it relies on government guarantees to secure affordable debt.

However, the affordability of debt will be a major question in coming years.

The debt bill, capital and interest amounted to R9.2?billion in the half year and Eskom has only drawn half of the debt that it will eventually accrue.

According to Thursday’s results presentation, the debt bill will spike to R28?billion in 2016.

The cost of keeping the power grid up and running is also escalating, especially due to Eskom running its emergency diesel generators around the clock.

The cost of primary energy (coal and diesel) shot up by 26% to 28.3/kWh.

Much of that was due to Eskom spending 231% more on diesel.

Will all other operating costs included, it cost Eskom 55.3c/kWh to generate electricity.

Eskom sold that power at an average of 69c/kWh.

This reflects the higher winter tariffs which will probably be lower for the full year.

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