'End Eskom’s monopoly’

2015-03-14 00:00

UNLESS Eskom undergoes a major structural overhaul, decades of bad ­habits will persist, putting businesses and consumers at further risk of significant energy price increases, say experts.

The Free Market Foundation said it is “bizarre” that the SA economy is ­reliant on “one single dinosaur ­monopoly”, while leading energy ­specialist Chris Yelland said the organisation has failed to change since its ­establishment over 80 years ago.

“I think it is not structured properly for the modern needs of South Africa, and attention needs to be given to the deep structural issues within Eskom to prove its health both financially and ­operationally, so that it can become a sustainable business going forward,” Yelland said.

The FMF said the priority item on government’s agenda should be to end the “Eskom monopoly which actively prevents Independent Power Producers (IPPs) getting access to the grid to ­supply the electricity that South Africa so desperately needs”.

“It is bizarre that the SA economy is reliant on one single dinosaur ­monopoly whose inability to keep the lights on has been exposed,” said the organisation’s chairperson Herman Mashaba.

He said there were “IPPs ready and willing to supply power and lessen the strain” on the national grid in the short and medium term, yet Eskom “has all kinds of excuses” why IPPs cannot gain access to the grid.

“Even if IPPs supply electricity at a higher price than existing Eskom plants, if diesel turbines were used, as designed, for emergencies only, this would greatly improve matters.”

He said this week’s sobering ­announcement by global credit rating agency Standard and Poor’s is “yet ­another sign that the Eskom monopoly should be split up” before “further damage” is done to the economy and South Africa’s international investment status.

Earlier this week, S&P gave South ­Africa just two years to tackle its ­sluggish growth, or have its rating downgraded to junk status, with ­Eskom’s performance being closely monitored by the agency. A downgrade would make it harder for the state to raise capital, affecting any capital spending programme.

On Thursday, the Eskom Board suspended the entire executive, including CEO Tshediso Matona, pending an ­independent enquiry into the poor performance of generation plants, delays in the construction of the likes of the ­Medupi and Kusile power plants, rising energy costs and cash flow problems.

Yelland said he believed that the root of the suspensions was the cost and time overruns at Medupi and Kusile.

Both have run perilously over budget and are at least five years behind ­schedule.

“I think we should soon brace ­ourselves for announcements of major cost overruns at Medupi and Kusile.”

He said “all four executives are ­heavily involved in the new build ­programme”.

“In order to get the first unit of Medupi up and running, Eskom had to divert huge resources from other projects and this will likely cause even further delays to the two priority build projects.”

Energy crisis to hit investments in KZN

THE KwaZulu-Natal economy will find it difficult to meet its growth expectations as it cannot guarantee the supply of energy to potential investors.

Already consumers will be expected to carry an added 12,69% burden on their energy bills for the 2015/16 financial year, and National Energy Regulatory Authority spokesperson Charles Hlebela confirmed that Eskom can at anytime “submit an application to Nersa if they need additional revenues”.

Mike Newton, economic advisor to KZN Premier Senzo Mchunu, said Eskom’s crisis is a “limiting factor” in attracting foreign direct investment.

“It is very difficult to attract investment to a site where there is a lack of energy,” said Newton.

He said Mchunu’s office has held a series of meetings with the Department of Energy, Eskom and the “electricity war room”, headed by the Presidency, to expedite plans to role out independent power solutions to mitigate against the energy crisis.

University of KwaZulu-Natal researcher Glen Robbins, who specialises in regional and local economic development, said the uncertainty would hinder the province’s growth prospects.

“It [Eskom’s instability] is an economic challenge for the province and businesses. There is uncertainty of supply of energy, but increasing tariffs [for electricity], well above the rate of inflation.

“Then there is the added pressure of a sluggish economy. The environment is challenging for people planning businesses,” he said.

Robbins said the consumer should be prepared for “way above inflation hikes”, with even higher costs likely in municipalities with ageing or poorly maintained power grids.

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