Donwald Pressly

Inside Parliament: Private sector crowded out from Eskom rescue

2015-04-02 16:01

Donwald Pressly

A lethal combination of Eskom imposing a majority black empowerment percentage of 50% plus one share for contracting companies, political interference in the management of Eskom and massively inflated salaries not only for its top executives but for the bulk of its staff have crowded out any hope of the private sector coming to the embattled entity’s rescue.

It just cannot be privatised even in part. No private company would run the risk of taking on any element of Eskom’s rotten business.

Ted Blom, an energy analyst and former senior Eskom employee, knows his Eskom onions. He argues that there is only one thing to be done to solve South Africa’s energy crisis. Every home and every business that can afford it must simply go solar. On top of that the consumers need to sell their excess electricity to the grid. He says it would cost about R200 000 per household, which could be financed by an extra bond. Roughly this would be about R1 600 a month per household – probably a bit more than most households are spending on electricity at the moment, but if the tariffs go up by 25% a year, this will be chicken feed against the expected R30 000 a month that a household is likely to pay for power by 2030.

It is already estimated that if the cost-recovery principle applies, power to homes now paying about R1000 a month would rocket to R3 000 a month. Thus the proposed 25% increase being sought from Nersa would look like wishful thinking.  Blom estimates that just to cover costs the electricity that the coal-fired Medupi will generate (if it ever comes on stream), it would have to sell at R3.42kWh (and rising). This is about three times the cost currently of between 90c and R1.20kWh for Eskom power.

Households use about 10 000 MW of Eskom's 42000 mw capacity. If 2000 suburbs produced four megawatts of power each, they would produce 8000MW. That would go a long way to solving household energy needs. The requirements of business could also be assisted by solar power – but with Eskom producing about 30 000MW, down from its high of 44 000MW, there would be spare supply for business and other users especially with households more or less out of the equation. South Africa would not have to go the nuclear route or indeed, build another (private sector driven) coal-fired power station as suggested by Deputy President Cyril Ramaphosa.

This proposal – made in the national assembly recently – is a non-starter because “white” companies, like BHP Billiton and Anglo American and others would simply not tender for the contract.  Although they, together with Gencore and Exxaro, are the biggest suppliers of coal to Eskom, they have indicated they would not be entering into new coal contracts following the imposition of the 50%-plus-one-share black ownership rule, a new Eskom requirement (a stiff requirement compared to the mining charter’s 26% black ownership requirement for coal mines to secure licences).

Blom estimates that the big suppliers were supplying coal to the coal-fired power stations at about R160 per ton. It is believed that some of the black-empowered coal companies are supplying it at R460 a ton. This is because the coal is being transported, sometimes at great distance while many of the older contractor coal mines were “mouthed” at the power stations. Empowering a few already rich black people will soon cost each electricity consumer about three times his or her current bill.

This “empowerment” is killing South Africa’s consumer and, ultimately, the economy. It is just so sad because Cennergi (Pty) Ltd, a company staffed by many white engineers and independent power producer in Centurion, would probably be able to do the job (they have built, in a joint venture, the Tata Mundra Power Plant in Gugarat in India. It producers power at about 48c/kWh versus the Eskom price which can be as high as R1.20/kWh and rising). Tata Mundra is supplied coal from South Africa.

Blom calls a spade a dredger. He says the hole in the Eskom bucket is so large, any attempts to drip feed it with small tranches of cash injections are fruitless.

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