Guest Column

Irvin Jim: Unnecessary load shedding used to justify Eskom restructuring and its eventual demise

2020-02-04 10:48
Load shedding is being used to justify a number of decisions on Eskom by the ANC, says the writer. (Eugene Malaka, Daily Sun)

Load shedding is being used to justify a number of decisions on Eskom by the ANC, says the writer. (Eugene Malaka, Daily Sun)

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Though not written down, the ANC has not made provision for Eskom to participate in the new power generation project. That's because the ANC has given up on Eskom, writes Irvin Jim.

As a union, the National Union of Metalworkers of South Africa  has been consistently firm on the fact that Eskom must be protected as a strategic institution to deliver a competitive electricity tariff to the economy and to electrify our communities.

We have also been very clear that the Eskom market is being destroyed by expensive Renewable Energy Independent Power Producers (REIPP’s) and the primary energy costs which is nothing less than state capture and nobody is prepared to talk about it.

We have been sharply raising the cost overruns of Medupi and Kusile as a result of corrupt tenders and we have witnessed the country being plunged into reckless load shedding by a board and management which does not have the necessary requisite skills to run and manage Eskom. 

This is despite unions having articulated their clear positions about what must be done to turn Eskom around, and of course, the current Minister of Public Enterprises has demonstrated a complete unwillingness to listen to labour's view on this issue.

The ANC has given up on Eskom; to that extent, they have decided that as a country we should not put our eggs in one basket and competition should be introduced in the electricity generation space.

For right-wing ideological reasons, the ANC believes that competition will lead to reduced electricity tariffs and enhance the security of electricity supply in the not so distant future and ultimately will lead to increased Foreign Direct Investment.

The fact is that no de-regulation of the electricity generation sector, anywhere in the world, has led to reduced tariffs and the security of electricity supply. This is a myth.

The introduction of competition in the electricity generation sector will, as a prerequisite, require access to the transmission grid on a non-discriminatory basis to Eskom generation businesses, new state-owned electricity generation company and the (REIPP's).

To ensure the objective of providing access to the transmission grid on a non-discriminatory basis, a transmission company will be set up out of the un-bundled Eskom.

It will be legally separated from Eskom but will remain wholly owned by the state and this will happen by March 31, 2020 or soon thereafter to appease the rating agencies.

The transmission company will include Eskom peaking plants and the systems operator, and it will have the mandate of a single buyer and will possibly be designated as the supplier of the last resort.

It will procure power from (REIPP's) based on the ministerial determination that will be consistent with the latest version of the Integrated Resource Plan (IRP).

Parallel to that, self-generation for own use has been regularised and most importantly, municipalities with good financial standing will be allowed to generate electricity for their customers.

Disadvantaged municipalities will continue to be condemned to conditions of hardship.

The ANC envisages a new public entity that will participate in the new power generation project in line with the latest version of the IRP.

Though not written down, the ANC has not made provision for Eskom to participate in the new power generation project. That's because the ANC has given up on Eskom.

Consequently, Eskom has no scope for growth going forward.

Eskom will shrink and in the future creative ways will be found to retrench workers.

In terms of the IRP 2019, over 12 000 MW of Eskom installed capacity will be decommissioned between 2020 and 2030 and there is no indication that Eskom will be awarded new generation capacity through the Ministerial Determination.

We foresee an Eskom Lite by 2030 and it is not our view that privatisation is on the agenda for Eskom generation assets at least in this decade.

What is unfolding is the privatisation of the provision of electricity through the IPP's.  We do not take seriously the pronouncement of another state-owned company that will provide electricity.

We think this idea is stillborn and is meant to pull the wool over our eyes.

Eskom supply networks are entrenched and the government of the republic is indebted to them and government will continue to use Eskom to bail them out.

South32 and its hardships is a classic example; government will, through Eskom, bail out South32 at all costs and the consumer will pay.

The privatisation of Eskom would mean that the new owner will have to deal with the long-term evergreen contracts.

We believe that these long-term evergreen contracts will not survive in a privatised environment. In an environment where Eskom's generation assets are privatised, the new owners would want to renegotiate the contracts.

Privatisation of generation assets will not serve the interests of Eskom’s long-term suppliers.

We believe that privatisation will disrupt the long-term contracts and the entrenched interests of SOUTH32, Seriti, Glencore, Exxaro, Babcock, Actom, Siemens and GE amongst others.

These suppliers are the biggest beneficiaries of the R140 to R160 billion a year of procurement expenditure and they will not survive in a privatised Eskom Generation.

The ANC government will continue to use Eskom at least in the short term up to 2030 to bail out these companies. These companies are parasitic and can only scavenge on the carcasses of Eskom with the support of the ANC government.

There is a difference between the privatisation of Eskom and privatisation of electricity as a basic resource.

What we are now seeing is the privatisation of electricity as a basic resource.

Inevitably, the unit price of electricity will increase; the more the deployment of IPPs in the form of renewables, the less the utilisation rate of Eskom power generation plants.

The current generation hours of 7 500 operating hours per unit for base load will be reduced to around 4 000 hours per annum.

In terms of the current tariff regulation regime, the unit cost of electricity will inevitably increase which will lead to exclusions and increase the cost of doing business in South Africa.

The implication of the above on Eskom will be that the sales volumes will continue to decline which will worsen Eskom's cash flow position.

As it is, Eskom is not able to generate sufficient cash from generation to pay for its costs and service its debt.

Eskom posted R21 billion in operating losses; we expect a loss of approximately R23 billion in this financial year.

This problem is not going to be resolved through an increase in tariffs; it has to be solved through affordable tariffs and increased sales revenue.

However, Eskom's sales revenue is never going to increase because its biggest customers, i.e. the mines, have been encouraged to self-generate for their own consumption thus taking business away from Eskom.

In the same vein, municipalities with good financial standing are also encouraged to self-generate and this will also take revenue away from Eskom.

The loss of revenue happens at the same time when Eskom has to shut down 12000 MW and there is no political will to deal with the escalating primary energy costs at Eskom.

Effectively, this means that everyone else will be bailed out except for Eskom - the interests of Eskom's primary energy suppliers which include coal and IPP suppliers are protected; the interests of Eskom's top 20 suppliers with evergreen contracts remains protected.

The only entity that suffers is Eskom.

We are not excited by the new leadership at Eskom.

The current load shedding events are deliberate and fit into the strategy to obliterate the SOE.

The load shedding which started in November of 2014 was stopped on August 8, 2015.

At this point, only one unit in Medupi was operational but not commercial.

We now have five units in Medupi; there was no Kusile and we now have three units in Kusile. 

The silo at Majuba had collapsed resulting in a capability loss of 2400 MW, there was no Ingula and today we have 1 350 MW at Ingula and most importantly, the electricity demand was higher than it is today by 2% and yet load shedding stopped on August 8, 2015.

In 2015, 2016 and 2017, Eskom executed the most maintenance activity ever in the history of the entity.

In 2015, 2016 and 2017 the planned capability loss factor was 10%, 13% and 12% respectively.

The success factor was the quality of the maintenance carried out at those plants.

Eskom was aiming to keep the lights on, execute the effective maintenance required without the use of emergency diesel generators.

We are therefore convinced that the current load shedding is not necessary, and is being used to justify the restructuring of Eskom and the implementation of the IPPs.

- Irvin Jim is Numsa general secretary

Read more on:    eskom  |  numsa  |  irvin jim  |  load shedding  |  electricity
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