Chris Yelland: Understanding the electricity sector drama and moving forward

Are you feeling confused about the reality of the situation at Eskom? You would be forgiven for looking at the quagmire and feeling befuddled as to where the plethora of facts begin and end, and how they really affect you and the economy. With news of Eskom being downgraded by S&P just being released, Chris Yelland’s informative piece could not come at a better time, in his crystalline analysis, he unpacks in plain language the truths, the consequences and finding the light in the mess that has developed. It is a dire situation indeed, let’s hope that the right people are listening to right experts. – Lucienne Ferreira

Chris Yelland
Chris Yelland

By Chris Yelland, investigative editor, EE Publishers

For too long government, Eskom and electricity customers have been complacent in the belief that the old way of doing things is adequate. The reality is quite different, and it is disingenuous for the president of South Africa to paint the picture that the electricity supply problems currently being experienced are primarily a result of the apartheid era, and that government and Eskom are somehow victims of their own success.

Indeed, the plethora of initiatives now trying to chart a way forward through the electricity crisis are a reflection of the totally inadequate attention that has been given to energy and electricity policy and planning for two decades.

Shortly after the new energy minister Hon. Tina Joemat-Pettersson took office, she announced in June 2014 that she would be inviting the public to recommend experts for a new Ministerial Advisory Council on Energy (MACE) to serve as a sounding board on many of the challenges that confront the energy sector.

It was envisaged that MACE would perhaps facilitate the conclusion of long-outstanding issues such as the drafting of a new or updated Government White Paper on Energy Policy, and the finalisation of a national Integrated Energy Plan (IEP), a Gas Ultilisation Master Plan (GUMP) and an update to the Integrated Resource Plan for Electricity (IRP 2010-2030).

But nine months later, while letters have been sent requesting selected persons to serve on MACE, the council has not even been announced or convened for the first time, let alone become operational. In fact, shorter-term electricity challenges now appear to have taken centre stage, relegating the longer-term strategic work of the Department of Energy to the side-lines.

Rotational load-shedding by Eskom started in the first quarter of 2014 and continued in earnest in November 2014. This resulted in the announcement by the Cabinet in December 2014 of a “War Room” reporting to Deputy President Cyril Ramaphosa, and comprising officials from the Departments of Public Enterprises, Energy, Finance, Cooperative Governance and Traditional Affairs, Government Communication & Information System (GCIS), and Eskom.

The role of the War Room appears essentially to be that of crisis management to relieve the immediate shortfall between supply and demand, with a focus on demand management (including load curtailment and rotational load-shedding where necessary) and addressing the generation maintenance backlog and the resulting decline in availability of existing Eskom generation capacity, while expediting new, short-term, private-sector generation capacity.

Three months later, after input from business and other sources on the various options, and poor and ineffective communication by the War Room on its role and work, it is clear that key leadership decisions are now required by Deputy President Ramaphosa in respect of the specific actions required, and how their costs are to be met.

In his role of leading the resolution of the deep problems faced by state-owned enterprises, in particular, South African Airways, the South African Post Office and Eskom, Deputy President Ramaphosa has also appointed a personal advisory panel to guide him on the restoration of security of electricity supply in South Africa.

The Deputy President’s advisory panel on electricity is chaired by Prof. Anton Eberhard of the University of Cape Town’s Graduate School of Business, and member of the National Planning Commission. Other members of the panel are: Mr. Bobby Godsell, former director of Anglo American, and former chairman of Eskom; Ms. Dolly Mokgatle, former director of Eskom, former CEO of Spoornet, and former deputy chair of the National Energy Regulator of South Africa (NERSA); Mr. Smunda Mokoena, former CEO of NERSA; and Ms. Sy Gourah, former head of electricity at Buffalo City, and former president of the Association of Municipal Electricity Utilities of Southern Africa (AMEU).

Then a week ago, the Eskom chairman, Mr. Zola Tsotsi dropped a bombshell by announcing the suspension of four key Eskom executives: CEO Mr. Tshediso Matona; financial director Ms. Tsholofelo Molefe; head of capital projects Mr. Dan Marokane; and head of technology and commercial, Mr. Matshela Koko; replacing them with acting appointments for three months.

At the same time, Mr. Zola Tsotsi announced that an “independent” inquiry driven by lawyer and management consultant Mr. Nick Linnell of The Project Office would be established to investigate the financial state of Eskom, the reasons for the utility’s poor generation performance, the causes of the late delivery and cost overruns of new-build projects, and the high cost of primary energy.

Mr. Linnell has indicated that his role is merely to ensure the appointment of independent, professional people and/or entities of impeccable reputation able to carry out their mandate in an unfettered manner and provide confidence to the inquiry. Beyond that, he says he hopes to be of little consequence in the process.

But despite assurances by Minister Lynne Brown, Mr. Tsotsi and Mr. Linnell that there is nothing sinister in the suspensions of the executives or the appointment on the inquiry, the motive for the suspensions and the inquiry itself, its terms of reference, independence and the process of appointment of its members are far from clear, and the air is thick with rumour and conspiracy theories.

This particularly as Eskom management had issued a tender inquiry in early March 2015 for a panel of some twenty independent auditors to investigate the probity of procurement contracts approved by the Eskom board with transaction values greater than R300-million.

There have been suggestions that the suspensions of the key executives may be intended to block the appointment of the audit panel and resulting investigations which may expose some of the inevitable conflicts of interests among Eskom board members, senior political figures and their business interests, particularly in the areas of primary energy (coal and diesel) procurement where costs have been rising rapidly.

But while the machinations of all these initiatives is underway, the short term crisis management through the work of the War Room is to stabilise the rapid increase in unplanned breakdowns of Eskom’s existing generation fleet through more effective maintenance, and at the same time to bring on board all sources of short-term private sector generation capacity to give space for addressing the generation maintenance backlog.

At the same time Eskom will have its work cut out bringing the new Medupi, Kusile and Ingula power stations on-line at fast as possible, while ensuring grid access for all the new generation capacity from the private sector, including: industrial cogeneration; renewable energy IPPs (wind, solar photo-voltaic and concentrating solar plant); commercial and domestic rooftop solar PV; and open and combined cycle gas and coal powered IPPs.

Finally, the shareholder should be making every effort to recapitalise and restructure Eskom to bring financial stability and sustainability to the utility, if not through its own capital resources, then with strategic equity partners that can add significant value through their capital reserves, management expertise, technical skills and technology resources, and/or listing on local and international stock exchanges.


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