Why investors, ratings agencies worry about Eskom: Still too many secrets – Chris Yelland

South Africa’s power utility Eskom is repeatedly flagged up as a significant blight on the investment landscape and is often cited as a significant drag on economic growth. The grossly inefficient energy provider, which has largely remained in the dark ages of fossil fuel, has sucked up many billions of rands in taxpayers’ money and would not survive without this help from government. Eskom was also at the centre of state capture allegations when Jacob Zuma was president, with a big push by the corrupt to get a nuclear power project up-and-running to benefit Russian entities. Yet, instead of opening its books and showing what citizens are paying for, Eskom bosses are allowed to operate out of the sight of the communities they serve. What’s more, reports prepared for top-level politicians are tied up in confidentiality. This is underscored by Chris Yelland, possibly South Africa’s most knowledgeable energy analyst, in an article in which he brings home the point that greater transparency would benefit Eskom and, ultimately, the country. – Jackie Cameron

Much greater levels of transparency needed by Eskom…

By Chris Yelland*

For far too long, reports by the president’s advisory task team and the minister of public enterprises’ technical task team on Eskom have been kept secret and out of the eyes of stakeholders and the public.  

Chris Yelland

Eskom also provides only limited data on its power system and generation plant performance, while information on its appalling environmental performance is thin on the ground and hard to come by. Information on Eskom’s restructuring efforts is almost non-existent.

On Friday 27 March 2020, credit rating agency Moody’s downgraded South Africa’s debt to junk status (i.e. below investment-grade rating) with a negative outlook, which could prompt significant capital outflows. 

“The implementation of the framework for a reliable supply of power to the economy and fiscal reforms to contain expenditure and enhance revenues are important milestones [for improved ratings]”, says Moody’s in its announcement.

But to win the confidence of ratings agencies, financial markets, customers, labour, communities, civil society and the public, much greater levels of transparency are needed about Eskom in respect of financial, operational, environmental and restructuring issues.

Industry, stakeholder and public perceptions

“There is always a sense that Eskom deliberately releases the minimum information necessary”, comments Peter Attard-Montalto, global head of capital markets research at Intellidex. “This stems from a deep desire to hold all the cards – a monopoly mindset that believes any information released will be used to reduce its privileged position. Eskom has never quite realised that it increases its standing and acceptance by investors, stakeholders and the public by being more transparent.”

The results of a recent online survey by EE Business Intelligence below confirm that energy and electricity sector respondents generally have negative perceptions on the level of transparency of financial, operational, environmental and restructuring information provided by Eskom to stakeholders and the public. 

Information inadequacies

Despite quarterly Eskom power system status media briefings and presentations, the raw operational data that the utility provides publicly on a continuous, ongoing basis is woefully inadequate compared to its peers in other jurisdictions around the world. 

The limited data provided publicly by Eskom is presented in a format and manner which is out of date, is totally misaligned with what is done elsewhere, and is 20 years behind the times in terms of its use of available IT technology. 

Other electricity utilities are required to provide comprehensive power plant and environmental performance data and dashboards, in granular detail down to generation technology, power station and generator unit level, at hourly, half-hourly and even 15-minute intervals.

Read also: How to achieve ‘quick wins’ at an ‘already failed’ Eskom – Chris Yelland

Eskom on the other hand only provides limited data on the overall power system, at weekly intervals, two weeks in arrears, in the form of a non-machine readable Powerpoint slide and PDF file posted weekly on the Eskom website. This then requires manual transcription of the data each week in order to analyse the information to establish trends, etc.

The data that is made available comprises only a small set of overall power system performance parameters, such as week-on-week energy sent out, maximum demand, energy availability factor (EAF), planned capacity load factor (PCLF), unplanned capacity load factor (UCLF) and other capacity load factor (OCLF).

Because the data is provided two weeks in arrears, averaged over one week, with no granular detail, it is of limited use to those needing to understand the current situation and the outlook immediately ahead. There are also significant gaps in the historical data provided by Eskom.

Read also: Inside Eskom rescue plan: Identifying toxic hotspots, opportunities – Chris Yelland

This is despite the fact that all the power system performance data needed is indeed available electronically on the Eskom IT network in hourly resolution and in granular detail, down to every generator unit within its power stations. 

However, for years Eskom management has been resisting requests to provide the kind of generation plant power system performance information that is freely and publicly made available by other electricity utilities around the world.

It is therefore hard to escape the conclusion that Eskom is purposefully limiting the information available to customers and the public to the barest minimum in order to avoid scrutiny, accountability and independent analysis of its extremely poor performance.

The benefits of greater transparency 

The benefits to Eskom of providing the information needed include increased levels of transparency, trust and credibility with financiers, lenders, customers, suppliers and the public.

Further benefits to Eskom, electricity customers, electricity distributors and the public include increased levels of accountability and peer pressure on Eskom management, staff and workers for poor plant performance, and increased recognition for good plant performance. This is an important driver for improved performance at Eskom.

Improved access to information will also enable better planning and more informed decision making by financiers, lenders, customers, suppliers and the public, based on a more transparent, real-time view of the current state of the power system.

By providing the information needed, Eskom will enhance and strengthen its credibility, and provide a visible signal that the utility now engaging in a constructive and transparent manner with its stakeholders, which will make a good start in repairing its damaged reputation.

  • Chris Yelland, managing director, EE Business Intelligence.

© Copyright 2020 – EE Business Intelligence (Pty) Ltd. All rights reserved. This article may not be published without the written permission of EE Business Intelligence.

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