๐Ÿ”’ Insider on Eskom’s loadshedding debacle: It goes far beyond “wet coal”.

Former Eskom coal scientist turned energy consultant Mike Blenkinsop has as good a handle on the state of the SOE as anyone – and in this fascinating interview provides a comprehensive perspective on the latest loadshedding debacle. Having trained under the late Mark van der Riet, the CEO of NET Energy clearly understands the complexities of fuel inputs far better than the worthies who designed the massive Medupi and Kusile power stations without taking the local coal reserves into account. He shares a tale of indefinitely postponed maintenance and Eskom’s haemorrhaging to foreign lands of engineers so vital in keeping its flywheel turning. But Queens College- and Rhodes educated Blenkinsop says it’s not too late – and offers Eskom’s newly recruited CEO Andre de Ruyter some pointers in how to get the utility out of the quagmire it is in. – Alec Hogg

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A warm welcome to Mike Blenkinsop. We first crossed paths after the passing of Mark Van Der Riet – who is the gentleman who featured in my Daily Insider this morning – you knew Mark pretty well having actually worked for him at Eskom.

Yes. He was my first boss and mentor.

What exactly did you do there?

He was the guy who established the cold combustion research facility at Eskom, which worked and ran very well for many years. There were a couple of us who were the original team that worked with him and in support of him – to set that up – in understanding how coal impacts on Eskom’s boiler plant.

And today you no longer work for Eskom.

No. I do some consulting outside of South Africa mainly – on projects in coal mine developments – projects predominantly in the subcontinent.

The big story at the moment is loadshedding. Today we went from level two to level four, so that’s pretty serious stuff. It’s being blamed on wet coal – at least that’s the official version – how is it possible that other countries , who are much wetter than South Africa don’t have this problem?

I think to be fair, Eskom hasn’t come out blaming wet coal for this. It’s been a bit of a side issue in what they’ve stated. The big issue has been that the plant is down and yes, wet coal has added to an already problematic situation. Now obviously, when your coal is wet, it’s more difficult to light. It’s difficult to get all the energy out of it so wet coal does play a role, but we should be in a position to manage that. Historically you have stockpiles of coal available – compacted stockpiles which are essentially waterproof – although nothing will ever be dry when raining as it is now and to be clear, we’ve had very unusual rainfall patterns. In the last week or two – in the Mpumalanga region – the sun hasn’t come out, so it will have an impact on the power plant. It will run, but heating up water’s never as efficient as burning coal when it’s dry. So it does present handling problems, it does present some other issues, but the power stations are generally designed to be able to cope with that.

So why aren’t the power stations coping with it?

It’s a bigger issue than just wet coal. I think – over the last many years – it’s the state of maintenance. It’s a well-documented fact that this is not where it ought to be in the plants and I guess the analogue of that is if you’re lying in hospital with pneumonia and a little virus comes along and infects you, you’re going to pick it up and you might die from it. Whereas if you’re good, fit and healthy, when that virus comes along your body will knock it over quite quickly. So if the state of the plants is not where it aught to be – and we know that there’s been a large underspend on maintenance in the last while – little things like wet coal (I say little with some reservation) will bite you if you’re living on a knife edge. The big issue started long before it started raining recently, Eskom stated quite openly that there are 12,500 megawatts of their plant out of service, largely on breakdown. What the detail of the breakdowns is we haven’t got to know, but it could be any manner of things from boiler plants through to turbine plants or any other part of the power plant. So we’re short on detail on that. On occasion, a plant breaks down and it needs to be fixed, but to have 25% of your plant out is unrealistically high.

Okay, it should never get there, how long has it taken to get to this point? Clearly if you stop maintaining today you can live off the good maintenance record of the past but how long has it taken for Eskom to have reached this critical level?

I think this has been going on for a long time and everybody wants to blame the last five or seven years, that might be a bit naive – although that period has seen a rapid deterioration in the state of the plant. Given all the other well documented issues that were going on at the time, if you’re literally going to rob Peter to pay Paul – and we all know who Peter and Paul were in this case – maintenance is one of those areas where you can suffer. Many years ago – and this goes right back to the late 90’s early 2000’s – things started coming in like “we will manage the risk in order to cut budgets”. Managing the risks in many cases just meant to do nothing until the thing breaks and then we’ll fix it. So I guess it’s probably a 10, 15 year culture that has crept in and you can bring whoever you like in, you’re not going to undo that culture too quickly, particularly when there just isn’t money to pay for it. We know that at some power stations for example, several units have been shut down because it’s just not worth bringing them back and units get pirated – the units which are down get pirated – the box gets pirated to fix other units to keep them going. We know that this happens. The spares holding is definitely not where it should be and it’s just the general malaise I guess. What we’ve also seen recently is that many of the top technical people have been moved or have have chosen to leave Eskom for foreign shores. There are big power build projects going on in the east – in the Philippines, in Vietnam – and we know that several of the top technical guys who’ve got 20 years plus experience have left Eskom to use their very valuable skills there. I guess it’s – in their minds – a safer, less toxic and a more fulfilling environment to work in.

Mark, I don’t know if you read the weekly newsletter from the president Cyril Ramaphosa, but today he was extolling the virtues of the state owned assets. He came in for a roasting on social media over this, it seems as though he might be living in an alternate universe with the country going through power outages, or does he know something we don’t know?

Well how Kusile and Medupi came about and how they are less than optimally designed for the coal that they’re going to get and when one does a power station of that nature – these massive power stations – one generally starts with the coal and designs a power station around that, or at least the boiler plant and the combustion systems around that. That’s a standard practice around the world. In this case, Medupi needs a bigger boiler than is standard and what would appear to have happened, is that this was not considered, or wasn’t adequately considered. It might be argued that these are contractual issues and that these may be resolved commercially but unfortunately lawyers can’t resolve what nature throws at you, mining coal from the ground. So there are several options on the table to fix that and whichever way it’s going to cost a huge amount of money. Whether that comes from plant replacement or an ultimate derate of the plant. These are all costly items and whether any litigation of any form could ever pay it back, is a highly debatable point.

Just getting back to coal itself. As the public in South Africa, we’re told the country has lots of coal and can export plenty of it. It’s going to last for 300 years and so on and yet now Eskom is complaining about the cost of coal. Hence as a consequence of that, they’ve got to jack up tariffs. What’s the story with coal?

I guess it gets to what the definition of coal is. Yes, there is a lot of coal in the ground, there’s no doubt about that. The issue around that is whether it is economically extracted or not. What we have seen – and this is from the mining side where we’ve focused some work of late – is that the costs of mining coal are going up and up every year. That’s because the very sweet Witbank fields – or what used to be the sweet Witbank fields – are getting to the end of their resources. You’re seeing the big majors moving out, we’ve seen Billiton go, we’ve seen South32 go, we’ve seen Anglo go and we’re paying more to get that coal out. What we call the strip ratio – a measure of the waste in order to get to the coal – is going up and very few people are opening up big projects. The coal roadmap – South African coal road map published in 2015 – estimated already then, that we needed to be opening 4m ton mines a year in order to meet demand. Not a single project of that nature has materialised. The Waterberg which was seen as the panacea of South Africa’s coal supply issues – the only mine that’s operating at the moment is Grootegeluk – which if one is to be brutally honest about it, it is a subsidised mine which was put together under the old apartheid system or at the time of the apartheid system of government when Iscor needed coking coal and Eskom was to be (and I use this with care), the dustbin for the balance of the coal because Iscor only took very little of it. So there’s really no competitive free market coal mine operating in the Waterberg at all. The Witbank coal fields are becoming more and more expensive to mine. We see a lot of the major mines coming to the end of their lives in the next 10 to 12 years and we’re not seeing any significant projects – and when I say significant, any 4m tonnes plus mines opening up – so we’re going to be losing many tens of millions of coal from the supply side in the next 10 to 12 years and simply not being able to replace it with anything that is in the new project pipeline. So the net effect is that we’re losing production of coal from the National Space and this is a very under spoken about issue. Some people might celebrate the death of coal and that’s until they need power at 10 or 12pm at night when the sun is not shining, with the winds not necessarily blowing so we have to look at everything in a balanced view. Do you need coal for baseload? Eskom earlier on in the year – in the medium term outlook reports – have put out some very alarming figures in terms of the proposed coal supply shortfall going forward, where they don’t know where they’re going to be getting the coal from. Included in that, is a portion where they think that they will get some of that coal back from investing capital in the cost-plus mines, which have quite frankly under Brian Molefe’s Baker Man, have just been running into the ground and they are in fact producing the most expensive coal in the system for Eskom.

What’s Baker Man?

When Brian Molefe stated that Eskom is not going to be the baker man anymore, they’re going to buy bread from the bakery, they’re not going to own the bakery i.e. they are going to stop investing in the cost-plus mines which was the cheapest coal and they are going to play open market all the time. They stopped investing in their cheapest coal and they’ve now made that the most expensive coal in the system – in many cases it’s not every case – I’m certain that some of those cost-plus mines are doing really well. Certainly the top prices that Eskom is paying for coal, are the ones that Eskom is contracted to for the very long term – for the life of the power stations – and then stopped investing in the mine. So instead of producing coal at for example R200 or R300 a tonne, some of those are producing coal at R800 – R900 a tonne.

So there’s no doubt that the new chief executive de Ruyter has got quite a job on his hands. But from where you sitting now – if you had his job – what would your top priorities be?

Coal is critical. It’s a massive thing and I would think that a bit of clever thinking around coal and where coal may come from in the future. There are solutions and some of those may in fact assist Medupi and Kusile to get better coal so they can fix some of the issues with the design mismatch. Obviously maintenance is a massive issue and a decent amount of spending on maintenance needs to be done, but like anything it’s got to be focused spending. We can throw a lot of money at many things and waste it, or you can focus it with the right sort of skills behind it. One of those examples would be in the cost-plus mines on the coal focus. It’s questionable how much we can get back from the cost-plus mines because the project officers, those with a proper delivery record, have pulled out. We’ve lost – I would imagine – quite a lot of the institutional capacity to deliver multi-billion projects and bring their coal back on stream. That’s gone with the majors because they certainly don’t leave the best people behind when they make a move, so I think it’s a combination of focused skills – to go with the money – and obviously looking at where your biggest cost items sit and that would be fuel.

And just to close off with, are we heading for a future in South Africa of loadshedding almost indefinitely, or at least for the next few years?

I think it’s a bit early to say that. I think there’s always something that can be done. It depends on the creativity, the intelligence and the focus of what’s done. If you’re going to rely on Eskom to dictate everything, if Eskom opens its mind to some of the possibilities, if government opens its mind to some of the possibilities, it’s not out of the question. It depends what the opposing forces, on the various lobby groups who have only their narrow interests at heart, what they bring to the table and how much they’re actually prepared to work together. If we can get adults around the table this would help instead of everybody fighting over their own narrow interests.

Mike Blenkinsop is a power industry and coal consultant.