Eskom turns to quick high of diesel to get it through slump
The utility wants to ramp up spending on diesel in a bid to keep the lights on - but it is no solution at all
When Eskom CEO Phakamani Hadebe delivered an update on the state of the national power system on Friday, he also ignited a feeling of déjà vu.
A nine-point plan presented by Eskom outlined critical issues the embattled utility has faced for some time, such as the lack of maintenance and an imminent coal supply crisis.
The only immediate solution presented – which is no solution at all – is to ramp up spending on diesel to R1bn over the next four months in an attempt to keep the lights on while it tackles the causes of these persistent problems.
As energy expert Ted Blom puts it, it has “eight problems and one fossil solution, and the solution is open-cycle gas turbines”, which are diesel-run.
Exactly how the utility might pay for this costly interim measure appears to be a problem for another day.
Eskom has been on a knife edge for years and its debt service costs have grown to the point that they are higher than revenues. It is also struggling to keep the lights on. Ten of its 15 coal-fired power stations have less than 20 days of coal supply. With the government on the hook for about R350bn in guarantees of Eskom debt, the utility’s failure poses a significant risk to SA.
To its credit, the new leadership at Eskom has brought with it a degree of confidence.
As Hadebe points out, credit ratings agency Fitch in October removed a ratings-watch negative on Eskom because of its progress towards improving its liquidity health and resolving corporate governance challenges. Hadebe says 1,049 investigations have been launched and 97 people have exited the company while 250 have been suspended without pay.
The nine-point plan is separate from Eskom’s new long-term strategy, which is yet to be released.
However, the fuel strategy is a critical area which remains in disarray. Eskom faces a coal supply crunch, not because it can’t find coal but because producers want the market price, which has shot up in 2018.
But this is not news to the utility. In fact it’s the exact reason it invested in cost-plus mines so that it would not be subject to market price movements. Investment in these (cost, plus a modest profit margin) mines was suspended under former CEO Brian Molefe, but Eskom says it will now seek to extend existing cost-plus contracts and will set aside funds to resume investment in some mines again.
In the short term it is executing emergency coal procurement as approved by the treasury and has so far procured 1.1 million tons out of a required 4 million tons.
Eskom hopes to soon be able to move coal it has stockpiled at Medupi to its Mpumalanga stations by rail. But as one energy expert cautions, boilers are designed for specific kinds of coal, and using different coal can damage a plant.
Another risk to the power system now is that summer rains will wet coal stockpiles.
As Blom explains, if stock piles are at a decent level, the water runs off. But when the stockpiles are low, the wet creates a slurry, and a considerable problem.
It’s hard not to see disaster ahead. As Blom puts it: “They are in a nose dive financially and operationally, and they are about to hit the ground.”