We’re in a death spiral but we’re doing our best: Eskom chief
De Ruyter paints a grim load-shedding picture, but says there’s light at the end of the tunnel for the rickety utility
“It never rains ...” was the title of the slide in which Eskom chief executive André de Ruyter showed how the embattled power utility was struck by four out of 11 critical risk factors predicted to affect it.
As De Ruyter put it, the utility had just about everything except for the kitchen sink thrown at it when Covid-19 halted its long-overdue midlife refurbishment programme for its fleet of power stations.
Speaking at a Cape Town Press Club live-streamed event on Tuesday, De Ruyter, who was appointed CEO in January, said there was an increased threat of load-shedding in the near future as power generation units at several stations would be taken offline for maintenance.
When you defer maintenance, you borrow from the future at an extortionist interest rate.
“It’s likely that we will have increased load-shedding going forward. I think that there is a risk of load-shedding going forward given the lack of predictability, the lack of reliability due to the maintenance that was not done,” he said.
“When you defer maintenance, you borrow from the future at an extortionist interest rate. This is the situation Eskom finds itself in now, where the cost and complexity of catching up with the deferred maintenance significantly exceeds what it would have been if we had done the maintenance over the past decade or so, as was required.
“One of the major things which we did not do was to conduct our midlife refurbishments, which is a key element of extending the life of our power stations, and that has also added significantly to this lack of reliability,” he said.
Eskom chief executive Andre de Ruyter spoke about the struggling utility at the Cape Town Press Club.
If the units were not taken down for refurbishment now the country could expect significantly worse load-shedding in the coming years, he warned.
Added to that, SA was experiencing its coldest winter in a decade, and although the economy had come to a complete halt (De Ruyters said a contraction of -7% in the GDP was predicted), the colder nights were driving up demand.
“Unfortunately there is an increased risk. We are doing quite well in terms of managing peaks right now – I mentioned the 32,000 megawatts that we managed to navigate last night, albeit using significant numbers of open-cycle gas turbines. Let’s see. We really are doing our best here at keeping the lights on, but not at the expense of maintenance,” he said.
Some maintenance work has already been completed, bringing an ever-growing trickle of extra generation capacity back onto the grid. Eskom has almost achieved the 70% generation capacity benchmark it set for 2021. By 2022 it wants this figure up to 74% of the total installed grid.
We really are doing our best here at keeping the lights on, but not at the expense of maintenance.
And as De Ruyter’s slideshow progressed he painted an ever-more positive picture of a future Eskom as it tried to regain control from the “utility death spiral”. This includes restructuring the business into three separate divisions and away from the 97-year-old business plan.
Last week, Eskom lawyers, working with the Asset Forfeiture Unit, prepared anti-dissipation orders to prevent former Eskom CEO Brian Molefe, former CFO Anoj Singh, former group executive: generation Matshela Koko and company secretary Suzanne Daniels, along with the Gupta brothers and businessman Salim Essa, from spending R3bn which they allegedly stole from Eskom.
This came after they applied for a summons to recover the R3bn from the individuals.
“We are working with, among others, the AFU as well as our own legal advisers to prepare what are known as anti-dissipation orders and that tries to prevent people from spending ill-gotten gains before we can recover them, so we are trying to preserve as much as possible,” said De Ruyter.
“Will we be able to reclaim or recover all of the R3bn? Probably not. I suspect a significant amount of money has already been spent. But on the other hand can we afford to sit back as South Africans and say it’s okay, we are going to let you walk away with the money because we don’t want to spend money on lawyers?
“There is also a matter of principle at stake here that we have to pursue, and I’m quite confident from the advice I’ve received from our lawyers that we’ve got a good case and a strong case.”
He said they were also making headway, and had the political support, in getting R30bn in debt back from the top 20 debtor municipalities, including Soweto and Harrismith.
“The steps we are taking is increasingly going to the courts to obtain attachment orders and writs of execution. In the case of Emfuleni we got the sheriff to attach moveable assets,” he said.
Eskom’s electricity – and we’ve done the benchmarking on this – is among the cheapest in the world.
De Ruyter said one of the key problems with municipal debts was that municipalities themselves failed to adequately collect on debts from their residents.
“But the municipal issue is a really substantial challenge that we have to come to grips with, and it relates to a very large extent to the capacity within municipalities to collect debts, to ensure that meters are read, to invoice, to bill, to collect, to enforce,” he said.
“These mechanisms and these practices very often aren’t in place in the defaulting municipalities.”
He also dispelled the myth that Eskom was ramping up its prices, insisting that the utility provided some of the cheapest benchmark prices in the world.
“One of the major revenue generators for many municipalities, and I suspect all of them, is to add a significant mark-up to electricity bought wholesale from Eskom and then distributed to the municipality.
“That partly gives rise to the narrative that electricity in South Africa is expensive. If you look at the mark-ups that municipalities apply to electricity bought from Eskom, it ranges from about 17%, which was the Nelson Mandela Metro, to the highest which is the Sol Plaatje Municipality, which adds a mark-up of 84%, so that is a very hefty mark-up,” he said.
“If you operate a factory in Sol Plaatje, which is Kimberley, you will no doubt be of the view that your electricity is terribly expensive – but that is not due to Eskom.
“Eskom’s electricity – and we’ve done the benchmarking on this – is among the cheapest in the world, certainly compared to developed countries, but also compared to companies north of us,” said De Ruyter.
He said there was always the option of Eskom taking over electricity distribution, but this would place a burden on the municipalities who would lose one of their main revenue streams.