Shed hits the fan: Why Eskom won’t live past April
MPs given a grim picture of a poorly managed, debt-riddled power utility that has been brought to its knees
State utility Eskom has run out of money, coal supplies and options.
That was the gist of a grim message to members of parliament on Wednesday, who were first addressed by the acting director-general of the department of public enterprises, Thuto Shomang, before minister Pravin Gordhan cut short a cabinet meeting to field MPs’ questions.
Shomang painted a picture of a bankrupt Eskom that will literally cease to operate at the end of April, while Gordhan promised that President Cyril Ramaphosa would make an announcement on Eskom on Thursday. The briefing left MPs with more questions than answers. At the top of their list: when are the culprits getting arrested?
MPs heard that Eskom is technically insolvent and at the current trajectory and without a financial injection, it will cease to exist in two months’ time. This means the company would not be able, beyond April 2019, to fulfil some of its financial obligations. Its high level of debt, currently at about R420bn, also represents about 15% of sovereign debt.
“The bottom line is that we are going to have difficulties for the short while. The board will ensure with the management and the government that this experience we are having of load shedding is as short as possible and ensure it doesn’t become a permanent feature for SA,” said Gordhan.
“Many who today want to portray themselves as angels in this environment might have been, as we get to understand who was actually responsible for what – in designing Medupi and in changing the design of Medupi as it went on [and] causing labour disruptions … we need to put a picture together to say what does that actually mean and how do we deal with the people who might at the end have to find themselves in orange uniforms now that we might be getting a more effective prosecution service than what we had until now,” he said.
The list of what is wrong at Eskom makes for horrific reading.
MPs heard that the flagship power stations, Medupi and Kusile, whose construction is many years behind, were badly designed and badly built. Their costs have escalated (by six times in the case of Medupi, and doubled at Kusile) to more than R300bn in total.
Eskom’s current dilemma on the operational side is that there are no safety margins, said Gordhan.
On Tuesday evening, for instance, when the country experienced level 3 load shedding, 30,000MW would have been required by South Africans, but what would have been available was 27,000MW.
Eskom had been using diesel as a quick substitute but it is expensive and there are supply problems. “There would be a ship in Mossel Bay full of diesel, some if it meant for Eskom and some for other customers, but in the last 24 hours something went wrong with the offloading of that diesel. It wasn’t timeous enough for Eskom to ensure the diesel reaches it on time,” explained Gordhan.
Some MPs were seen rolling their eyes as he spoke.
“Government is very aware that these sorts of outages, apart from causing huge traffic jams and a huge amount of frustration in our major cities – which we must apologise for on behalf of Eskom – is also a bad signal as far as the investment in our economy is concerned. It is for this reason that the president will make an announcement tomorrow in this particular regard,” he said.
“One of the issues that is compounding the problem is that in all of these institutions that have been confronted with the experience of state capture or corruption. Good people are either forced out or top skills leave,” added Gordhan.
To this end, the government has been tracking down experienced former Eskom engineers over the past 48 hours to see if they could help in the “emergency”.
Earlier on Wednesday, Shomang told MPs the cash generated by the company does not cover operating and debt-servicing costs.
The escalation of municipality and Soweto debt to about R28bn was another problem facing Eskom, in addition to the increase in the number of Eskom employees from 32,000 in 2007 to 48,000 in 2018. The associated cost of that rose from R9.5bn to R29.5bn.
Shomang said Eskom was struggling to maintain operational sustainability owing to an ageing generation fleet (about 37 years, on average); essential midlife refurbishments not implemented; and poor quality of maintenance due to poor workmanship, with 40% of plant breakdowns due to human error.
It also faced ongoing coal shortages because of poor management and lack of investments in cost plus mines.
Eskom was also experiencing significant loss of critical skills and low staff morale.
Shomang noted that the building of the Medupi and Kusile power stations had suffered massive delays and cost overruns due to poor planning, poor engineering designs, poor procurement practices or poor contracting and corruption.
The costs for the plants had soared to more than R300bn: Medupi from R24.9bn to R145bn, and Kusile from R80.7bn to R161.4bn.
Shomang said systemic corruption, malfeasance, fraud and state capture had compromised the credibility of the organisation and eroded investor confidence.