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Energy supply must go beyond fixing Eskom

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To face up to our national crisis and provide some light at the end of what at times looks like a very dark tunnel, we have to tap into the generating capability that exists outside Eskom, says the writer

OF ALL the flaws that Covid-19 has exposed in the economy, the poor health of our state-owned enterprises (SOEs) is perhaps top of the pile. 

With the massive disruption to the airline industry, it’s no surprise that SAA was the first SOE to feel the pressure, and it once again stands on the brink of collapse.

The other assets in the government’s bloated portfolio of SOEs are running into their own potholes. The biggest problem is Eskom.

Operationally, Eskom has benefited from the fall in demand for electricity, allowing it to get a better handle on its maintenance backlog. There’s almost a decade of maintenance neglect that has fed into the lack of reliability of its coal-fired power stations, some of which are older than 50 years. Getting both Medupi and Kusile power stations to step into the breach has not happened, as management of old had hoped.

Eskom’s management has wisely used the lockdown to tackle its operational concerns that were, until the end of March, strangling the little life that was left in the economy through bouts of load shedding. 

This week, the utility completed repairs to Unit 3 of Medupi after the unit was shut in January to address defects relating to its boiler. It’s now set to undergo optimisation and performance testing.

In the crisis, we can take some comfort that Eskom has seen and grasped the opportunity to deal with maintenance, which will serve us well as we start opening the economy in the weeks and months ahead

As much as we welcome these developments, the utility’s debt is the biggest sovereign risk that weighs on our economy. 

What was initially seen as the necessary construction of Medupi and Kusile has morphed into a debt burden of almost half-a-trillion rand, which keeps on growing. During the lockdown, its debt metrics have only worsened, with Eskom expecting to bleed up to R2.5 billion a month in revenue because of reduced demand.

The lockdown and what is expected to be a sluggish rebound in the global economy over the next 18 months – if not longer – will continue to put pressure on Eskom’s revenue and its debt position. This week, ratings agency S&P Global Ratings changed its outlook on the utility to negative over liquidity concerns due to the lockdown.

These changing dynamics should press the state to push ahead with its restructuring plans at Eskom that the president, along with the Department of Public Enterprises, has long pronounced, starting with the break-up of the group into three separate entities: generation, transmission, and distribution. 

This is necessary for the energy sector to transform and embrace new generation sources and, importantly, decrease our reliance on coal-fired power. It will serve as the catalyst for what will be the most transformational step in our energy sector.

A restructured Eskom is the only way in which the state can attract interest from private shareholders needed for fresh capital injections into the parastatal.

The R500bn raised by the National Treasury to respond to the economic fallout of the Covid-19 pandemic should not be used on yet another bailout for the company; the time is long overdue to introduce another shareholder in the Eskom story.

The most important aspect of our energy future is the introduction of additional generation capacity. For all Eskom’s operational focus during this period, the reality is that little can be done about load shedding in the medium term. 

To face up to our national crisis and provide some light at the end of what at times looks like a very dark tunnel, we have to tap into the generating capability that exists outside Eskom. 

There are businesses that generate electricity for their own consumption and have additional capacity that could be fed into the national grid. Others would be able to create generating plants quickly if given the green light, either for own use or for feeding into the grid.

There is an estimated 2 gigawatt of power generation outside Eskom just waiting for signatures and approvals from the state. Granting the approvals would make an immediate contribution to stabilising the grid.

Apart from the mines, there’s Sasol’s gas engine power plant. Half of the 140MW capacity is used by the petrochemical firm, while the intention is to feed the rest into the grid, but it has not been able to connect to it successfully. 

These are only some examples of what can be done to revolutionise our energy sector. The Covid-19 pandemic has provided a moment to pause and reflect, but it also provides room to undertake reforms to sectors such as energy. We are using the pause to deal with operational challenges at Eskom, but we can also deal with the structural problem with South Africa’s energy sector as a whole.

* Busi Mavuso is the chief executive of Business Leadership South Africa.