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Power privatisation plan still failing

Johannesburg - The Kelvin Power Station in Kempton Park is being sold for the fifth time since it became South Africa’s first experiment in privatising power generation in 2001, City Press reported on Sunday.

The ancient coal-powered station (its first unit was built in 1957) technically has the capacity to generate a sorely needed 600 megawatts, but none of its successive owners has been able to deliver more than a third of that.

Instead, they have made hasty exits or ceded the station back to its creditors, as happened in 2006 and again last year.

Investec and Nedbank Capital are the joint shareholders after they financed the acquisition of Kelvin via a consortium of fund managers in 2007.

That consortium sold the station to the banks after an initial debt restructuring failed to help them out of “operational difficulties” last year, a spokesperson for the two banks told City Press.

The two banks last week published invitations for expressions of interest in buying the station.

Although Kelvin is minuscule compared with Eskom’s base load stations (at full capacity, it would be equal to one of the six units of the Medupi station being built in Lephalale), it is the only large coal-fired power station in private hands in South Africa and still big in comparison to the various renewable independent power producers setting up shop in the country.

Its 200MW operational capacity amounts to about 10% of Joburg’s power needs – a crucial buffer against the power shortage the country is facing.

The station sells all its power to Joburg’s City Power in terms of a 20-year power purchase agreement signed with the original buyer in 2001, which expires in seven years.

This guarantees cash flow, the banks said in a short information note to prospective buyers.

City Power’s annual reports and budgets are laden with complaints about Kelvin’s failure to deliver the electricity it should in terms of the power purchase agreement.

Another long-standing problem has been that Kelvin’s tariffs get adjusted to reflect the cost of its coal, resulting in large jumps over the years.

The station’s electricity is a lot pricier than Eskom power – about R1 per kilowatt-hour compared with Eskom’s 74c/kWh.

According to City Power’s published business plan for 2014 through to 2016, it spent R745 million on power from Kelvin in the 2013/14 financial year and expected that to increase to R815 million in the current year.

But buying the power can be justified by reselling it to Eskom – while the City buys cheaper Eskom power for its needs.

After the power crisis in 2008, reselling Kelvin’s power earned the municipality several hundreds of millions of rands in additional revenue.

But, according to Eskom, the contract with City Power will end in March next year.

It is one of the stopgaps that the National Energy Regulator of SA wants Eskom to cease, to save money.

In their invitation to potential buyers this week, the banks punted Kelvin as a potential direct supplier to Eskom through the national independent power producer programme.

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