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Eskom report smoke and mirrors of a dying institution - expert

Jan 30 2017 15:07
Ted Blom*

Cape Town - At the end of January 2017, Eskom presented its status report for the first quarter of 2017 to the world. True to form the report, which is aimed to please potential investors and their bosses, provided a glowing review of how Eskom has climbed out of the abyss that prevailed between 2010 and 2015.

However, the reality of Eskom’s revival is far from the marvels reflected in its latest report. When it’s time for management to motivate for good bonuses, Eskom’s leadership is quick to boast about the entity’s fantastic performance.

Yet in a couple of months’ time, their presentations to energy regulator Nersa will motivate for substantive tariff increases and in effect, Eskom’s leadership will be asking to lean heavily on the public for double-digit increases, to bail them out of a shockingly poor performance.

Surprisingly, Eskom’s latest quarterly review boasts a dramatic turnaround being achieved under Eskom’s "New Management". Does this new management include the recently disgraced ex-CEO Brian Molefe? 

Is this the same "new management" which includes the current acting CEO, Matshela Koko, who is a 24-year Eskom veteran that was actually part of "Old Management", under which the poor performance festered?

Eskom’s report-back to society claims to have improved availability of electricity generation units from below 70% to above 77%. However, what they don’t tell us is that this is still some way short of the 90% that prevailed in the 1990s and is the minimum accepted standard among world class operators. 

Coming off a poor past and low base is now being couched as the heroics of a "new" leadership team.

Eskom also boasts that since the new build programmes commenced, some 8 030 Megawatts (MW) have been added to the grid, but it neglects to mention that more than half of this was not built under Eskom control but instead, has been added by a far more efficient group of private investors under the Department of Energy’s (DoE's) independent power producer (IPP) programme.

A further anomaly in Eskom’s claims is its stated goal of stimulating increased electricity demand, although it doesn't articulate how this is possible, especially against the backdrop of the DoE’s latest energy reduction programme, evidenced in their recent government gazette titled the "National Energy Efficiency Strategy".

Eskom’s supposed New Management is the same one that EE-Publishers had to apply to via a Public Access to Information Act application, in order to obtain basic information of the utility’s power generation performance. 

This same information used to be transparently available to the public on Eskom’s website in the past.

Eskom’s lack of transparency is clearly an attempt to hide its poor performance issues that arise on a frequent basis, such as the recent exposure by its internal System Health Dashboard, which highlighted that Eskom suffered "forced outages" of close to 4 000 MW on Tuesday, January 24 2017 (i.e. nearly equivalent to the size of a fully operational Medupi plant at 4 800 MW). 

The extent of this “forced outage" clearly shows that Eskom’s "New" Management is not on top of the generation game, as it makes itself out to be.

Another telling statistic of Eskom’s dire woes is that that the peak demand on the "forced outage" day of January 24 was forecast at only 27 000 MW. This is significantly lower than their prior peaks of around 34 000 MW experienced in 2007/8.

Shocking reality that won't go away

The sharp drop-off in sales is the shocking reality that will not go away for Eskom and is largely attributable to the unaffordability of electricity, triggered by Eskom’s need for high tariff hikes in trying to keep pace with an inefficient and poorly managed organisation. 

The high tariff hikes triggered a substantial energy efficiency drive by society, with a number of business closures and job losses when the impact was too high to sustain. Notwithstanding this sharp fall in output, Eskom’s operational costs kept rising at a prolific rate and its ability to survive was only made possible through exorbitant tariff hikes.

This year will be no exception and the cries from Eskom’s management for another 20% or more will echo loudly in Nersa’s corridors, as Eskom tries to get its way - again.  

Weirdly, Eskom on the one hand boasts about its surplus capacity of 5 600 MW, yet on the other bemoans the fact that despite its best efforts, it appears unable to stimulate demand for higher energy purchases.

This situation will become exacerbated by the year 2022, when installed electricity capacity (excluding any nuclear build) reaches 55 000 MW, while economic pundits are projecting maximum demand of about 30 000 to 33 000 MW.

It doesn’t require an economist to conclude that Eskom is in deeper trouble than it ever imagined. Perpetual poor leadership has set the utility on a path of mud and quicksand.

Outrageous and unsustainable tariff hikes

The only way out of this destructive path of insolvency and ruin is to pass the buck to the consumer, in the form of outrageous and unsustainable year-on-year tariff hikes, or Treasury backing. And the more it does so, the more the public and business will move rapidly to new efficiencies and self-generation options, which does not bode well for Eskom’s economic model. 

A classic case of a self-inflicted spiral towards extinction, with Eskom’s leadership unable (or unwilling) to recognise it.

And then for some amazingly obscure reason, against this backdrop of a growing energy surplus, increasing debt and declining revenues, Eskom’s "New Management" is hellbent on trying to convince the country that we urgently need to build a massively expensive nuclear energy fleet, one that we don’t even need, let alone can afford.  

Instead of telling us how marvellous they are, Eskom’s leadership should sit around the table with their critics, the big business strategists, the intensive energy users and representatives of the public and listen to all the criticism levelled at them.

Eskom’s leadership must begin to reseal that just because they work inside the business of energy generation, it does not make them the sole experts in the industry.

Of one thing we can all be sure: Eskom’s leadership will receive healthy bonuses again this year, despite the corruption and plundering, the growing debt and the dubious contracts to finance connected coal suppliers.

No worries for them though, this is all sponsored courtesy of the hard-working and overstretched South African public.

* Ted Blom is the portfolio director for energy of the Organisation Undoing Tax Abuse. Views expressed are his own.

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