Operational and financial challenges ahead for Eskom hears Committee

On Tuesday, 29 July 2014, Eskom briefed a joint meeting of the Portfolio Committees for Energy and Public Enterprises. Attended by Ministers for Energy and Public Enterprises, the joint meeting came about as the result of the enormous challenges that Eskom is facing. The entity briefed the Committees on the current state of the national grid, as well as challenges of supply in the medium and long term.

Right off the bat, new Minister for Energy, Ms Tina Joemat-Pettersen, warned that energy is a “key enabler of economic growth” and; therefore, there was a need for long term planning and a long term vision – a vision that Eskom plays a very important part in. The Minister stated that it was vital to ensure Eskom’s “sustainability and stability”, to realise the country’s current and future energy needs.

Eskom, which supplies approximately 95% of the country’s electricity needs, told MPs that 60% of its coal power stations were older than the recommended design life of 30 years which created challenges that put additional pressure on the grid. The result of ageing coal power stations have resulted in an increase in unplanned failures, more mechanical maintenance failures, increased duration required for outages (which put more pressure on the grid), and increased cost implications.

Eskom’s senior staff members admitted that current operating reserves were “not adequate” to meet peak demands, and that power systems were operating at the maximum to allow for maintenance, with the increased possibility of load-shedding. The highest constraints were during peak hours, between 5pm and 9pm.

On the dreaded matter of load shedding, some MPs reprimanded Eskom for not adequately communicating the load-shedding schedule to consumers using social media platforms.

The ANC’s Zukisa Faku said that load shedding had a “devastating” impact on industries and the economy, and that “the demands of the growing economy need to be balanced and given more priority”.

Officials from the Department of Public Enterprises reassured Members that, over the short and medium term, Eskom was working to set up a sustainable capital investment approach to implement cost-containment measures and ensure financial sustainability.

According to Eskom, gas was being explored as possibly the best option to replace end-of-life stations, primarily from Maputo in the short term and shale gas in the long term.

However, more bad news followed from Eskom, who told MPs that there was a negative cash flow for June 2015, and that the entity was faced with challenges of raising additional debt to reverse the situation. Eskom’s Acting Chief Executive Officer, Mr Collins Matjila, informed the Committees that the entity had received a negative credit rating, which pointed to the fact that Eskom’s “changing environment required a response that would ensure sustainability in the long run”.

Although deeply concerned about Eskom’s financial sustainability, particularly its high dependence on borrowing, MPs were alarmed at the significant amounts owed to Eskom from municipalities, who themselves faced a number of problems. According to the CEO, Eskom was also not earning enough returns. Eskom had only managed to collect R2.9 billion from municipalities during the 2014 financial year. The most challenging provinces included the Free State, Mpumalanga and Limpopo.

The DA’s Lance Greyling labelled the debt owed by municipalities to Eskom, a “matter of urgency”.

In an effort to reassure MPs again, Eskom stated that an Emergency Task Team was set up by the entity’s board in April of this year to address the sustainability of the energy sector, and more specifically, to respond to the four pillars of concern, namely: Financial sustainability, Operational sustainability, delivery of the Build Programme, and implementation of the Gas Strategy.