Eskom fails to meet conditions for funding set by National Treasury

In 2019, National Treasury voted an amount of R59 billion in terms of a Special Appropriations Bill to assist Eskom pay interest and capital on its R488 billion debt.


This allocation was based on Eskom meeting certain conditions based on operational, financial, governance and restructuring compliances.

A recent presentation by National Treasury shows while Eskom succeeded in meeting most of these conditions, it failed in certain critical areas. For example, it failed to dispose of Eskom Finance Company by 31 March 2020, and has also failed to implement the remuneration standards required as a condition of loan funding.

In other areas, there was partial compliance, such as information on the full duration of loans taken out by Eskom, and the cost, timing and benefit plans relating to the completion of the new Kusile and Medupi power stations.

It has also failed to provide National Treasury with a full and detailed report on the defects in the new build programme.

“Despite Eskom not complying with two conditions, the information submitted and the weekly progress updates provided were sufficient to allow the disbursement of the approved equity allocation of R 49 billion for 2019/20,” says a statement by National Treasury.

The Department of Public Enterprises (DPE) was also non-compliant on two of four conditions set by National Treasury:

  • It did not ensure the Eskom board was strengthened by 31 December 2019, and;
  • It failed to ensure that Eskom’s executive management performance agreement is linked to Key Performance Indicators as previously outlined by the minister of finance and in the shareholder compact.

“DPE has not submitted any progress report or correspondence to National Treasury on the measures they are implementing in order to comply with the remaining unmet conditions,” says National Treasury.

Subsequent to 31 March 2020, Eskom had submitted all outstanding information required by Treasury. As of 27 August 2020, R6 billion of the R56 billion earmarked had been disbursed to Eskom.

In a submission to the Standing Committee on Appropriations (SCOA), Eskom provided details of government support since 2008: a total of R188 billion, of which R60 billion was a loan and the balance equity.

For the financial year ending 31 March 2020, government made R49 billion available to Eskom to ensure that its contractual interest and capital payments were timeously made. This “recapitalisaton” came with conditions in terms of the Special Appropriation Act: it could only be used to settle debt and interest payments and nothing else. This R49 billion was supplemented by R36.2 billion in cash flows from Eskom operations, with a further R32 billion raised in external loans.

For the year ending March 2020, Eskom paid R31.5 billion towards loan principal and R39.1 billion towards interest.

Without government support, Eskom would not have been able to meet its debt obligations as they fell due.

“As Eskom is a critical state-owned enterprise, it is vital that the public are involved in crucial decisions that affect tariffs and the stability of the grid,” says Hutchinson. “We will continue to keep a close eye on developments at Eskom, and involve the public more – particularly where taxpayers are being asked for repeated funding.”

Nearly 15,000 South Africans reject a special appropriation of R59 billion for Eskom

A Dear South Africa campaign seeking public comment on the Special Appropriations Bill awarding an additional R59 billion to Eskom returned a resounding “No” verdict.

Some 89.7% of the nearly 21,000 who commented on the Bill through the Dear South Africa platforms were against the additional funding for Eskom, with just 3% in support. The balance of 7.3% did not fully support the funding appropriation.

It has also become apparent that Eskom has failed to meet certain key conditions set by National Treasury for the disbursement of these funds.

A common theme among those opposing the additional funding was that Eskom was a bottomless pit of endless bailouts and tariff increases, with funds being diverted away from social needs to a entity that had been proven to be corrupt. High salaries, over-staffing, corruption and bonuses were seen as the drivers of the need for continual taxpayer-funded bailouts.

Solutions suggested by commentators (among those voting for and against the additional funding) are unbundling and privatisation; allowing consumers and other producers to sell energy back into the grid; reclaiming stolen funds; reducing the head count and salaries; collecting outstanding debts from municipalities and consumers, to name a few.

The Dear South Africa campaign was agnostic as to the outcome, merely providing information for South Africans to make their voices heard. Dear South Africa is a non-profit which aims to encourage broader public participation in legislative and policy issues as required under the Constitution. It makes no attempt to influence the outcome of these campaigns.

A suggestion from those not fully supporting the additional R59 billion funding to Eskom was to limit it these new funds to core operational functions (not debt repayment). There is also a desire to see National Treasury take a more hands-on approach to the management of these funds. A common suggestion from those not fully supporting the R59 billion bailout is to sell Eskom shares to the public as a means of raising funds and allowing ordinary South Africans to participate in a restructured enterprise.

Among those commenting in favour of the latest bailout, the solutions do not substantially deviate from those opposed to it. Those in favour want to see privatisation and unbundling, recovery of municipal debt owed to Eskom, management by professionals with proven competence, suspension of staff bonuses and fully transparent coal supply contracts – and a re-examination of Independent Power Producer (IPP) contracts as these are deemed excessively expensive.

Says Dear South Africa programme director Rob Hutchinson: “On both sides of the aisle in this debate, there appear to be no sacred cows as far as Eskom is concerned. A high percentage of commentators say all contracts must be subject to brutal transparency and the rush to solar and wind power appears to have fewer friends in light of the high costs of purchasing energy which does not flow when the sun does not shine, nor when the wind does not blow. That’s according to a large number of comments received.

“But the level of engagement on this campaign was high, which shows there is deep concern about Eskom and what it means to the wellbeing of the country.”

SA seeks proposals for 2,000 MW of emergency power

South Africa has issued a request for proposals to procure 2,000 megawatts of emergency power, a step needed to help plug a severe energy shortage, the department of energy said on Saturday.

Source – Reuters


South Africa’s state-owned power utility Eskom has been forced to cut power regularly, hobbling economic growth in Africa’s most industrialised country as unreliable coal-fired plants struggle to generate enough electricity to meet demand.

Scheduled blackouts, known as load shedding, have resumed as South Africa has eased strict lockdown restrictions to contain the new coronavirus and has re-opened power-hungry industries, such as mining, in a bid to kick-start a weak economy.

During load shedding, which is meant to protect the national power grid from complete collapse, residents and businesses are typically left without electricity for a couple of hours at a time.

In December, South Africa issued a request for information (RFI) to source between 2,000 and 3,000 megawatts (MW) of generation capacity to be connected in the shortest time, at the least cost.

“All power procured under this programme is expected to be fully operational by not later than the end of June 2022,” the department said in Saturday’s statement, adding it expected to attract around 40 billion rand ($2.33 billion) of investment.

In February, Turkey’s Karpowership, one of the world’s largest suppliers of floating power plants, said it had submitted plans to provide “several” ships capable of alleviating the country’s power shortages.

The department of energy said on Saturday that bidders would need to conform to South Africa’s policies designed to broaden economic participation for the black majority and to make commitments to job creation and skills development.

Gordhan: You are paying 4 times more for electricity because of stealing at Medupi and Kusile


fin24 Pieter du Toit

South Africans are paying up to four times more for electricity than a decade ago – and that’s to finance stealing and cost overruns at the Medupi and Kusile power stations.

Public Enterprises Minister Pravin Gordhan called numbers and statistics comparing Eskom of a decade ago with present-day Eskom “atrocious”, saying tariff increases over that period mean ordinary South Africans are paying four times more than they used to.

“The numbers are atrocious. The amount of electricity Eskom produces is marginally higher. The demand is falling by about 1% per year. The cost of electricity has gone up more than four times. How could you sell the same amount (of electricity) but you’re earning four times more than ten years ago?

“It’s because of tariff increases, and that’s to pay for Medupi and Kusile overruns, all the stealing that happened. It’s for all the extra you’re paying for coal and maintenance and to original equipment manufacturers, et cetera. And it’s the ordinary citizen and the economy that’s paying the cost,” Gordhan told Fin24 in an interview.

Medupi and Kusile, projects conceived in 2007, were supposed to be completed by 2015 at a cost of R163bn, but are still not finished. They are now expected to only go fully online after 2021 and 2023 respectively, with costs ballooning to more than R450bn.

‘Huge’ damage

It was expected that the projects would have boosted the country’s electricity output by a considerable amount. Performance has, however, been erratic and unreliable, with only a limited number of units being operational.

And it doesn’t seem as if the pain for South African consumers and business will come to an end soon. Gordhan says the extent of the damage done to Eskom’s power stations over the years will take time to fix.

“The damage is huge. You have the age of the plants to take into consideration, of course, but if for example you have a car that’s 10, 11 or 12 years old, you can still get good mileage out of it if you service it properly.

“But if you don’t, and you’ve driven it too hard, with too many people driving it and they’ve driven irresponsibly, then the car will break down.

“What the previous management teams did – in the short period they got close to 75% energy availability – was to drive the plants too hard,” Gordhan says.

During the period in question, only minor maintenance was done, with big maintenance projects, like mid-life refurbishment (which entails a complete overhaul and servicing of a power station) neglected in favour of electricity production.

“There were hundreds of maintenance contracts, and not all had the necessary technical capabilities, which resulted in patch-ups only being done,” Gordhan says.

Midlife refurbishments at power stations were in many instances not carried out for eight years, whereas Gordhan says inspection should happen at least every two years.

Plants weren’t only damaged by poor and irregular maintenance: the company’s people management system also caused damage to power stations, due to a loss of skills and the creation of patronage networks.

“Many good people have left, and many top power station managers are working in the Philippines and elsewhere. And what I heard is that the then-management replaced power station managers so that they could control procurement, and could manage them, and therefore manage what happened at a power station. When Jabu Mabuza’s board came in, it took them a while to figure out what was going on, but by the end of 2018 they started to rotate power station managers.”

The crisis with load shedding has forced Eskom to ensure that power stations are more closely monitored by suitably qualified people, and the reorganisation of power station managers has been fast-tracked.

“The new chief executive and management must ensure that we use all the available skills and experience available in the country to assist Eskom to recover. It will take time. But it can be done with the help of all stakeholders.”

Consumers to pay for Nersa’s R100 billion mistake


City Press Antoinette Slabbert

A R100 billion calculation mistake by the National Energy Regulator of SA (Nersa) will most likely see consumers dig deeper into their pockets to pay for increased electricity tariffs.

City Press’ sister publication, Rapport, can today reveal that Nersa has withdrawn its opposition and conceded to making mistakes in calculations of tariffs to two court applications brought by power utility Eskom.

Nersa confirmed that it failed to comply with the procedural requirements when making four of its decisions regarding Eskom’s electricity tariffs. A third application has already been decided in favour of Eskom.

Eskom may now have to be compensated for Nersa’s mistakes – money that would come from consumers’ pockets.

During a virtual court hearing on Wednesday, Eskom asked for tariffs to be increased by 15% next year, instead of the 5.22% that Nersa had previously approved.

If the court accepts Eskom’s proposal, electricity tariffs will increase at five times the inflation rate – this will happen at the same time as the country most likely goes into recession after years of poor economic growth, which is being compounded by the financial damage caused by the Covid-19 coronavirus pandemic.

Massive electricity tariff increases to compensate for the mistake would hit consumers hard and could lead some to seek alternative sources of power, something Eskom would not want to see happen.

Government had to come in and grant a bailout amounting to billions of rands to the power utility, which is in a dire financial situation due to insufficient revenue generation from electricity sales to pay off its debt of nearly R450 billion.

But before a decision is made by the courts, Nersa has asked Judge Fayeeza Kathree-Setiloane to refer the matter back to the body so that it can fix the mistakes.

This would give it a chance to apply its specialist knowledge and take factors such as affordability into account, said Myron Dewrance SC, who was arguing on Nersa’s behalf.

Kathree-Setiloane reserved judgment.

Wednesday’s hearing was about the R69 billion that Nersa deducted from Eskom’s approved revenue for 2019/20, 2020/21 and 2021/22 – R23 billion every year.

This was the equivalent of the government bailout that was made available to pay Eskom’s debt of about R500 billion, and had the effect of negating the bailout and driving Eskom deeper into financial despair.

The methodology according to which Nersa determines Eskom’s tariffs is strictly prescribed, and Nersa has admitted to failing to comply with the procedural requirements when dealing with the R23 billion per year.

In the second case, which was conceded by Nersa, Eskom took aim at R22 billion in additional income.

This related to three decisions made by Nersa regarding Eskom’s regulatory clearing account (RCA) mechanism, which provides a way for Nersa to adjust Eskom’s revenue for the previous year if the assumptions that they were based on play out contrary to what was expected.

Eskom argues that Nersa’s decisions in respect of the RCA amounts for the 2015, 2016 and 2017 financial years short-changed the parastatal by R22 billion.

Nersa now admits that it made mistakes and the decisions will most likely be referred back to the body to reconsider the correct amount it will allow, in accordance with the guidelines laid down by the court.

In the earlier case Nersa lost, its decision about Eskom’s tariffs for 2018/19 was set aside.

The court then afforded Nersa the opportunity to finalise Eskom’s RCA application for that financial year.

If Eskom is still not satisfied with Nersa’s application, it may submit a supplementary application for what it believes it’s still owed.

Last month, Nersa announced that it had approved only R13 billion of the R27 billion Eskom applied for in its RCA application. Rapport understand that Eskom plans to file a supplementary application in which it will ask for about R4 billion.

In addition to these cases, Eskom recently submitted an application to the court to set aside Nersa’s RCA determination for the 2017/18 financial year. In this application, Eskom is challenging an amount of about R14 billion, and Nersa has indicated that it will oppose the matter.

Piet van Staden, former chairperson of the Energy Intensive Users Group, which represents mines and heavy industry, said Eskom was technically correct and it was disappointing that Nersa made mistakes of this nature.

“Nersa focused on the affordability of tariffs and didn’t give Eskom what it needed,” said Van Staden.

But he warns that a 15% price shock next year will simply drive consumers to other sources of energy, which could cause Eskom “to keel over”.

“Eskom cannot just sit back and take what it is technically entitled to if it has the effect of destroying the demand for its product,” said Van Staden.

Economist Mike Schussler said South Africa simply could not afford Eskom any longer, adding that the increases in the electricity tariffs would mean the economy would take a further knock.

He said Eskom’s programme of BEE had had the effect of driving Eskom’s coal costs through the roof. Mines, smelters and shopping centres that have had to reduce rent as a concession to businesses that are battling to stay afloat, as well as ordinary consumers, simply could not afford the rising costs of electricity and water.

The overall debt consumers owe to municipalities for these two services is already at R110 billion, he said.

Investments in factories and other businesses that are intensive electricity users are being cancelled or taken to other countries, said Schussler.

He said the economy would be considerably stronger if consumers did not have to pay for inefficiencies in the water and electricity industries.

To top it all off, electricity provision isn’t even sufficient, with load shedding being a continuous reality.

Nersa would not comment on the risk of consumers having to pay Eskom the R100 billion. Nersa spokesperson Charles Hlebela emphasised that the regulator had asked the court to remit the decision that it conceded to Nersa for redetermination.

“Therefore, we all should wait for the courts’ judgments,” he said.

Eskom says carbon tax could cost R11.5 billion a year in 2023

South Africa’s troubled state-owned power utility has yet another thing to worry about – a big carbon tax bill expected to kick in from 2023.

Eskom, which has been forced to turn to the government for bailouts to meet its obligations, mostly burns coal to generate power and is one of the country’s biggest polluters.

The company will benefit from exemptions in the first phase of the tax that took effect from June 1. However, a second phase that starts in 2023 may mean an annual carbon-tax bill of about R11.5 billion, Gina Downes, chief adviser for environmental economics at the utility, said Tuesday in a presentation in Johannesburg.

“There’s likely to be a significant additional revenue requirement,” Downes said. The utility said earlier that “substantial” costs were anticipated in the second phase of the tax, without giving an estimate.

Eskom, which produces more than 90% of South Africa’s electricity, accounts for about 42% of the country’s greenhouse gas emissions, Downes said.

The second phase of the carbon tax will run from 2023 to 2030, according to National Treasury. As part of efforts to revive Eskom’s finances, South Africa is considering plans to increase the amount of renewable-energy generation and shut some coal plants early in exchange for getting better terms on the utility’s debt, a person familiar with the matter said last month.

Article by Fin 24

Eskom and a group of businesses strike a landmark deal, sidelining the local municipality

A landmark agreement between Eskom and businesses in a Free State town may sideline more dysfunctional municipalities in future.

Rapport reports that the Harrismith Business Forum signed a contract with Eskom on Friday whereby the power utility will deliver power directly  to the town’s 100 biggest power users – bypassing the local municipality completely.

The Maluti-a-Phofung municipality owes Eskom more than R4bn in unpaid electricity bills – the biggest outstanding municipal power account in the country. The municipality has a monthly electricity bill of R180m, which was last paid years ago.

Eskom has cut off electricity to Harrismith a number of times over the past five years, which has caused damage to its sewage system.

The agreement between the businesses and Eskom is the result of a legal battle that dragged on for more two years. It could set a precedent whereby businesses in other town could also bypass municipalities – and avoid having their power cut off, Rapport reports.

Across the country, municipalities now owe Eskom R25.1bn – and this has grown by R5.2bn since April. Some rural municipalities are not paying Eskom the money they receive from businesses and households, who faithfully pay their power bills. Eskom often cut power to these non-paying municipalities – affecting those who have been paying their bills too.

Ben Deysel, chairperson of the Harrismith Business Forum, told Rapport that the local businesses and Eskom will split the bill for installing new electricity meters. Every business will get a reference number and pay for the electricity directly into a specific bank account.

Together, the 100 biggest businesses in the town pay electricity bills of R20m a month – which will now not go towards the municipal coffers. The businesses include Nestle, Shoprite Checkers, the plastic company Alpla and the carpet producer Nouwens.

Last week, an inter-ministerial Eskom task team – chaired by Minister of Cooperative Governance and Traditional Affairs Nkosazana Dlamini-Zuma – was supposed to brief the Standing Committee on Public Accounts on municipalities’ outstanding Eskom bills. But Dlamini was a no-show.

Recently, the ANC narrowly clung to power in the Maluti-a-Phofung municipality after a number of its counsellors resigned.

Article by Fin 24