Tag: Eskom

By Khulekani Magubane for Fin24

Overdue debt owed to Eskom by municipalities increased by some R1.2bn in September to R26.4bn by the end of October, Parliament’s Standing Committee on Public Accounts heard from the inter-ministerial task team aimed at resolving the debt owed to the power utility.

The meeting took place on Tuesday morning in Parliament, along with the top 20 debtors who account for 79% of the total debt. Of these, the top 20 municipalities who owe Eskom money account for 67% of the overall council debt.

Since the inter-ministerial task team was established in 2017, it has met with Eskom at least 40 times, but the debt to Eskom has grown by R16bn.

Scopa, for its part, has decried the lack of progress in reducing the debt owed to the already troubled utility. The last time the committee met to discuss the matter, none of the ministers in the task team showed up. This prompted Scopa to admonish the ministers, especially Minister of Cooperative Governance and Traditional Affairs Nkosazana Dlamini-Zuma, who chairs the task team.

Executive manager at the Department of Cooperative Governance and Traditional Affairs (Cogta) Kevin Naidoo told Scopa that out of a total of 48 valid payment arrangements that Eskom had with municipalities, only 11 were being fully honoured as of October.

Growing debt, fewer payments

“The top 20 payment levels have dropped from a peak of 91% in March 2016 to 31.3% in October 2019, with virtually no payment towards the current accounts over the last 7 months,” said Naidoo.

Among the top defaulting debtors, Maluti a Phofung Local Municipality in the Free State owes a total debt of R4.5bn, R4.4bn of which is overdue.

Emalahleni Local Municipality in Mpumalanga owes a total debt of R3.3bn, R3.1bn of which is overdue. Matjhabeng Local Municipality’s total debt stands a tR2.7bn, of which R2.6bn is overdue.

Eskom chair Jabu Mabuza said despite having over 40 meetings with the inter-ministerial task team, the debt has only grown, meaning that leadership “either misdiagnosed the problems or mis-prescribed the solution”.

“If one looks at this trend, by the end of the financial year, this debt will be at R30bn and this time next year, the debt would be at R35bn. That’s where the direction is heading,” said Mabuza.

Scopa chair Mkhuleko Hlengwa said he and the rest of the committee members were growing weary of meeting over the same issue, only to find with each meeting that the debt crisis had gotten worse than it was before.

By Jan Cronje and Khulekani Magubane for Fin24

Centlec, the Free State utility that provides electricity to customers in the Mangaung Metropolitan Municipality, which includes Bloemfontein, says it will meet with Eskom on Thursday to discuss the paying of its debts.

On Monday Eskom warned that it would interrupt daytime power to three Free State municipalities from December 3 unless they paid their debts or entered into payment plans. They are the Mangaung Metropolitan Municipality, the Mafube local municipality and the Mantsopa local municipality.

In a statement, Centlec spokesperson Lele Mamatu said “everything possible will be done to keep the lights on”.

“Our view is that this matter could have been better handled without causing panic to our customer in general however we are hopeful there’s still a room to can find each other.”

Mamatu said that Centlec has a “good track record of managing its electricity account with Eskom”.

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Eskom, which has a group debt burden of about R450bn, acknowledged on Monday that “indefinitely” stopping the provision of electricity to the three municipalities would cause “undue hardships on consumers”.

It said that, if it cannot enter into agreements with the municipalities, it would withhold electricity for 16 hours per day between 06:00 and 20:00 on weekdays and weekends from December 3, but provide electricity overnight for eight hours.

As of September 2019, Eskom was owed R25.1bn by municipalities countrywide. The warning to the three municipalities comes after National Treasury in November imposed the recovery of billions of rand of municipal debt as one of 28 conditions that Eskom must adhere to in return for a R59bn lifeline. President Cyril Ramaphosa signed the bill granting Eskom the funds last week.

Nampak CEO to run Eskom

By Samkelo Mtshali for IOL

The appointment on Monday of Nampak Chief Executive Officer Andre de Ruyter as the new Eskom CEO has been met with mixed reactions from the political sphere, with the Economic Freedom Fighters particularly displeased with his appointment at the power utility.

The embattled state entity has not had a permanent CEO since the resignation of Phakamani Hadebe in July, with board chairperson Jabu Mabuza acting in the role of CEO since Hadebe’s resignation mid year.

The EFF said that Ruyter’s appointment was anti-transformation and racist and that his appointment was part of a ‘racist project’ by Public Enterprises Minister Pravin Gordhan to undermine Africans.

“This racist project does not seek to undermine Africans as far as it concerns management of SOEs but as important role players in the economy. It seeks to reinforce the falsehood that Africans cannot manage strategic and complex institutions.

“The other false that must be dismissed with the contempt it deserves is the idea that Africans are inherently corrupt. Since his appointment as Minister of Public Enterprises, Pravin has been removing African managers in SOEs in favour of non-African male, some even less qualified or less experienced compared to the removed African managers,” said EFF spokesperson Mbuyiseni Ndlozi.

The National Union of Metalworkers of South Africa (NUMSA) general secretary Irvin Jim said that de Ruyter’s appointment did not do anything to aide transformation in the country and that the union regarded the appointment as “nothing less than a provocation”.

“This constitutes a setback when it comes to the transformation agenda in the country. This is an insult to blacks and Africans in this country that to date in this country since the democratic breakthrough we do not have competent black women and black Africans who can occupy such a position,” Jim said.

Democratic Alliance Chief Whip in Parliament Natasha Mazzone said that de Ruyter had a mammoth task ahead of him and said that he should use his experience to set Eskom on the right course to recover.

“De Ruyter has an unenviable task ahead of him and his priorities should include stabilising Eskom’s mammoth mountain of debt as well as ensuring a secure electricity grid for the nation.

“Of course, the only way we can truly achieve an efficient Eskom and an energy secure South Africa is when we break the utility’s monopoly over the energy sector as set out in the DA’s Cheaper Electricity Bill,” said Mazzone.

She added that de Ruyter should remain independent and beyond reproach in his capacity as Eskom CEO and that the DA would “keep a close eye on the developments at Eskom under his leadership” in the hope that he will always act in the best interest of Eskom and the public.

Inkosi Mzamo Buthelezi, the IFP’s spokesperson on Public Enterprises, said that although de Ruyter will only officially begin his term on January 15 2020 he should “make very good use of the following month in order to familiarise himself with Eskom”.

“There is very little time to turn things around at the ailing parastatal, de Ruyter must hit the ground running,” Inkosi Buthelezi said.

Amongst some of the key issues that Inkosi Buthelezi said de Ruyter should focus on was building bridges with all stakeholders, decrease debt and reign in unpaid bills, renew or advertise contracts and strengthen supply chain management and tender procurement and financial controls.

By Lameez Omarjee for Fin24

A flat rate for electricity could help foster a culture of payment among Soweto residents, a local councillor told Fin24.

Soweto ANC councillor Mpho Sesedinyane believes a proposal for a R150 monthly flat rate for electricity could be a starting point to address the country’s non-payment woes. The flat-rate proposal was the brainchild of the South African National Civic Organisation – a non-political organisation which advocates on behalf of communities in engagements with government and other service providers.

Soweto owes Eskom almost R20bn – almost half of the total local municipal debt owed to the electricity utility.

Eskom has started disconnecting power to thousands of Soweto households as a consequence.

The now famous couple from the KFC proposal viral video went on their first outing to the Sowetan Derby on Saturday. (Video supplied by KFC)

Sesedinyane said the culture of non-payment dates back to apartheid when residents were told not to pay for public services as an act of resistance.

“Our people were told not to pay for services, not to pay for electricity,” Sesedinyane said.

The ruling ANC had not come back to residents to communicate it was noble to pay for services, after taking over in 1994, he said. Some residents can afford to pay, but are stuck in the old “mentality” and are still resisting payment, he added.

“We need to bring them back and say, we have won the country now. It is us [the ANC] that are governing now, can we now start to contribute and pay Eskom,” Sesedinyane said. These views have previously been expressed by president Cyril Ramaphosa and his deputy, David Mabuza, among others.

Sesedinyane believes the introduction of a flat rate could be a starting point to create a culture of payment for services.

“We had to agree (with Sanco) to come up with this project. For Eskom to collect revenue, it is important to start somewhere,” he said. That starting point is a flat fee of R150 households should pay per month for electricity.

If a flat rate of R150 is introduced, Eskom would at least generate some kind of income, which is better than none at all, he suggested.

Sesedinyane explained that the majority of Soweto residents are unemployed, living below the poverty line and are reliant on social grants. This means they are unable to pay for electricity.

The flat rate should be set at an amount which everyone can afford, including grant beneficiaries. After three or four years the flat rate can be increased, and at that point people will be used to paying for electricity, he added.

“People will then be in a position to know it is noble to pay for services, especially electricity. And they will be used to paying at the end of the day.”

Sesedinyane said that prepaid meters will not be the solution. “Our people will start connecting themselves illegally and they will not pay for electricity.”

Not sustainable

The South African Local Government Association – an association comprised of 257 local governments – however does not think that a flat rate would work. Spokesperson Sivuyile Mbambato told Fin24 that the proposal was “unsustainable”.

“We do not have the luxury of cheap and excess electricity like we did more than 20 years ago. Everyone must pay for what they use,” he said.

Salga is supportive of a prepaid solution. “Prepaid will be the answer in Soweto and other townships but the residents still reject that. This is an indication of how deep is the culture on non-payment in our communities,” said Mbambato.

The association’s National Executive Committee met last week to discuss solutions for rising municipal debt, among other issues.

The NEC resolved that a two-phased approach be implemented to address rising debt, according to a statement issued by Salga last week.

Phase 1 puts forward stricter enforcement by municipalities on credit control measures. This means municipalities will have to target government properties and businesses, through disconnection if there is “sufficient merit” in line with their credit control policies, the statement read.

Phase 2 involves an analysis of debt to classify debt which must be written off, or is realistically collectable.

The proposal comes after a period in which Salga interacted with various parliamentary portfolio committees on matters relating to debt owed by municipalities.

Source: Fin24

Following the breakdown of some of its power generation units over the weekend, the electricity system will remain “severely constrained” until at least Thursday, Eskom said.

In an update after at midday on Tuesday, Eskom said that these unplanned breakdowns, along with planned maintenance, meant that more than 12 500MW in power generation was offline by Monday evening.

Anything above 9 500MW means that Eskom has to resort to emergency power generation: open cycle gas turbines and pumped storage hydro electrical plants. These are very expensive ways of generating power, particularly gas turbines as they require large quantities of diesel. They can only be used for short periods before diesel and water reserves run out.

By Tuesday morning, the situation had improved to 11 500MW of capacity being offline.

“With the expected return to service of several units today and tomorrow, and with current diesel reserves, the probability of load shedding remain low for the week, but the system remains constraint until at least Thursday,” Eskom said in a statement.

It said that any additional unplanned breakdowns, or shortage of diesel and pumped storage, could result in load shedding at short notice.

Last month, South Africans suffered five days of load shedding after outages at five units. Eskom also resorted to emergency power generation, but then its diesel stocks started running low, which forced it to shed power.

Government unveils Eskom rescue plan

By Lameez Omarjee and Jan Cronje for Fin24

Eskom is aiming to have completed the unbundling of its generation, transmission and distribution operations by December 2022, according to a new policy roadmap published by Minister of Public Enterprises Pravin Gordhan.

Here is what you need to know:

‘Cost-effective power’

Gordhan repeatedly returned to the point that South Africans deserve cost-effective electricity, which Eskom is not providing at the moment. The fact that tariffs have increased by 500% over the past decade – without an associated boost in generating capacity – has put the economy under strain, and is not sustainable.

Eskom must be restructured to survive

The plan to split Eskom into three parts – generation, transmission and distribution – is going ahead. Of the three, the transmission entity will be spun out first, around March 2020.

All three entities will remain functional subsidiaries of a larger Eskom holding company.

The minister said on Tuesday that monopolies were by their nature wasteful. A large part of the restructuring plan deals with increasing competition and competitiveness within the utility to eliminate waste and inefficiencies.

In the generation space, the plan proposes that Eskom retain its existing generation fleet and each power station concludes a power purchase agreement with the transmission entity. Eskom will also be permitted to build its own renewable energy generation.

There will not be much focus on unbundling the distribution arm in the near future, due to its complexity. Municipalities currently play a key part in selling on electricity to consumers at a markup. “There is a bit more study that we need to do,” he said.

UCT professor Anton Eberhard, a member of President Cyril Ramaphosa’s task team on Eskom, tweeted that the establishment of a separate electricity transmission company would be transformational by creating a transparent platform to buying competitively priced electricity.

Cost savings

Eskom has only been functioning in recent times due to lifelines from the state, as it does not make enough revenue from selling electricity to cover the cost of the interest on its debt. Treasury in February allocated Eskom R23bn each year for the next three years for a total of R69bn. The National Assembly, meanwhile, recently agreed to a special appropriation to grant Eskom R59bn over the next two years – over and above the allocated R69bn – to pay interest on debt.

To save costs, Eskom would be reviewing coal contracts, and government intends to meet with suppliers to review the cost structure, returns and fair price of coal.

Other measures include a review of employee benefits and alternatives to retrenchment, consequences for non-payment of electricity to recoup some of the R25bn it is owed by municipalities, talks with the energy regulator about pricing, and new procurement approach. The financial turnaround also includes a review of independent power producer contracts, and the disposal of non-core assets to raise cash.

State capture

The minister said that the damage caused by state capture was “huge” and “systemic”. Skilled people were “chased out” the company. All these factors had a negative impact on Eskom’s finances, he told journalists. He added that “‘trolls’ would claim that Eskom was to be privatised, but said this was ‘fake news'”.

Just transition

The plan acknowledges the need for a sustainable approach to be adopted for workers and communities impacted by the decommissioning of coal power stations. Alternative economic developments must be considered for affected communities and the state will be obligated to make sure affected communities can adapt to new opportunities. Gordhan said that labour unions and affected stakeholders are being engaged to understand the importance of changes to Eskom’s future structure.

New CEO

Eskom has been without a permanent CEO since May 2019, when Phakamani Hadebe announced his sudden resignation due to the ‘unimaginable demands’ impacting his health.

Despite speculation that he might, Gordhan did not announce a new chief executive, saying the utility’s new head would be announced next week. This would also be accompanied by board and management changes to account for Eskom’s changed structures.

“We have a bright future for Eskom. It still has a few clouds around it now,” Gordhan said.

South Africans may see tax increases soon

Chief economist of the Efficient Group, Dawie Roodt, recently told Business Tech that South Africa’s growing budget deficit may result in further tax increases to help cover the shortfall.

Increased taxes could arise because:

  • Moody’s may downgrade South Africa’s sovereign credit rating to sub-investment grade because of the country’s poor economic figures
  • The fiscus is in deep trouble
  • Debts owed by state-owned enterprises amount to around half a trillion rand
  • SARS is struggling to collect sufficient taxes to cover the government’s growing fiscal deficit

Taxes could take the form of:

  • An increase in personal income tax
  • A VAT hike
  • A potential increase in fuel levies
  • Fiscal drag (when people, who have normal inflation-related increases in pay, jump into new higher tax brackets because the brackets have not also moved up by at least inflation)
  • Stealth, or hidden, taxes

By Renee Bonorchis and Colleen Goko for Fin24

Investors are prepared for the worst as the day of reckoning looms for Eskom, the state-owned power utility seen by Goldman Sachs Group Inc as the biggest threat to the country’s economy.

Yields on benchmark South African government notes are at their highest in three weeks, trumped only by junk-rated Nigeria, Turkey and Lebanon among 29 major emerging markets. Rand-denominated sovereign debt has lost 3% for dollar investors this half, the worst performance after Colombia and Argentina. Foreigners have dumped a net R25 billion of the country’s bonds this year, cutting their holdings to 37% of the total, from 43% less than 18 months ago.

The rand has weakened 4.6% in the half to date, and is among the five worst-performing developing-nation currencies versus the dollar. Speculative long-rand contracts retreated to the lowest level in more than three months last week, Commodity Futures Trading Commission data show. When it comes to the cost of insuring South Africa’s debt against default, only Turkey and Argentina are more expensive.

Eskom, which supplies about 95% of the country’s power, has R450-billion of debt and is surviving on state bailouts after massive cost overruns at two partially completed coal-fired power plants. The country endured four days of controlled blackouts last week to prevent total collapse of the grid. Power shortages and policy uncertainty have damped economic growth and plunged business confidence to multi-decade lows as investors await the government’s turnaround plan for the utility.

“These outages threaten South Africa’s fragile growth profile,” Siobhan Redford, a Johannesburg-based analyst at Firstrand, said in a client note. “Clarity and certainty on plans for Eskom – both in terms of financing needs and returning to a more sustainable power generation profile – are vital in boosting the confidence of both domestic and offshore investors.”

South Africa will “soon” announce the appointment of a permanent chief executive officer for the utility and “shortly” release a special paper on the path the CEO and a strengthened board should take, President Cyril Ramaphosa said in a statement on Monday, in which he described Eskom’s financial situation as “untenable.”

“The sheer scale of Eskom’s debt is daunting,” Ramaphosa said. “Further bailouts are putting pressure on an already constrained fiscus.”

The bailouts will probably widen South Africa’s budget deficit to the biggest since the financial crisis, threatening the country’s last remaining investment-grade credit rating at Moody’s Investors Service, according to a Bloomberg survey of economists. Moody’s is scheduled to review the assessment on Nov. 1, days after the mid-term budget is presented to lawmakers.

A risk premium was priced in to the rand and local debt partly due to weak economic fundamentals and uncertainty on the future of Eskom, the medium-term budget policy statement and the credit assessment from Moody’s, said Elna Moolman, a Johannesburg-based economist at Standard Bank Group Ltd.

Last week, the government published its latest Integrated Resource Plan, which maps out the energy mix for the next decade. It includes a switch to more green energy as the country, which sources most of its electricity from coal, faces pressure to meet emissions-reduction targets.

South Africa will develop a framework to take aging coal-fired plants out of service, Ramaphosa said. While this will present challenges for communities and workers where fossil fuel-powered energy generation takes place, “it also presents opportunities for those affected to have access to technologies that are more cost-effective and better for human health.”

Stage 2 loadshedding returns

Eskom yesterday released a press release stating that it “would like to inform South Africans and all its customers that the electricity system has been severely constrained this week. As a result of the loss of additional generation, delays in the return to service of units that are on planned maintenance and limited diesel supply, it has become necessary to implement stage 2 rotational loadshedding from 09:00 until 23:00 in order to protect the power system from a total collapse.”

In the System Status Briefing of 4 September 2019 Eskom warned that in order to avoid loadshedding, unplanned breakdowns needed to be contained at below 9 500MW. In the event generator breakdowns are experienced beyond 10 500MW there will be high usage of emergency resources (diesel and pumped storage generators), which may lead to loadshedding if the supply constraints is sustained for a long duration.

The severe supply constraint being experienced has come about due to high levels of unplanned breakdowns that have exceeded the 10 500MW limit. The supply constraint is caused by, among others, five generating units that are unavailable due to boiler tube leaks. In addition, a conveyor belt supplying Medupi Power Station with coal failed on Saturday 12 October resulting in low volumes of coal being supplied to the power station thus limiting the generating capability to approximately half the station output.

Due to the shortage of generating capacity from coal fired generation, the pumped storage and OCGT generators have been used extensively since Saturday, 12 October which has led to a decline in the dam levels and diesel tank levels.

“We unreservedly apologise to South Africans for the negative impact this may have on them and want to assure the nation that we continue to work tirelessly to ensure security of energy supply.”

Eskom has appealled to customers to continue to use electricity sparingly throughout the day:

• Set air-conditioners’ average temperature at 23ºC
• Switch off geysers over peak periods
• Use the cold water tap rather than using the geyser every time
• Set swimming pool pump cycles to run twice a day, three hours at a time for optimal energy use
• At the end of the day, turn off computers, copiers, printers and fax machines at the switch. Avoid stand-by or sleep mode

Now Eskom is selling electricity to Zambia

By David McKay for Mining Mx

Zambia is to import 300MW of electricity from Eskom, the South African power utility, for six months in order to ease shortages, said Reuters.

Citing Webster Musonda, MD of Zambia’s electricity company, Zesco, Reuters said imports would begin on 1 October and would cost about $22m per month. “The negotiations have been concluded and we have an offer on the table. We will spread the cost of importing this power to our customers,” says Musonda.

Africa’s second largest copper producer, Zambia has a power deficit of more than 750MW because of low water levels at hydropower dams, said Reuters. Zambia last week announced it would increase the hours for power rationing as water levels continued to fall.

Zambia has historically priced electricity below the cost of production through subsidies. Only in recent years has the country started to gradually raise prices.

In 2017, the country’s energy regulator approved a 75% price hike for electricity retail consumers and introduced a flat 9.30 US cents per kilowatt hour tariff for mining companies, said Reuters.

Zambia’s president, Edgar Lungu, said in June the country was not slipping into a sovereign debt crisis. “Zambia is not in a position of a crisis,” he told Bloomberg News. “When you find that you are being strangled by debt, you hold back and see how you can realign your position so that in the end you continue being alive, you don’t suffocate.

“That’s where we are now,” he said.

According to the International Monetary Fund, Zambia is growing at the slowest pace in two decades. A drought has lowered water levels at hydroelectric dams whilst earnings from copper – its main export – have slumped following a decline in metal pricing.

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