After the Bell: Why was Treasury so coy about a German report on Eskom’s power fleet?

28 Feb 2024

Here’s a little heads-up. Sometime during the next week, the Treasury will release a report conducted by a group of German consultants called VGBE Energy on SA’s fleet of power stations. The history of this report makes interesting reading and the publication itself could make interesting reading too.

The report was commissioned last year as a condition for the Treasury R254-billion debt relief for Eskom. Treasury has learnt, to its bitter cost, that paying bailouts is a leading indicator that more bailouts will be required. So it is approaching dishing out the dosh more cautiously these days.

When you are dropping a whopping R254-billion cheque, you are in a good bargaining position to ask for an independent review, at the absolute basic minimum. I mean, it’s not much, but at least you are not relying solely on the dubious claims of the bailout-ees for a justification of why they should be rescued with taxpayers’ boodle.

So, the group, consisting of four German companies, RWE Technology, STEAG, KWS Energy Knowledge, Dornier Power and Heat, went off to examine what exactly was going wrong at Eskom’s coal power stations and submitted their findings in September last year.

Paia requests

At this point, the report got stuck, presumably because its findings were embarrassing. Two organisations promptly submitted Promotion of Access to Information (Paia) requests for the report.

DA shadow Eskom minister Samantha Graham-Maré submitted one and subsequently said the Treasury responded to her Paia by saying they were going to table the report to Cabinet and then it would be given to Parliament for dissemination. She was told it would take about three months. Then Treasury said there would be a delay because the report would be used to draft the strategic plan for Eskom for the 2024/25 financial year and would not be released until that process had been completed. Can you feel the hot potato being tossed?

The Centre for Environmental Rights also submitted a Paia because, I suspect, it wanted to know if the report was asked to recommend whether the lives of Eskom’s 15 coal power stations should or could be extended. This follows Electricity Minister Kgosientsho Ramokgopa’s suggestion last year that this might be an option. Doing so would obviously be embarrassing because SA won a huge $8.5-billion concessional loan at COP 28 in Edinburgh premised on decommissioning seven coal plants. So far only one has been closed, and the whole plan has been reversed, partly because of the crisis at Kusile.

Anyway, the issue of the report was resolved last week when Finance Minister Enoch Godongwana — apparently sick of the delays — said in his Budget Speech the report would be released within a week. “The recommendations will feed into Eskom’s corporate plans to bolster accountability and oversight,” he said, rather hopefully.

So what might this report contain? We know a little bit already, partly because many of the problems were mentioned in former CEO André de Ruyter’s book, Truth to Power. In addition, Business Day editor Alex Parker wrote in a column some of what will be in the report after talking to the authors late last year.

Parker wrote that the consultants found that procurement is overly complicated and onerous; that plant directors are disempowered due to a lack of trust at Megawatt Park; and that many processes are therefore centralised, inefficient and slow. Contract management skills were generally atrocious at plant level. Towns and villages outside the plants, such as at Kriel, Witbank, Volksrust and Vereeniging are so dilapidated, filthy and run down that highly skilled engineers don’t want to move their families there, making the skills issue even harder to crack. There was generally an “alarming hostility to change”.

There are two other issues that I hope the report will deal with, but we will see. The first centres on the topic of Eskom’s constant wailing that its power stations are old and therefore dysfunctional. This is one of the reasons this thing called the energy availability factor (EAF) in SA is down to around about 50%. This is another way of saying that the power plants are producing 50% of their total capacity.

Debunked

This story behind the whingeing was debunked by a really good report in the online publication Daily Investor, which published a report about a year ago on the topic. They found two American coal power stations that were built more or less at the same time as two of SA’s coal power stations.

SA’s Duvha power station was first commissioned in 1980, with the final unit completed in 1984. SA’s Tutuka power station was commissioned in 1985, with the final unit going online in 1990. Compare that with the Wansley power plant in Georgia which was first commissioned in 1976 and the Scherer power plant which was commissioned in 1982.

Please don’t hold your breath, but between 2009 to 2021, Eskom’s Tutuka and Duvha had an average EAF of 64% and 56%, respectively. Wansley and Scherer had an average EAF of 90% and 89%, respectively, over the same period. The EAF of the American plants got better over the years.

Tutuka and Duvha have actually got worse, I mean really much worse. In 2021, Tutuka and Duvha had average EAFs of 37% and 44%.

The second issue is about staffing. This was brought to my attention by an interested reader, Rob Tiffen, who is not in the power industry but is affected by it, as we all are. He points out that in 2003, Eskom generated about 39,000 megawatts with 31,000 employees. Over the next decade-and-a-half, Eskom hired another 17,000 employees while generation fell. In 2001, a company called Singh & Fehrs calculated for the US Energy Information Administration that the average coal-fired power plant employs 0.18 people in operations and maintenance permanently per megawatt of peak capacity.

On that basis, Eskom would need roughly 7,100 people to deliver 39,000 megawatts in the coal operation and another 500 for Koeberg. Presumably, that’s the absolute minimum. A company called American Electric Power produces about the same power as Eskom (38,000MW) with 16,000 employees. Anyway, that pales compared with Eskom’s current employment level of 42,000 people.

The point is that if the VGBE does suggest there is an “alarming hostility to change”, as I presume it will, we should know why: it’s not innate conservatism; it’s most probably huge numbers of employees who do very little while trying desperately to protect their rather undemanding lifestyle.

We will see. DM

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Business Maverick

Paia requests

Debunked