Tripping the light fantastic — Eskom talks up progress while dancing around the real issues

27 Sep 2023

Eskom, which received a R254bn bailout in the February Budget, can’t submit its audited financial statements to Parliament by the end-of-September deadline, it emerged on Wednesday when the state-owned power utility detailed its confidence for an improved electricity supply.

In a public institution, audited financial statements are a tool for accountability on how it spent its money, on what and for which returns. In the political machinations around Eskom and the determined PR campaign by the Presidency’s electricity minister, Kgosientsho Ramokgopa, such details are among the few certainties.

“We are still busy finalising our audit... We are dealing with one or two transactions, and then finalising the PFMA [Public Finance Management Act] audit. We aim to finalise it in October,” said Eskom’s acting CEO and chief financial officer, Calib Cassim, at a state of the system briefing on Wednesday.

A letter to that effect from public enterprises minister Pravin Gordhan, who’s responsible for Eskom, has yet to be published in Parliament’s Announcements, Tablings and Committee Reports. Already printed this week were such letters on delays to Parliament from Gordhan’s Cabinet colleagues in the departments of home affairs, water and sanitation, and agriculture.

Cassim made it clear he had not applied for the permanent CEO post, which has been vacant since the 22 February departure of André de Ruyter, but that he was in discussions over the possible extension of his stay as CFO.

Five months after the Eskom board, in May, sent its choice for a new CEO to Gordhan, this was rejected, according to News24, highlighting that preferences for the new CEO were divided between the Department of Public Enterprises, the Eskom board and the Department of Mineral Resources and Energy.

In a statement last Thursday, Gordhan denied that he was delaying the process of appointing the next Eskom CEO.

“The politicisation of this process shows that our efforts to clean up our state-owned companies will always be met with resistance and political opportunism. We will not be deterred from exercising our oversight responsibility by people looking to deceive the South African public,” Gordhan said.

It’s this fudginess of everything being politics, and moving goalposts, that holds reputational and, ultimately, financial and funding risks.

Such risks are of concern to potential investors, something which, it’s understood, emerged in a seminar hosted by Ramokgopa at a time when the state power utility is looking to secure further future funding, particularly to extend the national grid. The R254-billion Eskom received as debt relief approved by Parliament in late May is conditional on, inter alia, the entity not taking out further loans.

More than R210-billion is needed over the next 10 years to expand the national power grid, according to Eskom. Already, independent power producers and renewable projects in the Western, Northern and Eastern Cape can’t be connected because of a lack of grid capacity.

The state power utility has secured all its required funding for the next three years, and 80% of what’s needed for the next five years, according to Eskom transmission executive Segomoco Scheepers at Wednesday’s briefing.

“There is an exercise government is leading and in due course there will be further clarity,” Scheepers said.

On Tuesday, Ramokgopa told journalists following the recent funding seminar he hosted that his report on Eskom funding proposals, including the “considerable resources” for transmission expansion, was a work in progress, but that speedy decision-making was needed.

Counterparty risk

While sovereign guarantees were not necessary, counterparty risk was discussed at this seminar. This effectively signals private-sector concern that the government may not keep to the T&Cs of any future funding agreement.

“We are looking to ensure we are able to tap into liquidity that is available from the private sector to allow us an opportunity to expand the grid, so we are able to accommodate the renewable energy solutions that have been rolled out in the country, and a number of them have not been connected to the grid as a result of the constraint on the transmission side,” Ramokgopa said.

While Ramokgopa is the public face of the National Energy Crisis Committee (Necom), the work is spread across the state and includes private-sector cooperation. Necom is linked to the Energy Action Plan announced in July 2022 by President Cyril Ramaphosa.

It’s understood much work is being done in the background, including by the National Treasury, which also would have received the recommendations on Eskom’s operations from a consortium of German companies appointed earlier this year.

National Treasury did not respond to Daily Maverick’s questions on support for Eskom, the involvement of others like Operation Vulindlela, the independent recommendations on Eskom’s operations, and quantifying the impact of persistent rotational power cuts.

“Please note that the turnaround time for a response is 24 to 48 hours but can be less for some queries,” according to the acknowledgement of receipt — at 4pm on Wednesday — of the questions emailed on Tuesday just past 2pm. No further response had been received by late evening on Wednesday.

Still, someone somewhere is doing the modelling and the work. Rolling power cuts cost R1.6-trillion in goods and services, R77-billion in tax revenue and, overall, R725-billion to South Africa’s economy, according to Ramokgopa’s briefing on 7 August.

This emerged from the ministerial commentary in the weekly trawl through what megawattage is available from where. While no one can complain that the megawatts and various (in)actions of Eskom’s fleet of ageing power stations are not in the open, it’s little more than a deflection.

The reality is the government has struggled to do the required work; the Energy Action Plan, Necom and working streams supervised by private sector CEOs notwithstanding.

That includes the snail’s pace on the unbundling of Eskom into transmission, generation and distribution entities as announced in October 2019. Not even the planned first unbundled entity — a national transmission entity — is up and running.

While all three licences have been agreed to, the paperwork is “at 90% to 95%” only on the transmission licence, according to Scheepers on Wednesday.

The consent of lenders needed to transfer assets to a new transmission state-owned enterprise (SOE) remained outstanding, although “very advanced”, and a board is yet to be appointed.

But without this so-called National Transmission Company of South Africa SOE, the Electricity Regulation Amendment legislation will be meaningless, even if Parliament were to pass it before the 2024 elections, as political pressure demands.

That’s because the electricity regulation amendments to overhaul and open the electricity sector establishes a systems operator, which would be the National Transmission Company of South Africa, for the first five years.

So, in the absence of facts, details and concrete proposals, what remains is public talk of confidence and upsides.

Like keeping unplanned breakdown outages at or below 14,500MW — an average 2,000MW drop — or the sustained improved performance of individual power plants.

Or focusing on the return of three units at Kusile — environment ministerial permission to delay sulphur emission targets was received on Monday — and the commissioning of Unit 5 at Kusile. That would add 2,880MW to Eskom’s output to ease the rotational power cuts, according to Wednesday’s briefing.

This would boost Eskom’s energy availability factor (EAF), which at 55% falls short of what was promised. Or as the briefing presentation put it, “While we have not met the targeted reduction in unplanned load losses, there is a declining trend.”

Ahead of the 2024 elections that are widely expected to be seminal 30 years into South Africa’s constitutional democracy, talking up prospects and progress will be stoked up.

But like politicking, talk is cheap.

Update

On 10 October, National Treasury responded to the 26 September request for comment. The response provided no word on why it took 14 days. That’s even though Treasury’s automated response pledged a turnaround time of 24 to 48 hours, “which can be less for some queries. Queries received over weekends and after hours may have longer turnaround times.”

Arising from Eskom’s claim that R210-billion was needed to expand South Africa’s transmission grid, just as the state power utility failed to table its annual report in Parliament, questions arose about what Treasury was doing to support Eskom. The conditions of the R254-billion bailout in the February 2023 Budget meant Eskom could not take up new loans.

National Treasury said it and the Presidency’s project management unit were “working with various stakeholders to develop off-balance sheet financing options that the government should consider for attracting private-sector investment in the transmission grid. This will ensure that the required investment in transmission is achieved to connect the additional capacity that is required.”

On supporting Eskom infrastructure generally, National Treasury said no additional monies aside from the R254-billion, described as the “largest government support package”, would be provided as Eskom, with the recently increased tariffs, would self-finance. “National Treasury expects that the board and executive management will be able to execute their programmes and projects in accordance with their corporate plans.”

While Necom and Operation Vulindlela also are working on Eskom electricity supply stability, a question about National Treasury’s estimation of the impact of the rotational power cuts referred to Budget Reviews all the way back to 2015, and its Southern Africa – Towards Inclusive Economic Development (SA-TIED) programme.

But National Treasury is the lead on the independent assessment of the state power utility operations. The report by a consortium of German companies was due in June 2023. In response to questions about the report and its recommendations, Treasury responded:

“The report has been received and is going through the internal governance approval processes. The report was not delayed except that the consortium needed to present their findings to each of the power station management teams to address any factual errors before submitting the final report…

“We cannot disclose the key recommendations at this stage as the Minister is still in the process of sharing the report with the President and relevant government departments and Parliament. Eskom’s board will be responsible for the implementation of the recommendations through the corporate plan for 2025.” DM

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