Quo vadis Eskom?

January 14th, 2019, Published in Articles: EE Publishers, Articles: Energize

The South African economy relies on the availability of a reliable, affordable and adequate supply of electricity. Economic growth is thus dependent upon the success of Eskom as its prime supplier of electricity. The power utility’s leaders are working to improve its performance, but are they moving the utility in the right direction?

Roger Lilley

In a recent interview with EE Publishers, Eskom’s chief operations officer, Jan Oberholzer, said that the power utility has, or is in the process of forming, a new structure which consists principally of three pillars: A public interface (the CEO); financial control (by the CFO) and operational management (by the COO). He added that power station managers would be given more autonomy and authority regarding the decisions made at their particular sites.

Will this structure result in Eskom realising the goal proposed and approved in 1998 of breaking up the utility into its component parts, with generation as one part and transmission and distribution as another?

If power station managers are given the authority to decide where to source coal and at what price, employ staff as and when required, and make other locally applicable operational decisions, with ultimate accountability for the profitability and productivity of their power station, then it seems easy enough for each power station to operate as an independent business which Eskom could sell to third parties, which in turn would sell the electricity back to Eskom for distribution to consumers.

In this way, the power utility would cease from being a vertically integrated monopoly in terms of the generation of electricity and would become the national distributor and reseller of electricity instead. It would be free to purchase electricity from whomever it wanted to, including the new owners of the power stations it once owned.

But this concept, in my opinion, has two principal flaws.

Firstly, one would need to find people who would want to buy old coal-fired power stations. This may be more difficult now than it would have been in 1998. The burning of coal for electricity generation is fast becoming unpopular as can be seen by the number of financial institutions which have stated publicly that they will no longer fund the building of new coal-fired power stations. Furthermore, Eskom’s fleet of power stations is ageing and will soon need expensive upgrades, especially in terms of the reduction of harmful emissions into the atmosphere. It is fairly well-known that a number of Eskom’s power stations do not comply with South Africa’s emissions laws by failing to have the necessary filtration and other systems installed. A buyer would have to spend a great deal of money to make the power station compliant, and this would result in the power station having to be sold at a far lower price than Eskom may deem worthwhile.

Secondly, the power utility cannot manage its debtors’ book. Eskom sells electricity to every municipality in the country and also to some individual businesses, farms, and residents. The fact that customers (both private and municipal) owe the institution about R19-billion (which is greater than the R15-billion loss the utility is predicting to make by 31 March 2019) for electricity they have consumed, shows that Eskom would be incapable of successfully operating as a reseller and distributor of electricity.

If the utility was to add another layer – independent agents which interfaced with the municipalities – in order to overcome this problem, this would add cost, which would no doubt be passed on to the consumer in the tariff, with no guarantee that the agents would be any better at the collection of payments than Eskom is now.

The future of Eskom is a conundrum. As a state-owned vertically integrated monopoly it is unsustainable. Yet to break it up and make it responsible for the transmission and distribution of electricity given its history of poor collection of payments makes no sense at all.

Send your comments to energize@ee.co.za

 

 

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