Eskom’s anticipated long-term strategic recovery plan delayed

September 19th, 2018, Published in Articles: EE Publishers, Articles: Energize, Featured: Energize

Eskom says its long-term strategic recovery plan will be published later than originally announced. This state-owned power utility – the largest in Africa and for many years the model for and envy of many international power companies – is virtually broke. It is in so much debt that servicing that debt is eroding any profit the organisation makes.

Roger Lilley

This long-term strategic plan is an essential element in the returning of the power utility to economic viability and the development of the economy. It has been said that the economy cannot grow without a plentiful, reliable, affordable electricity supply.

The power utility has received billions of rand in government bail-outs; is seemingly unable to collect monies owing to it from its customers, large and small alike; has an enormous salary bill resulting from over-staffing and failed negotiations with labour unions; pays high prices for primary energy sources; and faces an ongoing decrease in demand for electricity.

Therefore, a delay in the announcement of a plan by Eskom is a serious matter. But according to Eskom’s press release of 18 September, the delay in announcing a long-term plan is everyone else’s fault. The power utility said, in March 2018, that a long-term plan was to be available by 30 September 2018. The power utility now says it started work on the plan in March and that the reasons for the delay are:

  • The Boston Consulting Group starting work on the proposal in August, thereby making the September deadline impossible
  • The delay in the appointment of a permanent CEO by the minister of public enterprises
  • The timing of the announcement of the draft IRP by the minister of energy
  • Protracted labour negotiations

In the light of these challenges, the press release says, the utility’s board has agreed to an extension to 15 November 2018.

Eskom acknowledges the need for a long-term strategic plan which will effectively address the challenges the utility faces. However, given the terrible state the organisation is in, one wonders what the plan will entail.

Financial results

In July 2018, Eskom announced its financial results for the period 1 April 2017 to 31 March 2018. The report contains a condensed income statement which shows a shocking operating loss before tax of R5,7-billion vs. a loss of R1,2-billion for the previous year. Thus, in one year, the utility lost R4,5-billion according to published figures. Interest on debt has risen to R24-billion; its revenue has remained virtually flat at R177-billion; and its profit of R18-billion is wiped out by the finance costs.

The organisation is in deep financial trouble: the auditors discovered R19-billion “irregular” expenditure; it faces run-away outstanding municipal and direct-customer arrears to the value of R13-billion; and, in the results pack, has proposed a “way forward” which includes extending the organisation’s debt from R388-billion to R600-billion in five years. This, despite the destructive affect the finance costs have on the income statement.

Operational difficulties

In recent days, Eskom has acknowledged that many of its coal-fired power stations have less than the stipulated ten-days coal stock on hand. Apparently, an extra 1,3-million t of coal per month is needed to keep Eskom’s power stations stocked according to the stipulated levels. This apparently results from Tegeta’s business failure and its subsequent inability to supply coal to Eskom, as well as the price of coal on the export market being higher than Eskom can afford or is willing to pay.

The power utility has been transporting coal by road between power stations to even out supply at enormous cost. The grid code dictates how much coal a power station should have on hand to prevent the station from running out and closing down. Should this occur and loadshedding result, the power utility will be responsible for even more job losses and deeper economic depression.

Although the delay is disappointing, it is encouraging that Eskom still intends to publish a long-term strategic plan this year. How the utility intends to address its serious challenges will certainly make for interesting reading. Let’s hope that no further problems arise to delay the announcement any further.

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