Report lays bare shame of all that is dysfunctional at Eskom

It is just as well that Finance Minister Enoch Godongwana, in his National Budget presented to Parliament on February 21, did not reveal the findings and any policy response to the independent report he commissioned from the respected VGBE-led consortium to assess the state of the operations at Eskom’s coal-fired power stations.

After all, he’s been sitting on the report, with the fate-tempting acronym “Opera”, since September 2023.

The five-partner consortium comprises world leaders in the operation and maintenance (O&M) of coal-fired power plants.

The assessment, which was commissioned in February 2023, was conducted as part of conditions attached to the R254 billion debt relief arrangement for Eskom. Some of the findings, according to the Treasury, will be incorporated into Eskom’s 2024/25 Corporate Plan. The 614-page technical report is a devastating indictment of a failing state-owned utility on the brink of implosion, institutionally mismanaged; poorly maintained, with obsolete technology which costs a fortune to maintain; low staff morale and in urgent need of modernisation, accountability and targeted investment.

It is a document of shame underlying everything that is dysfunctional in a utility that was once the envy of the Global South through its corporatist model in which the state remained the sole owner but the utility was run as if it were a private sector entity. It was the must-go-to technical partner for World Bank Group-funded power projects in Africa, even during the end years of apartheid rule. There are those who see the Eskom malaise as a microcosm of the ANC government’s stewardship of South Africa Inc, after the Madiba presidency.

To be fair to the minister, he inherited most of Eskom’s woes. But does the VGBE Consortium’s Opera reflect more of Gilbert and Sullivan’s comic opera “The Pirates of Penzance”, which treats stealing (“state capture” in the modern South African parlance) as a professional pathway or will composer Godongwana conjure a new Opera, perhaps “Eskom Unloaded“?

Even here, the challenge will be who pens the libretto – the minister or the die-hard ANC ideologues or Team Ramaphosa.

Godongwana, however, does have a penchant for hyperbole and over-optimism. “Load shedding is a problem that confronts all South Africans. It disrupts production, operations and livelihoods. Reforming the sector will result in long-term energy security. We made the necessary decisions in the past five years, and these are bearing fruit. Eskom continues to be a key roleplayer in the electricity sector. And the debt relief plan allows the entity to focus on its core business.

“It is through the combination of private investment in new energy projects, rooftop solar installations and improvements in Eskom’s generation fleet that load shedding will reduce, and reliability and security of supply improve,” he boldly declared in the Budget speech.

Fitch Ratings, in its response to the Budget, said: “The South African government’s latest fiscal projections indicate budget deficits for the next two years will be smaller than it had previously forecast, but the assumptions around revenue growth appear optimistic and state-owned enterprises are likely to require additional support that is not factored into the budget’s debt forecasts.”

In its January 2024 report on South Africa, Fitch warned that the availability and reliability of power supply would remain a critical factor. “The intensity of load shedding is declining, but we expect power cuts will continue in 2024 and 2025 due to planned maintenance and unplanned breakdowns. Reforms adopted by the National Energy Crisis Committee enabled increased investment in maintenance by Eskom, which is also benefiting from a debt transfer to the government. The return to the grid of three units at Kusile power station and the first synchronisation to the grid of Unit 5 added 3.2GW of generation capacity.”

The VGBE-led Opera Report does indicate that Eskom is salvageable, but with a cornucopia of costly and structural caveats. Budgets for modernisation are required in the next few years, otherwise there is a risk that critical network infrastructure will not meet the requirements for system stability and supply reliability.

“Regardless of the asset strategy currently in use, modernisation should be pushed forward, and corresponding financial resources planned in the next few years in order to avoid critical conditions: Old equipment in use can fail in large quantities once it reaches a certain age. Spare parts are no longer available in sufficient quantities or are no longer procurable. Maintenance costs for obsolete technology increase exorbitantly and can no longer be implemented economically,” said the report.

To promote further investments in renewable energy, Godongwana, in his Budget speech, increased the limit for renewable energy projects that could qualify for the carbon offsets regime, from 15 megawatts to 30MW.

However, the Opera Report identifies the future connection of planned renewable energy generation projects as a major challenge. Grid expansion planning is being oriented towards the requirements, even though little has happened in grid expansion and renewable energy sources project development. The government anticipates 5.3 gigawatts additional capacity to be available by 2025 from independent power producers, albeit the timeline is ambitious, given the significant investments and expansion that are needed in the power grid. Some R74.2bn are planned for upgrading and expanding the grid network by 2028.

The consortium investigation reveals several contentious issues:

i) The low Energy Availability Factor (EAF) of the coal fleet – 50.83% as of April 2023 – is due to a dysfunctional management system with its governance, structure and processes too complex.

ii) O&M must be improved and conducted according to industry standards.

iii) Compared to international benchmarks, the maintenance budgets of Eskom’s coal fleet are higher – although the EAF is much lower and fixation on it leads to poorer plant performance.

iv) The capacity constraint risks, especially for newer plants, need to be addressed immediately.

v) The competencies of the technical managers seem to be at a reasonable level, but there is greater potential for improvement.

vi) Leadership competencies in general are not at the required level.

The unsatisfactory situation in the South African power system, with multiple load shedding every day, concludes the report, is not the result of a poor condition of the transmission system but of insufficient available power plant capacity. The good overall condition of all parts of the transmission system is mainly due to excellent maintenance.

Unless the EAF of the Eskom fleet improves significantly to 69% by 2030, all scenarios in the draft integrated resource plan show that energy demand will not be met.

In a recent study, Professor RoulaInglesi-Lotz, of the University of Pretoria, noted that South Africa’s transition to renewable energy was more than just an energy policy issue; it was also tied to political, social and economic difficulties.

Policies must match energy transition with environmental and socio-economic goals in order to handle the challenges. “South Africa,” she said, “is at a tipping point where cleaner energy demand meets the opportunity for economic growth and social equality.”

The stakes are indeed high!

Parker is an economist in London

Cape Times