Friday, October 25, 2019

ESKOM RECOVERY PLAN IS BASIC LOGIC!

ESKOM RECOVERY PLAN IS BASIC LOGIC:


Floyd Shivambu

On Tuesday, the 22nd of October 2019, the National Assembly passed a special appropriation bill to permit the South African government to shift R59 billion from the National Revenue Fund to ESKOM as part of the many interventions for its financial recovery. In 2015, ESKOM was allocated R23 billion by the erstwhile Minister of Finance Nhlanhla Nene, who made commitments that such will never happen again. ESKOM currently has a debt of more than R400 billion and recorded losses of more than R20 billion reported in the last financial year. There is clearly no cogent and believable plans and strategies to salvage ESKOM from the current financial crisis and directionlessness.

As part of the many logically superior interventions we make in parliament, we as the EFF Caucus submitted that the following key interventions should be made to bring the long overdue stability to ESKOM. The EFF submissions on ESKOM reveal the simple reality that the power utility’s problems are self-inflicted, and not financial and operational difficulties common to all companies. Self-interests, greed, class and ideological prejudices are currently the major stumbling blocks to ESKOM’s recovery and stability.

Firstly, ESKOM should standardise all coal prices and only pay the prices determined by the National Energy Regulator of South Africa (NERSA). This will save ESKOM billions of Rands because coal procurement is the biggest expenditure item in ESKOM’s balance sheet. ESKOM should explore all legal possibilities, including court validation up to the Constitutional Court which will exit the evergreen contracts, most of which we signed before 1994, and are a huge financial burden to the power utility.

ESKOM and Government should announce annual ceiling price per tonne of coal from all suppliers, let us say of R400 per tonne. If the suppliers cannot manage to continue with supplying ESKOM, Government should massively capitalise the African Exploration Mining and Finance Corporation (AEMFC), which is a State-Owned Mining company to take over the contracts of those who cannot supply at normalised cost prices per tonne. The current privately-owned coal suppliers to ESKOM are paid more than the NERSA approved price per tonne and therefore exceedingly profiteering.

Secondly, ESKOM should fundamentally review all Power Purchase Agreements (PPA) with Independent Power Producers (IPPs) with the aim of exiting these nonsensical contracts designed for the enrichment of few multinational corporations in alliance with domestic parasitic and comprador bourgeoisie. In its own financial report, ESKOM admits that as things stand, IPPs account for more than 25% of primary energy generation yet produced less than 5% of the needed energy. Put differently, ESKOM expends more than 200 cents to purchase electricity per kilowatt hour which it retails for less than 100 cents. This is pure foolishness and one of the major contributors to ESKOM’s financial losses.

 As a matter of principle and superior logic, Government should immediately move towards cancellation of all PPAs, and institute a wiser more sustainable energy generation plan than the current nonsensical IPPs approach. This will play an important role in bringing the long overdue stability to ESKOM.

Thirdly, Government should assemble a highly skilled panel of Engineers from all over the world to come investigate the delays in the completion of the two major power stations, Kusile and Medupi. The costs for Medupi escalated significantly to over R300 billion from estimated 24.9 billion, and cost for Kusile escalated to R161.4 billion from estimated R80.7 billion. There is still no define clarity as to when these power stations will be fully plugged into the national grid. A special task force of experts overseen by the president and reporting weekly should be put in place to monitor progress in the completion of the two power stations.

Fourthly, Government should issue Requests for Proposals from private developers of nuclear power stations, which should necessarily use a Build, Operate and Transfer (BOT) model to illustrate how they will use their own money to construct nuclear stations, operate them for a period not exceeding 25 years, transfer skills and thereafter handover to the State. The number of years on operating might vary according to the financial modelling that should will be tabled by various respondents. Nuclear is necessary for a balanced and sustainable energy mix.

Fifthly, the South African Government should massively invest in renewable energy projects including wind, solar and water sources of energy generation. This should be deliberately aligned to domestic industrialisation of the major components to harvest the sun, wind and water as sources of energy, and should be labour intensive.

All these cannot happen if Government’s appetite is to unbundle ESKOM in the middle of a financial crisis. It is purely preposterous to unbundle an unstable organisation and should never happen. Unbundling a sick organisation will just be evidence that those doing so have no other intentions but self-interest which they will derive out of complete destruction of ESKOM.

The other important component on political oversight of ESKOM is that it should not have a single ministry as a shareholder representative. The shareholder should be represented by the ministries of public enterprises, minerals and energy and finance. Where possible, the Public Investment Corporation loan to ESKOM should be converted into equity and the PIC should have direct shares and say in the running of the company. The method of single shareholder for such a strategic asset has proven to be disastrous and almost always underpinned by subjectivity and personalisation of what should be collective efforts to turn around the company.

Lastly, the leadership instability in ESKOM should be immediately resolved through appointment of a capable permanent board of relevant experts in various fields. The current leadership of ESKOM, especially the board chairperson and Acting Chief Executive Officer is neither capable nor skilled in the provision of stewardship to the power utility. Jabu Mabuza is a liability to ESKOM and if he loves this country, should voluntarily step aside and stay far away from ESKOM. Government should ask him to step aside if his servitude, self-interest and greed are above the obligation to provide electricity to all, which in the current generation is a basic human right, not a luxury.

Floyd Shivambu is EFF Deputy President

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