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Brown walks fine line as she criticises Eskom, but promises support

LYNNE BROWN:
Let me say emphatically, I am very concerned about the rate of increase in costs

LYNNE BROWN: Let me say emphatically, I am very concerned about the rate of increase in costs

Photo by Duane Daws

25th July 2014

By: Terence Creamer

Creamer Media Editor

  

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Public Enterprises Minister Lynne Brown has strongly criticised State-owned utility Eskom for meeting only 57.6% of the 33 key-performance-indicator targets outlined in its shareholder compact and has expressed particular unhappiness with the “unsatisfactory” performance of the generation business, which reported a rise in unplanned outages during 2013/14.

“This is not a good performance, even in the challenging environment in which the entity operates,” the newly appointed Minister said at the group’s results announcement last week.

During the year, Eskom declared four power emergencies and resorted to 14 hours of rota-tional load-shedding on March 6, as a result of coal handling problems.

There was also a major incident at Duvha Unit 3 on March 30, which led Eskom to withdraw the 600 MW unit from service. In addition, its unplanned capacity loss factor rose to around 11%, while the energy availability factor fell to 75.1%, against a target of 80%.

Brown also expressed anxiety about the 13.2% rise in operating costs during the year – a rise attributed mainly to the far higher use of the diesel-fuelled open-cycle gas turbines (OCGTs) in the Western Cape, as well as higher maintenance expenses.

Eskom spent a whopping R10.6-billion to operate the OCGT plants, which was more than double what was spent in the previous financial year and well above the R2.5-billion sanctioned by the regulator.

“Let me say emphatically, I am very concerned about the rate of increase in costs.”

The delayed introduction of new capacity from the Medupi and Kusile power stations was largely to blame for the rise in expenses, but was also weighing down the economy and investor perceptions. Therefore, Brown had instructed the board to provide, as a matter of urgency, a “thorough report on the extent of the delay and new completion timelines”.

Eskom indicated that Medupi Unit 6 would be synchronised to the grid in December and that the unit would be ramped up to full output during the subsequent six months.

Medupi Unit 5 was expected to be synchronised nine months later, before Eskom returned to its original plan of adding Medupi and Kusile units on six-monthly intervals. Kusile Unit 1 was scheduled to enter production towards the end of 2015.

But it also emerged that Eskom had received cumulative contractor claims at Medupi and Kusile worth R50-billion. However, group executive for the capital division Dan Marokane stressed that many of the claims were “concurrent” and highlighted that global settlement rates were typically between 7% and 9% of the original value claimed.

“What’s important for us is that, as we enter this phase of claims picking up, we build the capacity within the organisation to handle those and that, on a day-to-day basis, contracts are run in a manner that creates clear boundaries of what is due and what is not.”

Eskom is “comfortable” with the rate at which claims are being resolved and has “beefed up” its capacity to participate in dispute arbitration boards.

The utility was also pursuing its own claims against contractors and Marokane reported that a commercial strategy was in place to deal with claims management.

But the Minister wanted material progress on the delivery of the megaprojects, saying: “We need to raise our gaze above the horizon and do something extraordinary – growth depends on it, investor confidence depends on it, jobs depend on it,” Brown said.

She also stressed that government remained committed to supporting Eskom, which had handed her a ‘comprehensive sustainability plan’ covering issues of financial and operational sustainability, as well as asset development.

The Department of Public Enterprises, the Department of Energy and the National Treasury would deliberate on the plan, particularly where appeals had been made for additional shareholder support.

Brown also confirmed that she had been handed a shortlist of CEO candidates by the Eskom board and that she planned to present her preferred candidate to an upcoming Cabinet meeting.

“It’s one of those areas that I really have to apply my mind to and be absolutely sure that I give this country the person from the list who is the best possibility. I hope by the end of August we would have resolved the matter.”

 

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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