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‘Essential’ power purchases renewed at eleventh hour

‘Essential’ power purchases renewed at eleventh hour

Photo by Duane Daws

17th April 2015

By: Terence Creamer

Creamer Media Editor

  

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State-owned power utility Eskom and Public Enterprises Minister Lynne Brown confirmed early this month that contracts under the so-called short-term power purchase programme (STPPP) had been renewed ahead of the March 31, 2015, expiry date. Eskom told Engineering News the renewal followed the National Energy Regulator of South Africa’s (Nersa’s) recent approval of the agreements.

In a statement, Brown said the STPPP contracts would supply “at least 827 MW to the system”, while it was understood that Nersa had approved Eskom’s contracting of more than 1 350 MW during 2015/16.

Brown added that the renewal had been facilitated by Deputy President Cyril Ramaphosa, with support from Energy Minister Tina Joemat-Pettersson, and that government regarded the contracts as “essential” amid the country’s tight electricity supply.

Neither the contract prices nor the identities of the generators were disclosed, but they were believed to be mainly industrial and agroprocessing companies that either generated or cogenerated electricity as part of their production processes.

Ahead of the announcement, concerns had been raised about whether Eskom’s liquidity problems might prevent it from renewing the contracts. But, in confirming the renewals, Eskom did not indicate how these liquidity constraints had been overcome. It is understood, though, that Nersa’s approval would enable the utility to apply to recover the costs through a future tariff increase.

Eskom confirmed recently that it intended pursuing a “selective reopener” of the third multiyear price determination, most probably covering the remaining three years of the five-year control period, which began on April 1, 2013, and which would continue to March 31, 2018.

Reports suggested that the utility could seek a hike of 25.3% from as early as July 1. However, Eskom refused to comment on either the size or timing of its application, stating only that it was still consulting the National Treasury and the South African Local Government Association regarding the matter.

Brown said Eskom’s financial-sustainability needs should be “balanced against affordability for consumers and an enabling environment for economic growth”.

In her statement confirming the STPPP renewals, Brown also stated that Eskom was “unequivocally” on “solid ground” and that government was committed to delivering on its mandate of providing a reliable electricity service for the country.

She confirmed receipt of Zola Tsotsi’s letter of resignation as board chairperson and nonexecutive director, and signalled her support for the board’s appointment of Dr Ben Ngubane as interim chairperson, from March 31.

Brown said she would undertake a consultative process to appoint a permanent chairperson and would communicate progress on the matter in due course.

“It is my firm view that the board and the shareholder continue to act in the best interests of the company and the people of South Africa to preserve the value and integrity of the company,” she said, highlighting that, as shareholder representative, she would be guided by the provisions of Eskom’s legal framework, which included the Companies Act and its Memorandum of Incorporation.

It was also confirmed that no process was under way to replace the entire Eskom board as suggested in media reports. Instead, Brown was working on appointing a full 13-member board, in line with the State-owned power utility’s Memorandum of Incorporation.

Cabinet had endorsed 11 board members in December and that Brown had initiated a process to fill the two vacant positions. In addition, she would need to fill the vacancy left as a result of the resignation of Tsotsi.

Brown’s spokesperson, Lionel Adendorf, confirmed to Engineering News that the Minister would consult with Cabinet on the appointment of a new permanent chairperson. She would “also look at the available skills within the board to determine who is most suitably qualified”.

Regarding Brown’s view on the current status of the board-led investigation into the state of the utility and the associated suspensions of the four executives, including CEO Tshediso Matona, Adendorf stressed that the board was best qualified to comment, as it had decided “independently” to institute the investigation.

“[The] Minister merely expressed her frustration with a variety of issues to the Eskom board. The board, independently, decided to look into the concerns raised through an investigation.”

On the respective roles of the Minister, the board, the war room and the inquiry, Adendorf stressed that Brown, as shareholder representative, was exercising oversight over the board in terms of the Memorandum of Incorporation and the Public Finance Management Act.

“The board manages the affairs of the utility and the war room provides an opportunity for all parties to . . . engage timeously on all issues to enable decision-making,” he explained.

Medupi by May?
Meanwhile, Eskom said that full power from Medupi Unit 6 should be reached by the end of May and that it was working to ensure that the completion of the remaining five units was not undermined by further technical or labour problems.

The first 800 MW unit was synchronised to the national power grid on March 2, and was being tested and optimised to enable its full integration into the utility’s larger operating fleet. Once the other five units were completed, the 4 800 MW power plant would represent 12% of the State-owned utility’s installed capacity.

But the Limpopo project site, which had been highly prone to labour disruptions, was again evacuated on March 25, after some workers began protesting against certain conditions, while also demanding completion bonuses.

The utility said in a statement that it was engaging with its contractors on the restoration of site stability and that it would also meet with the trade unions represented on site. It claimed that 1 700 of the 14 000 workers on site had been implicated in the “illegal” industrial action.

Eskom added that it would be “pulling out all the stops to ensure that the completion of the remaining five units is not hampered by technical or labour issues”.

It also reported that, since its first synchronisation, Unit 6 had been delivering 400 MW. However, owing to testing and combustion optimisation, the power was being delivered intermittently, which would continue until full power (800 MW) was reached by “around end-May 2015”.

Edited by Martin Zhuwakinyu
Creamer Media Magazine Managing Editor

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