In the statement below, the Energy Intensive User Group of Southern Africa (EIUG), which includes mining and industrial companies that collectively account for over 40% of the electrical energy consumed in South Africa, welcome government's R59-billion support for Eskom. However, the organisation also raises concern about the possibility of a return to load-shedding in summer.
The EIUG welcomes the Bill tabled by the Finance Minister to give Eskom an additional allocation of R26-billion for 2019/20 and R33-billion for 2020/21.
The financial support pledged to Eskom is welcome assistance to allow the utility to meet its short-term financial obligations. Eskom needs to be financially stable to ensure security of supply, so the economy can survive the current downturn, and grow.
Together with the support pledged by the President during the State of the Nation Address, we look forward to details on how this will be implemented and tied to sustainable operational performance.
Road to Sustainable Tariffs
The financial support from National Treasury is a welcome trade-off between the taxpayer or the ratepayer bailing out Eskom. Ratepayers are already burdened by high tariffs, particularly large power users who subsidise other customers by paying for the electricity they consume to keep South Africa’s economic wheels turning to sustain and create jobs.
The impact of the recent above inflation tariff increases has already had an adverse impact of our members resulting in job losses for some companies. Affordable electricity is crucial to enable our industries to remain competitive.
As part of the journey to sustainability, Eskom must move towards a smoother and more predictable price path that allows large power users to continue contributing to the economic growth and development of South Africa.
A key part of ensuring tariff stability is delivery strong operational performance by stabilising the Eskom generation fleet performance. Stable performance is key to relieving the upward electricity price pressure by ensuring that electricity is generated by the most cost-effective technology mix.
The current high utilisation of open cycle gas turbines is expected to lead to a Regulatory Clearing Account application for an additional tariff increase.
Critical Vacancies must be Filled
The Minister of Finance announced that the appointment of the Chief Restructuring Officer (CRO) was close to being finalised.
The EIUG is looking forward to the appointment of the person tasked with the important responsibility of leading the process of transforming Eskom into a sustainable, stable and competitive business.
The EIUG notes that the process is also underway to recruit the next Eskom Group Chief Executive Officer. We look forward to the timeous conclusion of this process, having ten CEOs in as many years is no way to run a critical entity such as Eskom.
We trust that due consideration has been given to the scope of the CRO and the CEO to ensure that each role has a clear mandate and accountability. Leadership certainty is required to ensure stable operational performance.
The EIUG is committed to working with the current and new Eskom leaders, government and other stakeholders to ensure that South Africa has energy industries that provide reliable supply at acceptable quality and competitive prices. This, while supporting effort to restructure the electricity supply industry into the future.
Operational Performance and Security of Supply
While we note that Eskom managed the winter demand without minimal supply interruptions, the EIUG remains concerned about the possibility of a return to load shedding in summer.
The winter demand profile is such that the peak demand can be matched by dispatching emergency reserves such as open cycle gas turbines for short durations.
The EIUG is concerned that unplanned capacity losses remain high and might lead to challenges in the summer when Eskom’s next maintenance season starts.
It appears that Eskom still has a long way to go before the 9-point plan will deliver better plant availabilities, and in addition Eskom must continue driving the efforts to stabilise the performance of the new generation fleet.
We are further concerned at the slow pace of implementing cost containment measures at Eskom, focusing on reducing operational and primary energy costs.