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Eskom seeks urgent conversion of $8.5bn political declaration into commercial agreement

Eskom rock statue at Megawatt park head office

Photo by Creamer Media

10th November 2021

By: Terence Creamer

Creamer Media Editor

     

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Eskom CEO Andre de Ruyter reports that the State-owned utility has already taken some initial steps to ensure that the $8.5-billion political declaration signed at COP26 in early November is urgently converted into a practical commercial agreement to support its just transition programme.

Addressing the second of what have become daily briefings on the state of the system, which has once again succumbed to an intensive period of load-shedding, De Ruyter reported that follow-up discussions had been held on Wednesday with one of the multilateral lenders involved in the declaration to assess whether the flow of funds could be accelerated.

On November 2, South Africa, France, Germany, the UK and the US, along with the European Union, announced a ‘Just Energy Transition Partnership’ to support South Africa’s decarbonisation efforts over a three- to five-year period.

A funding commitment of $8.5-billion was announced, which Eskom described as the first step in a partnership that could be extended, particularly given that Eskom alone required R400-billion ($26-billion) to support the generation, transmission and distribution investments required to facilitate a shift from coal to renewables.

While the government-to-government declaration covered not only electricity but also the manufacture of electric vehicles and the development of green hydrogen assets, De Ruyter nevertheless confirmed that the lion’s share of the initial funding would be directed to Eskom.

The utility has developed a pipeline of energy and social upliftment projects, including several that are directly linked to the repowering and repurposing of coal stations that are scheduled for decommissioning in the coming decade.

“There's a lot of urgency also from the lender group to ensure that this does not remain an empty political commitment . . . [and] we now need to translate that into a practicable commercial agreement that will allow us to make use of these funds to start our just energy transition process.

“Earlier today I already had the first engagements with one of the lenders to see how we can accelerate getting that money on the ground and ready to do some good work for South Africa as soon as we can,” De Ruyter said during the briefing.

Rudi Dicks, who is programme management officer in the private office of President Cyril Ramaphosa, has indicated that South Africa will be seeking to negotiate “highly concessional” terms.

“It shouldn’t be equal to or just below the kind of financing that we could secure on the open bond market,” he said during a briefing at COP26 this week.

The declaration makes provision for the establishment of a task force, comprising representatives from South Africa and the international partners, to finalise the funding mechanism.

The task force would negotiate, over the coming six months, the ratio of grants to loans, as well as give greater definition to the nature of the concessional loan terms and their tenure.

De Ruyter said the negotiations would commence “very shortly” to ensure that the funds were released.

The announcement has received a mixed reception locally and some confusion has also arisen about South Africa’s commitment to the deal in light of statements made by both Forestry, Fisheries and the Environment Minister Barbara Creecy and Mineral Resources and Energy Minister Gwede Mantashe.

Creecy confirmed that South Africa had not taken part in a pledge, signed by 40 countries and institutions, to end coal financing, while Mantashe told oil and gas investors that Africa should resist developed-country attempts to pressurise Africa to move away from all forms of fossil fuels.

De Ruyter said that the Just Energy Transition Partnership was a “completely separate issue” from what was being referred to by the two Ministers.

“[Their statements have] got nothing to do with the loan agreement . . . it's got to do with a commitment not to pursue further coal projects,” De Ruyter explained, refusing to be drawn on the policy debate about the development of new coal-fired power stations in South Africa as catered for in the Integrated Resource Plan.

The political declaration had been unveiled against the backdrop of a return to an intensive phase of load-shedding, triggered, yet again, by the deteriorating performance of Eskom’s aging and under-maintained coal fleet, the energy availability factor of which has fallen to below 65%.

Eskom has been deploying load-shedding – mostly at Stage 4, representing 4 000 MW of simultaneous cuts – since November 5 and only expects to return to a more stable supply position from November 13.

By November 10, the level of unplanned outages had fallen to below 12 000 MW, having surged to above 17 400 MW on November 5. Planned outages, meanwhile, stood at 4 261 MW.

Nevertheless, Eskom still had only 26 973 MW available, excluding the diesel-fuelled open-cycle gas turbines, against an expected peak demand of 28 271 MW.

Therefore, it would continue to resort to load-shedding and would burn more diesel than would have been the case had there been fewer breakdowns.

Eskom would provide another update at 10:00 on November 11.

Edited by Creamer Media Reporter

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