Wednesday, January 19

Things are looking up at Eskom – Ramaphosa


President Cyril Ramaphosa has assured citizens that things are improving at Eskom and that the government is fully aware of the importance of a reliable and stable electricity supply for the country.

“Millions and millions of people depend on Eskom,” he said in response to questions about Eskom’s problems during a parliamentary session on Thursday.

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Ramaphosa added that the government recognizes the serious damage that cargo shedding causes to the economy, while also hinting at the serious problems at the state electricity supplier.

“Load shedding is always the last resort, but necessary to avoid a total collapse of the electrical network.

“We are busy implementing fundamental changes to improve the reliability and efficiency of the electrical supply. We are working hard in various ways, not only to improve generation capacity, but we are also busy implementing a number of other measures, ”he said.

Read: SA has already lost more than a million jobs due to load shedding – Schüssler

Ramaphosa reiterated that the government is supporting Eskom’s “roadmap” for recovery,

“Eskom’s restructuring into three transmission, generation and distribution operating units is progressing.”

The legal separation of the transmission business will be concluded at the end of the year and the separation of generation and distribution will take place next year.

The government has also made important changes to its policies, as well as the necessary changes in legislation to implement these policy changes.

Ramaphosa mentioned one example: the recent relaxation of licensing requirements.

Previously, private entities had to obtain permission for installations above 10 megawatts (MW), but the limit has been increased to 100 MW.

Read:

Is this Ramaphosa’s most decisive financial decision since taking office?
Companies can produce up to 100MW of power – Ramaphosa

“This has resulted in increased investment from the private sector. Several projects are moving forward, ”said the president.

He added that the government is committed to involving the private sector, without reservation.

“We are determined to preserve and improve the supply of electricity and we recognize that electricity generation should not come from a single source.”

He reminded parliament of the measures Eskom is taking, including improving maintenance, expanding generation capacity, reducing losses, acquiring skills, improving municipal revenues and debt collection, eradicating corruption, and increasing power generation from from renewable sources.

“Significant progress has been made,” Ramaphosa reiterated.

The leader of the Democratic Alliance (DA), John Steenhuisen, who posed a written question, had a follow-up to the president.

“Six years ago, in parliament, he promised that Eskom’s problems would be solved in two years and that the energy crisis would not even be remembered,” Steenhuisen reminded Ramaphosa.

“One solution is for municipalities, such as Cape Town and [those in] Gauteng, will be able to buy electricity directly from private producers. When can they do it? ” I ask.

Ramaphosa responded that Eskom’s measures include independent generation of electricity, which includes allowing municipalities and local government entities to generate electricity.

“Many only distribute electricity. They should also be allowed to generate their own electricity. The door is already open for municipalities to buy electricity directly from independent producers, “he added.

Figures

The figures from Eskom’s latest annual report show that the president is right, but they also show that we have a very long and very difficult road ahead.

Management notes that Eskom made progress in implementing its plans. It reduced debt, increased revenues, improved profitability and made progress in the collection of outstanding debts from the municipalities.

The income statement confirms that revenue has increased slightly, by just under R5 billion to R204.3 billion. However, management is of the opinion that the increase would have been greater if not for the “unprecedented 6.7% drop in sales, mainly due to the Covid-19 lockdown.”

Read:

Eskom sees a 6.7% drop in electricity sales in the financial year affected by Covid
Eskom reports fourth consecutive loss as debt declines

Eskom’s bottom line also improved, from a loss of R20.8 billion in the year to March 2020 to R18.9 billion in 2021, despite lower electricity sales and an increase in generation costs.

The biggest problem remains Eskom’s high interest payments (R31.5 billion in 2021 finance), due to its huge debt burden.

The balance sheet shows that Eskom was able to reduce its total debt by R71.4 billion. Total debt amounted to R565.8 billion (including non-interest bearing debt) at the end of March 2021 compared to R637.2 billion in the previous year.

The administration also noted that municipal revenues have improved, which can be witnessed by regular news reports on tough legal action and the cut off of electricity supply to non-compliant municipalities.

Eskom has also reported tough actions to get rid of corruption and get some money back, sometimes not much.

The original claim of R5.6 billion against Optimum Coal Mine was reduced to R1.3 billion during the arbitration.

At the time of the annual report, Eskom expected to raise 255 million rand, spread over the next five years, after Optimum was placed on corporate bailout.

Eskom also obtained an injunction against Trillian Management Consulting to recover R595, but reported that it received nothing at the end of the financial year.

A R207 million claim against Deloitte Consulting was settled for R150 million plus VAT, and received. Other cases are still ongoing.

While the settlements and actual payments are low relative to the damages suffered, it still sends a message that Eskom is no longer open to corruption.

Eskom has received a qualified audit opinion for the previous four years. The auditors have again qualified their opinion, as they could not rely on the completeness of the information regarding irregular expenses in the 2021 annual financial statements.

Slowly improving

Eskom CEO André de Ruyter noted in his overview of operations that Eskom faces unprecedented challenges in an environment where uncertainty and disruption are the new norm.

He said global and local conditions are likely to hamper economic growth and have a persistent impact on Eskom’s revenue collection.

“Eskom’s poor financial and operational performance, in turn, negatively affects vital national priorities such as economic growth, job creation and efforts to combat poverty, and remains a significant risk to the South African economy.

“At the same time, we have been fighting to secure rate increases that reflect costs, and this is unlikely to improve dramatically in the future. That said, the taxpayer cannot continue to subsidize the electricity consumer through capital injections by the government, ”said De Ruyter.

Read: I’m not quitting, says Eskom boss

He added that the successful implementation of Eskom’s restructuring plan will position the utility to deliver value within broader national efforts to drive reform in the electricity supply industry.

“In most areas, we are making good progress, although certain areas concern me. In terms of recovery of operations, addressing head losses and correcting defects in new construction is taking longer than we expected. We can also improve performance against the reliability maintenance recovery program.

“In the income statement, some areas are on the right track, such as initiatives to reduce the workforce, savings in acquisitions and actions to improve the rate trajectory, but other areas are lagging, such as divisional efficiency savings and some primary energy initiatives. .

“And, of course, Soweto and municipal past due debt continues to mount, which also had a significant effect on the balance sheet,” De Ruyter said.

The operating performance figures indicate the long road to recovery. Eskom struggled to supply electricity in 2021, a year during which electricity demand was lower than normal.

Eskom produced 201,400 gigawatts (GWh) of electricity, the independent power producers (IPP) delivered 13,528 GWh and 8,812 GWh were imported. It was not enough, as the supply disruptions show.

In addition, 25,078 GWh were lost due to technical losses, theft and errors.

Meanwhile, the relationship between supply and demand for electricity has deteriorated lately.

Listen to De Ruyter’s interview with Moneyweb editor Ryk van Niekerk (or read the transcript):


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