1. Mr Tshepo Kgadima, an independent analyst has been clear and vocal in his stance on Eskom mismanagement and corruption. Kgadima points out a significant consequence of the load shedding to business. In a lengthy interview with King Studio on Youtube he points out that as of the 1st of April 2023, the insurance industry declared that they will collectively not underwrite any claims derived from /caused by potential grid collapse and damage-related consequences. That is an enormous cost to the industry. We have already seen how the retail industry has suffered from additional costs. The sector had to invest heavily in standby power generators which did not end there as running these generators added a huge cost to their operational expenses. The smaller business people simply had to close shop in many instances where they were dependent on selling fresh meat and other fresh products.
According to Kgadima, a price of 116 cents per kilowatt hour will ensure that Eskom operates at a profit. A tariff of 116 cent will create more demand for electricity and that will ensure that Eskom can be profitable. He further states that we must have a uniform tariff structure. We can not have a smelter pay ten cents per kilowatt whilst the cost of electricity at a coal-powered station is forty-six cents. The tariff charged for residential users is currently close to 386 cents.
2. The lights are on. But is someone home? (To whom an account can be issued?)
Due to the load shedding and unaffordable prices that Eskom charges, customers have turned to solar and today Eskom has lost close to 10 000-megawatt power which they can no longer sell.
Gaylor Montmasson-Clair (@Gaylor_MC) on Mon, Aug 19, 2024: Solar panel Exports to South Africa, after the frenzy of Q2 2022 and its aftermath, are back on the rise in 2024, nearing 1GW of #solarpanels in Q2 alone. Cumulatively, that is over 10GW since 2017!
3. Climate Change. There is no argument that high CO2 emissions lead to higher temperatures in the world and action is required. The daily temperature anomalies for 2023 compared to the previous 80 years, extracted from the C3S data server, is presented in Chart 1.
4. Energy is essential for economic growth and human progress. The relationship between per capita energy consumption and various development indicators such as access to food, wealth, health, nutrition, clean water, infrastructure, education, infant mortality, and life expectancy is powerful, particularly at low levels of development. Thus, low scores on the Human Development Index (HDI) correlate with low per capita energy use.
In 1975, high human development characterised by a long and healthy life, a well-educated population, stability, and a decent standard of living, needed 16.3 barrels of Oil Equivalent (BOE) per person.
Electricity consumption per capita peaked at 4 500 kWh in 2007 before decreasing to 3 200 kWh in 2023 (around nine times the value of other Southern African countries).
5. Unsustainable not from today, from a long time ago.
6. It is bad economic policy to regulate price on “cost-reflective tariffs basis” This has already accommodated inefficiencies, corruption, bad management and promoted non- accountable management and Board results. Instead, Electricity prices are set to rise further in the future as Eskom says its tariffs do not yet reflect the cost of producing electricity in South Africa. Eskom’s historical underperformance has also resulted in the utility’s cost of producing electricity skyrocketing. These rapidly increasing costs result from mismanagement and poor capital allocation. Eskom spent R680 billion between 2007 and 2021, with poor results and a decline in performance.
Eskom suffers rampant corruption and looting amounting to more than R80bn a year through coal supply evergreen contracts, overpriced diesel purchases, as well as the so-called renewable energy independent power producers power purchase agreements (REIPP PPAs) whereby Eskom is set to pay them an average price of R2.46 plus VAT per kilowatt hour. The list below reflects some of the corrupt activities that are already priced into customers. Nersa allows efficient and corrupt municipalities and other intermediaries to ramp up prices to Eskom who they then include in their cost of electricity generation calculations to arrive at the ridiculous rates they now wish to recoup from customers.
7. A good start but it does not address the core problem at root level.
President Cyril Ramaphosa has signed Proclamation 178 of 2024 authorises the SIU to investigate allegations of corruption and maladministration at Eskom regarding the following contracts:
“The procurement of and contracting for coal from Tegeta Exploration and Resources (Pty) Limited for coal supplied by Optimum Coal Mine (Pty) Limited and the Brakfontein Colliery Mine.
- Procuring and contracting for coal information technology services under a master services agreement concluded with T Systems International GmbH.
- The procurement of and contracting for information technology services related to software licence and support agreements concluded with SAP South Africa (Pty) Limited.
- Procurement of and contracting for coal services concerning Task Order SM008 for “capital scrubbing”.
- The procurement of and contracting for coal security services from Combined Private Investigations (Pty) Limited.
- The procurement of and contracting for coal forensic investigation services from Kapditwala Incorporated, trading as Dentons South Africa.
- The procurement of and contracting for information technology services from Cutting Edge Commerce (Pty) Limited (formerly Leonardo Business Consulting).
- Serious maladministration in connection with the affairs of Eskom relating to a pre-payment by Eskom of approximately R1.68 billion for coal from Optimum Coal Mine to Hendrina Power Station, which pre-payment was later changed to a guarantee.
- Serious maladministration in connection with the affairs of Eskom relating to a pre-payment by Eskom of approximately R659 million to Tegeta Exploration and Resources (Pty) Limited
Additionally, the SIU will investigate any unauthorised, irregular, fruitless, or wasteful expenditure incurred by Eskom or the State. The investigation will encompass any unlawful or improper conduct by Eskom officials, employees, suppliers, service providers, or any other involved parties.
The Proclamation covers allegations of unlawful and improper conduct that occurred between 1 March 2006 and 30 August 2024, as well as any related activities before 1 March 2006 and after the date of the Proclamation that are pertinent to the matters under investigation or involve the same persons, entities, or contracts.”
Eskom’s Transmission Development Plan (TDP), issued in October 2022, comprises more than 300 projects to expand the grid. It focuses on the need for the extensive expansion of transformer capacity at substations, as well as the construction of new transmission lines, at some 14 000 km in the next 10 years. It is not clear where the capital will be raised to implement this plan which is estimated to cost R80bn. The consumer is not going to pay that is a given and the authorities must take note of that. Not only because they are unwilling but most definitely because they do not have the capacity. All credit reports of the Banks are clear on this.
- In performing its mandated functions, NERSA is required to ensure that various objects are achieved: We mention only two.
- the efficient, effective, sustainable, and orderly development and operation of electricity supply infrastructure in South Africa.
Universal access to electricity is facilitated.
We certainly do not see the status quo as sustainable and how does one achieve universal access to electricity in practice? One does not proceed with projects without a revenue plan.
8. Consumers have had enough.
Various organisations have threatened legal action against Eskom’s 40% tariff hike in its revenue application for the 2025/26 fiscal year while political parties have called for a Parliamentary debate about the escalating costs of electricity tariffs.
The Eskom Price tariff schedule is a document of fifty pages. (see Eskom schedule of standard prices 2024/25 (Rev0 1 April 2024 full version) There is no way in the world any consumer can decipher what he/she is being charged. It is a totally disastrous approach. No wonder we are where we are. What has happened to the appointment to President Ramaphosa’s office of a minister to dismantle red tape in our economy.
Eskom was and remains a disaster in the South African economy. Municipalities owe Eskom more than R80bn and in turn the consumers owe the municipalities more than R347 billion. Nhlanhla Ngidi of SALGA “urges them to collect this debt. Fact of the matter is that only 17% of this debt outstanding is less than 90 days. It is unrealistic to think this debt can be recouped. It is clear the authorities have learned nothing from the Sanral debt collection effort.
* Kruger is an independent analyst
** The views expressed in this column do not necessarily reflect the views of Independent Newspapers.
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