Eskom briefings: National grid status, supply challenges, mitigation plans short and long term, in presence of Ministers of Energy and Public Enterprises

Energy

29 July 2014
Chairperson: Ms D Letsatsi-Duba (ANC), Co-Chairperson: Mr F Majola (ANC)
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Meeting Summary

A joint meeting took place between the Portfolio Committee on Energy and the Portfolio Committee on Public Enterprises, attended by the Ministers of Public Enterprises and Energy. Eskom was invited to brief the Committees on the current state of the national grid, challenges of supply and its short and long term mitigation plans.

The Minister of Energy, Ms Tina Joemat-Pettersson, noted that the Ministers of Finance, Public Enterprises and Energy had been interacting with the National Energy Regulator of South Africa (Nersa) and Eskom, to agree on a common and coordinated approach to dealing with the variety of challenges currently facing Eskom. All the relevant departments were working together in developing solutions to Eskom’s admitted challenges. Eskom was a strategic asset in the hands of the democratic state, and it was vital to ensure its sustainability and stability, to realise the country’s current and future energy needs.

The Minister of Public Enterprises, Ms Lyn Brown, agreed that Eskom was one of the cornerstones of the country’s economy and bore a significant part in growing the economy and meeting developmental challenges. Eskom was tasked with the generation, transmission and distribution of electricity to various industries within the country, such as mining and agriculture, supplied electricity to residential areas and to municipalities who then redistributed it to various businesses and households. Eskom also purchased electricity from Independent Power Producers (IPPs) under various agreements, and from electricity generation systems outside the country. Eskom was one of the biggest utilities in the world, with over 4 199 Megawatts of installed generation capacity, which it was expanding. It had returned various plants to service, but also needed more generation capacity. The Department of Public Enterprises (DPE) was confident that Eskom would be delivering and synchronising the first unit at Medupi by December 2014. Over the short and medium term, Eskom was working to set a sustainable capital investment approach, to implement cost-containment measures and ensure financial sustainability, to improve performance, particularly at power stations and drive regional integration and other government imperatives. It had to be responsive to its changing environment, and achieve more policy and regulatory certainty.

Eskom then gave a presentation touching on a wide range of issues. Eskom supplied approximately 95% of the country’s electricity needs, through an energy mix of coal fired stations, gas/liquid fuel turbines, hydroelectric stations, pumped storage, nuclear stations and wind energy sources. 60% of its stations were older than the recommended design life of 30 years, which created challenges that put additional pressure on the grid.  Current operating reserves were not adequate to meet peak demands, and the power system was operating at maximum to allow for maintenance, with the increased possibility of load-shedding. It forecast negative cashflow for June 2015, and there were challenges to raising additional debt. Sales were also forecast to decline at around R47 billion, as a direct result of the Multi Year Determination Plan 3 which resulted in a R225 billion gap at Eskom. Long term solutions, coupled with short-term imperatives, were needed. Updates on the new Build Programme were provided. There had been progress over the last three years in using Independent Power Producers, although there were also challenges around timelines, location, integration with existing plans and funding. Exports had decline, but imports had improved, and work was ongoing to create new regional capacity. Gas was being explored as the possibly best option to replace end-of-life stations, primarily from Maputo in the short term, and shale gas in the longer term. In addition to exploring new funding solutions, Eskom was looking to improve its internal business productivity.  There were significant amounts owed to Eskom from municipalities, who themselves faced a number of problems, although the Department of Public Enterprises was working with National Treasury and the department of Cooperative Governance to find solutions.

All Members were very concerned about Eskom’s financial sustainability, particularly its high dependence on borrowing. The steady increase in municipal debt was also highlighted as a serious concern requiring urgent interventions. Members asked questions about the financial implications from the MYPD 3 determination, and suggested that it would be necessary also to hear from Nersa. Questions were asked around IPPs, the duration of their contracts and how Eskom’s generation costs differed from those of IPPs, with one opposition Member asking whether Eskom should retain the grid. Some opposition Members felt that the presentation was not comprehensive. Members also expressed concerns about delays at Medupi, outages, whether planned or unplanned, and asked if Eskom had sufficient skills to curb the problems, as well as the attendant costs. Several Members thought that Eskom’s communication left a lot to be desired, and suggested that it explore other methods of communication, particularly for planned outages. The Department of Energy should indicate how it was moving to realise the end-state vision of the electricity sector. Other issues related to cable and electricity theft, the financial implications of using diesel, the maintenance periods, the need to find cost-reflective tariffs that did not impose undue burdens on consumers, and the strategy to improve Eskom’s credit rating.
 

Meeting report

Chairperson’s opening remarks
The Chairperson welcomed the Ministers of Energy and Public Enterprises, together with delegates, and Members. She hoped the deliberations between all entities present would be fruitful, seeing that energy was the key to inclusive growth within the economy. An apology from the Deputy Minister for Energy was relayed, as she was engaged in another important Ministerial meeting.

The Co-Chairperson shared the same sentiments as the Chairperson, and he added that the joint briefing between the Portfolio Committee on Energy and the Portfolio Committee on Public Enterprises came about as a result of the evident challenges that Eskom faced, necessitating that Eskom meet with the two committees.  The serious challenges faced by Eskom with regard to municipalities particularly needed urgent attention. It was therefore hoped that the deliberations would provide Eskom with much needed advice and direction.

Ministers’ introductory briefings
Ms Tina Joemat-Pettersson, Minister of Energy, again tendered the apologies of Deputy Minister, Ms Thembisile Majola, who was unable to attend the meeting. She thanked both Committees for their invitation. She said the engagements between the Department of Energy (DoE or the Department) and Parliament were most valuable. The Ministers of Finance, Public Enterprises and Energy had been interacting with the National Energy Regulator of South Africa (Nersa) and Eskom, to agree on a common and coordinated approach to deal with the variety of challenges currently faced by Eskom. She thanked Minister of Public Enterprises, Ms Lyn Brown, for the leadership she had displayed in these interactions. Eskom’s issues had been high on the agenda and all the relevant departments were working together in developing solutions to the challenges within the entity. Eskom was a strategic asset in the hands of a democratic state and there was a need to ensure its sustainability and stability.

The Department of Energy was seized with the critical work around energy provision and energy policy and planning. It aimed to ensure that the imperatives of the National Development Plan (NDP) were realised. The DoE was working with various partners towards the realisation of the country’s current and future energy needs. The economic costs needed to be contained, while any adverse impacts of the energy sector on the environment also needed to be minimised. Energy, especially electricity, was a key enabler of economic growth and there was therefore a need for long term planning and long term vision. Dialogue with the Portfolio Committee of Energy, as well as this joint meeting, was vital. She assured Members that the common objective of ensuring security of supply, while minimising costs and providing a cushion for the poor and vulnerable, would be met. Access to energy would be increased throughout the country, primarily through the diversification of the energy mix. Energy efficiency needed to be promoted, both in industrial and in residential areas. 

Ms Lyn Brown, Minister of Public Enterprises, also thanked the Chairpersons of the joint meeting for their invitation. She began by explaining that Eskom was one of the cornerstones of the country’s economy, which made it imperative to ensure its success, in order to assist in growing the economy. The developmental challenges within the country needed urgent attention, as well as the challenges to Eskom itself. Eskom was tasked with the generation, transmission and distribution of electricity to various industries within the country, such as mining and agriculture. Eskom supplied electricity to residential areas and to municipalities, who then redistributed this electricity to various businesses and households.  Eskom also purchased electricity from Independent Power Producers (IPPs) in terms of various agreements and schemes, and electricity generation systems beyond the country’s borders. Eskom was one of the biggest utilities in the world, with over 4 199 Megawatts of installed generation capacity. She emphasised that Eskom was currently expanding its generation capacity, in line with the President’s recognition that state owned enterprises and development finance institutes were agents of development, who would promote inclusive economic growth. In this regard, Eskom had successfully implemented the “return to service” programme, which included various power plants, although this alone was not enough since more generation capacity was required.

Construction was progressing, as part of the building programme, at Medupi, Kusile and Ngula Pump Storage, and other areas. The Department of Public Enterprises (DPE) was confident that Eskom would be delivering and synchronising the first unit at Medupi by December 2014. It was well-known that Eskom had experienced a number of challenges in recent years, and many of the issues would be highlighted throughout the presentation. This had led the Minister to challenge the Eskom Board and management to focus particularly on the following, in the short to medium term
(1) to establish a sustainable capital investment approach characterised by intelligent investment, financial prudency and commercial sustainability, to meet industry demands and customer expectations (2) to implement cost containment measures and ensure financial sustainability in the context of the Multi Year Price Determination (MYPD3) tariff decisions
(3) to explore and urgently employ measures to improve the performance of areas which had experienced significant challenges, in particular power stations.
(4) to drive regional integration and economic transformation, beneficiation, industrialisation, aggressive job creation and the development of a supply base which would meet Broad Based Black Economic Empowerment (BBBEE) criteria.

The Minister noted that the environment in which Eskom operated was changing, and therefore it needed to be more agile in adapting. She argued that the current energy policy and regulatory environment had also been characterised by a number of uncertainties, particularly in relation to energy security and the associated costs. Future electricity planning and the anticipated end-state of the industry were on the DPE’s agenda.

She informed Members that in light of all of these issues, the President had announced that members of the Security Cabinet sub-Committee must look at all the matters, as well as a number of other issues. The three departments within the Energy Security Cluster were working tirelessly as well.

Eskom briefings: Current status of the National grid, supply challenges, long and short term mitigation plans
Mr Zola Tsotsi, Chairman, Eskom, explained that Eskom was a public company and therefore belonged to the people of this country. As custodian, Eskom was required to fully account to the people on the work that it did, and the progress that it was making.

Mr Collin Matjila, Acting Chief Executive Officer, Eskom, gave some background to Eskom and its work. Eskom supplied approximately 95% of South Africa’s electricity. Over 201 788 household were connected during the year. The highest electrifications achieved in a single year were in 2002. As at 31 March 2014, Eskom had 5.2 million customers, an increase from the 5 million figure of 2013. He did, however, highlight that Eskom had received a negative credit rating, and this pointed to the fact that Eskom’s changing environment required a response that would ensure sustainability in the long run. Eskom’s mandate was therefore comprehensive, focused mainly on different dimensions of sustainability. Beyond that, Eskom also needed to ensure a positive wider impact on the environment, contribution to strategic transformation and social sustainability objectives, as well as the contribution to a sustainable skills base.

Mr Matjila explained that Eskom’s energy mix was made up of coal fired stations, gas/liquid fuel turbines, hydro-electric stations, pumped storage, nuclear stations and wind energy sources. In total, Eskom’s energy mix was made up of 27 power stations.

To address the sustainability of the energy sector, and Eskom itself, the Board had set up an Eskom Emergency Task Team, at the April 2014 Breakaway, to respond to the four pillars of concern, namely:
Financial sustainability, Operational sustainability, delivery of the Build Programme, and implementation of the Gas Strategy.

He explained that initial emergency work had been concluded and intense stakeholder engagements had begun. Eskom’s cashflow forecast for June 2015 was negative, and the entity was also faced with challenges of raising additional debt to reverse the situation. Sales were also forecast to decline at around R47 billion, as a direct result of the Multi Year Determination Plan 3 (MYDP) which resulted in a R225 billion gap at Eskom. Current operating reserves were not adequate to meet peak demands. Long term possible solutions therefore needed to be framed, while focusing also on short term imperatives.

Internally, Eskom would be driving the following, among others:
•Implementing a Business Productivity Programme (BPP) to reduce operating costs and limit capital spend
•Bringing Medupi Unit 6 on line – with first syncronisation by the end of this year
•Accelerating the Generation Sustainability Programme with the aim of improving the availability and reliability of plant.
•Pursuing gas options for both existing (brownfield) and new (greenfield) plants
•Clearly communicating and working with stakeholders on the new process to manage the system, including revised load shedding schedules and communication to give certainty around the system’s reliability

An appropriate sustainability plan for Eskom was being worked on. This would be looking at various options, working with various stakeholders, in line with the President’s State of the Nation Address. In respect of generating a sustainable strategy, Mr Matjila explained that 60% of Eskom’s power stations were older than the recommended design life of 30 years. An ageing fleet raised a number of issues, which included increased unplanned failures, increase in mechanical maintenance failures, increased duration required for outages putting more pressure on the grid, increased cost implications and the need for more specialist engineers. The generation plant was therefore being run harder than all other utilities. A five-point recovery plan had been put in place to attempt to put generation on a sustainable path.

Mr Matjila spoke to the recent load shedding incidents and explained that the power system had been operating at its limit in order to undertake as much maintenance as possible. While the intent was to avoid forced demand reduction, the consequence was an increased possibility of load shedding. The highest constraints were during peak hours, between 5pm and 9pm. Electrical heating, geysers and pool pumps caused primary impact on the increased demand. Residential customers could make the biggest difference in decreasing demand, primarily in the evenings. All electricity users were therefore called upon to pull together to help “Beat the Peak” this winter. Workplace energy use should also be minimised.

Mr Matjila then gave an update on the New Build Programme. He explained that Medupi was the first coal-generating plant in Africa to use superficial power generation technology. Synchronisation of the first units would take place in the second half of 2014 in Medupi, in the second half of 2015 in Kusile and at the end of October 2013 in Ingula. In regard to the base load in Medupi he said the first synchronisation (Unit 6) was scheduled to take place in December 2014. However some of the key issues on these project sites related to welding requests and safety performance. There had been poor safety performance on sites, particularly at Project Ingula, with six fatalities occurring during an incident in October 2013.

Turning to the renewable Independent Power Producer (IPP) programme,. Mr Matjila explained that the Integrated Resource Plan (IRP 2010-30), promulgated a few years ago, remained the official document or government plan for directing the country on new generation. The IRP 2010 prescribed the preferred generation technology required to meet the expected demand growth up to 2030. The DoE had structured the IRP to deliver on the government policy of reducing carbon emissions,  introducing competition in the generation of electricity and facilitating economic growth of the country. There had been some progress over the past three years in executing the procurement programmes, through Ministerial Determinations in 2011 and 2012, which had identified 7 135 MW of capacity to be procured from IPPs. In addition, over 200 MW was expected to be procured from the small scale IPPs, through the Small Project Procurement Programme, with the typical project size producing between 1 MW and 5 MW. A further 1 200 MW would be procured through Special Peakers Programme. However Eskom had identified key issues around IPPs, which variously related to timelines, geographic location, integration into existing plans and issues around funding.

Eskom had a number of cross-border Sales and Purchase Agreements, with Mozambique, Lesotho and Swaziland. Regional imports, however, were currently limited. Electricity exports therefore showed a slow but steady decline, while imports improved in the 2014 financial year. Eskom was working in collaboration with various countries to develop new regional capacity. Among the supply options, Eskom was pursuing gas as one of the best options for replacing end-of-life stations. The 600MW unit in Maputo was the most feasible short-term gas option, but shale gas was the most attractive long-term source.

Ms Tsholo Molefe, Finance Director, Eskom, explained that Eskom was faced with the dilemma of balancing operational costs and financial sustainability. This was a result of the MYPD 3 determinations which were lower than expected. As a result, Eskom had lost over R5 billion in revenue. Additional sources of liquidity therefore needed to be identified. At the moment, Eskom was currently heavily dependent on borrowing, and was thus highly exposed to re-financing over current debt. A plan was needed to bring about different solution packages and options.

Eskom was also looking at internal business productivity. The capital expansion programme, as well as transmission and distribution needed to be strengthened. However financial sustainability would not be achieved solely through these internal interventions. Currently, Eskom was also not earning enough returns. Eskom had only managed to collect R2.9 billion from municipalities during the 2014 financial year. The most challenging provinces included the Free State, Mpumalanga and Limpopo. In this regard, the DPE was working closely with the provincial governments and the Department of Cooperative Governance and Traditional Affairs (COGTA) in an attempt to address thee situation. The increasing trend of overdue municipal debt over the last few years could no longer be ignored and a more assertive approach was necessary, although it would not be a viable solution simply to disconnect municipalities.   Some of the underlying factors that contributed to municipal debt were inadequate skills in financial management, inadequate revenue management where municipal billing systems were not functional, failure to ring-fence municipal electricity revenue, which impacted negatively on cash-flow, funding issues at municipal level and the fact that municipal tariff structures were not always cost-reflective.

Discussion
Ms T Mahambehlala (ANC; Energy) thanked Eskom for an informative and frank presentation. She raised a concern about Eskom’s financial sustainability, asking for further detail on some of the financial implications following the MYPD 3 decision, and the financial implications of separating transmission from Eskom. She also wanted to know the impact that the mounting municipal debt had on Eskom’s financial sustainability.

Dr Z Luyenge (ANC; Public Enterprises) asked about the emergence of IPPs in the electricity sector. He asked how Eskom anticipated paying for the generation costs, how Eskom’s generation costs differed from those of the IPPs, and what was the duration of these contracts? He raised a concern that the some of the most rural parts of the Eastern Cape were still the least electrified, with a 22% access to electricity and said he needed to know how Eskom was increasing its capacity there.

Mr L Greyling (DA; Energy) disagreed with previous Members, and said the presentation was not comprehensive enough. He argued that it would have been useful if Nersa had also been invited to give its independent analysis of the state of Eskom, paying specific focus to the funding crisis around tariff increases.

Mr Greyling dealt with the delays at Medupi, and said the issue of unplanned outages as a result was a serious concern. These outages seemed to occur as a result of maintenance at Eskom’s power stations, but he asked for the reasons, and whether Eskom lacked the skills to  curb these outages. He asked how much had been spent and lost as a result of these outages. He argued that diesel needed to be used as a source of alternative power during maintenance periods, and asked how much this option would cost Eskom.

Mr Greyling noted that the coal contracts used to be on a long term basis, but were now on a shorter term and questioned why this was so.

Mr Greyling agreed that the mounting debt at municipal level was a serious concern, which needed to be dealt with as a matter of urgency. He asked how the DoE was looking to move towards realizing the end-state vision of the electricity sector and said that this vision needed to be defined over the next five years.

Ms N Michael (DA; Public Enterprises) thanked the Ministers for attending the meeting and for their engagements. She mentioned that on the previous day, 28 July, Members from the African National Congress (ANC) were engaged in a closed briefing by the DoE, and questioned why Members of other parties were not invited to hear a briefing from the Department as well, stressing that such briefings were important for all Members, who were working towards the same goals.

Ms Michael asked for clarity on the contracts at the Medupi station. She explained that the Portfolio Committee on Public Enterprises had decided that oversight could only be properly executed when Members knew the content of these contracts and all the envisaged timelines. On the outages, she said there seemed to be a lack of communication between Eskom and the general public. There was no solid information on Eskom’s website. She suggested that Eskom make use of social networks to keep the public informed on the scheduled outages. Finally, Ms Michael agreed with her colleagues that the escalating municipal debt must be controlled and wanted to know what progress the Minister had made with National Treasury on reaching an agreement with municipalities on payback deals.

Mr E Marais (DA; Public Enterprises) asked what the current status of the coal station in Witbank was. He questioned the appropriate rate of return on the BHP Billiton contracts. He too agreed with the previous Members that municipal debt was a serious concern but wanted to know more about the effect that this had on Eskom’s finances. He asked that the DoE provide a list of all IPPs and the contracts they had with Eskom.

Ms Z Faku (ANC; Energy) said load shedding had a devastating impact on industries and the economy. They also affected residential customers, especially during peak periods. The demands of a growing economy needed to be balanced and given more priority than the costs of providing electricity. She asked why Eskom did not make sufficient attempts to provide customers with predictable timetables on these load-shedding schedules.

Mr J Esterhuizen (IFP; Energy) thanked Eskom for the presentation. He said it was however a concern that Eskom reached only 57% of the targets which were promised in a contract with government. Eskom also only generated 60% of its revenue from the power it was able to generate. He asked for an explanation of the underlying factors to these shortfalls. He also raised a concern around the fact that Eskom was relying too heavily on debt, given that R254 billion was still owed by the entity, and described this figure as “scary”. The diesel costs were also escalating, and he pointed out that although diesel was supposed to open the gas turbines only during emergencies, all 14 of these were now being used throughout the Western Cape. These cost Eskom over R10 million. With the strikes at the Kusile and Medupi power stations, he argued that it seemed unlikely that Eskom would reach its targets for December 2014.

Minister Joemat-Pettersson said Nersa would be prepared to do a presentation to the joint Committee upon request. There were members from Nersa present at the meeting but they would not be able to answer any questions today, as it had not been asked to provide a briefing to the Committee.

The Chairperson responded to Ms Michael’s question around the ANC study group, and said all political parties were allowed to invite any entity to brief their Members in study group, at any given time. All the other political parties, including the Democratic Alliance (DA), were more than welcome to invite Eskom to one of their study groups.

Ms Michael noted this but suggested to the Chairperson that when entities were called in to brief ANC Members, other political parties should also be invited as a means to save on costs. It was very costly to get representatives from entities to come to Cape Town so political parties could work together in this regard. 

Mr Matjila responded to the questions on Medupi’s industrial action and its impact on the schedule. Any industrial action from Eskom’s side posed a risk, but sufficient mitigating plans had been put in place to off-set that particular risk. He reassured Members that a settlement had been reached between the metal and steel-workers’ unions on the wage disputes, and this paved the way for Eskom to move with ease towards covering the losses which had resulted from industrial strike action. He agreed that there were a number of serious challenges experienced with the construction of the plant, but said there was no way to foresee them. Some of these challenges resulted from Eskom’s management of the project, as well as the contractors who were implementing these projects, but both aspects had been dealt with and there would be no further technical issues. He acknowledged that questions around Medupi contracts had been received from Members of the Portfolio Committee on Public Enterprises, and they would be attended to.  Eskom was currently in consultation with the legal experts and contractors to assess which information was classified as confidential and which could be made available to the public.

Mr Matjila acknowledged, in regard to the questions on the unplanned outages, that Eskom had, at some stage, lost some of its capacity, but assured Members that it was in the process of rebuilding its capacity. One of the identified weaknesses within the entity had been the way in which Eskom was planning for maintenance. All of the contractors who did maintenance of behalf of Eskom had been called in to indicate their performance improvement plans, against a warning that contracts may be terminated if there was no improvement. He explained that the economic costs of shutting down even one unit for maintenance during the day were huge, and contractors would be addressed in this regard. Unplanned outages were at 17%, and the specific information would be provided to Members at a later stage, but he noted that the generation recovery plan specifically addressed the issues of unplanned outages. Conditional assessments of all power stations had been completed.

Mr Matjila turned to the questions on coal contracts, and confirmed that Eskom had not terminated any of the long term contracts. Eskom made use of the short term contracts to help it reach its short term requirements. This had not had any negative impacts on the costs of coal. However, there were some issues around the coal quality and these would be addressed as part of Eskom’s existing plans to improve generation capacity.

With regard to municipal outages, Mr Matjila said that although outages at municipal level were associated with load shedding, this was not always the case, as many localised outages resulted from cable theft and electricity theft. He reminded Members that cable theft had been criminalised, and there was a call on all communities and citizens to help Eskom apprehend cable thieves. Penalties for this type of a crime should be increased, and Eskom was currently engaging with the Ministry of Justice and Constitutional Development on this point. He noted that there was also a need to criminalise electricity theft, because this put a huge strain on the network, resulting in outages at community level. Consumers should be urged to stop allowing other people access to their distribution system. Eskom was working with municipalities to begin to educate people at local community level.

On the predictable load shedding schedules he said Eskom had engaged Nersa to allow Eskom to amend the way in which it scheduled load shedding, part of the application to Nersa was to ensure that as much information around predictability would be given to consumers at residential level. He welcomed the suggestion that Eskom needed to make use of all media, which included social media as well, particularly since Eskom had been criticised for not communicating effectively with its stakeholders.

Mr Matjila confirmed that the Duva Unit 3 was still out, and Eskom was in a process of investigation with the Minister of Labour. It was hoped that preliminary results would be made available to Eskom by the end of the year.

Ms Molefe responded to the questions on the financial implications of the MYDP 3. She reminded Members that Eskom had applied for a 16% increase but received 8%. This resulted in a R225 billion shortfall on Eskom’s build programme. Programmes such as the capital expansion programme were also greatly affected by Nersa’s decision. Over R5.8 billion was lost as a result of sales going down, and international sales declined significantly.

Ms Molefe also addressed questions around the municipal debt and its financial implications, agreeing with Members that Eskom needed to collect revenue from municipalities as a source of capital. Over R2.8 billion was owed to Eskom by municipalities, and this negatively affected Eskom’s cashflow. With regard to separating transmission, and the Independent System and Market Operator Bill (ISMO) she said more detail work was needed in this regard. The implications of reducing revenue for Eskom needed closer attention.

In response to the question of IPP costs versus generation costs, she said renewable energy was higher in tariff, but this had been significantly reduced, from its original R2.12 per kilowatt hour, to 59 cents. Eskom’s costs were therefore lower than IPP costs. She informed Members that a full list of all IPPs would be provided, together with information around the contracts. She agreed with Members that the diesel costs, which had amounted to R10.5 billion, needed to be reduced, and this was one of Eskom’s priorities. “Keeping the lights on” was a significant priority which could not be ignored. She explained that diesel was only meant to be used during peak times, but that due to an increased need to “keep the lights on”, there had been an increase in the use of diesel, especially during maintenance.

Ms Molefe responded to the BHP Billiton question, and said Eskom did not attach specific assets to specific customers.

Minister Brown added to the responses on municipal debt and said an initial engagement with the Minister of Cooperative Governance and Traditional Affairs, Minister Pravin Gordon, had been initiated. One contributing factor to problems at municipal level was that some municipalities were not financially sustainable. Minister Gordon has therefore asked for around a month’s grace to look into these matters before reverting to DPE. The Minister also said that in regard to the funding crisis at Eskom, the DPE would come back to the Committee, together with Nersa, to have deeper discussions around funding and the vision of the end-state, amongst other matters raised by Members.

Ms T Makhubele-Mashele (ANC; Energy) said some community members, including herself, had received information on load shedding schedules from Eskom. She acknowledged that there was a need for further improvements. She asked about cost-reflective tariffs and said these tariffs needed to be introduced for the collection of revenue, but that was only one aspect. The problem with the tariffs was that consumers would be charged more, so she asked if there was a plan to introduce tariffs without causing extra burdens to consumers.

Ms D Rantho (ANC; Public Enterprises) thanked Minister Brown for the assurance that municipal debt was being taken care of. She asked about synchronization, in comparison to commercial operations at Medupi. She noted Eskom’s negative credit rating, and asked what plans were in place to ensure that Eskom’s credit rating was improved.

Mr Esterhuizen asked about the nuclear programme and what the costs of this programme would be in comparison to the use of coal. He argued that nuclear generation costs would be more costly than the use of coal, but that nuclear would lead to cheaper clean energy in the long run.

Mr Esterhuizen reiterated the points made by other Members that municipalities were in trouble when it came to matters of electricity. Illegal connections and cable theft were elements that could not be ignored because they caused serious problems. He said that cable theft had not become a way of creating jobs.

Ms Michael said the DPE’s contracts with IPPs needed to be finalized as a matter of urgency, pointing out that the application for these contracts was made to the DPE in 2013.

Mr Marais asked that Eskom provide information on the remuneration of Board Members who attended meetings. He said that this information could be controversial.

Mr Tsotsi responded that the nature of the work that he did as the Chairman of Eskom did not allow him to hold any other job, in view of its heavy demands on his time. Members should not only consider the amount of the package he received, but also consider the amount of work and time required of him as the Chairperson. The number of meetings he attended on a weekly basis was extraordinary, and most people would not be able to stand that pressure.

Mr Greyling said a lot of issues still needed to be answered by both the DoE and DPE and so these Departments needed to be called back at a later stage, together with Nersa.

Mr Greyling wanted to address the argument that the private sector delivered power at a cheaper rate than Eskom and questioned whether, in that case, it would not be cheaper for the entity to be privatised and the grid removed from Eskom, so that the private sector as given the sole responsibility of delivering power.

Ms Molefe responded that Eskom was very committed to the entry of IPPs, and the grid had been opened for that, with a significant number of IPPs being connected. The issue of pricing, however, still needed further attention. She said there needed to be more capital available to strengthen the network, and repeated that the current cash-flow within Eskom was a challenge. In addition, many assets were old and money was now being spent on their maintenance. The long term sustainability of Eskom was crucial.

Mr Bulelani Magwanishe Deputy Minister of Public Enterprises, welcomed the input from Mr Greyling around the end-state vision for the electricity sector, and informed Members that the proposal had been considered by the Minister. He said there was more than enough space for the private sector to participate in the grid, but that privatization was not an option.

Minister Brown said an agreement on the optimum industry structure needed to be reached but this would only come about after the finalisation of the energy mix. One of the main concerns of the DPE was around future funding for Eskom. She reiterated that Eskom played a huge part in growing the economy of this country.

The Chairperson thanked the Ministers and the Deputy Minister for their contributions to the meeting, and Members and the Department for their interactions.

In closing, the Co-Chairperson agreed that the engagements had been fruitful. He agreed that Nersa needed to be invited to brief the Committee at a later stage. All parties concerned must look at how best the country could deal with the immediate challenges faced by the energy, and primarily the electricity sectors. COGTA also needed to be invited to a meeting with the Committees. He agreed with Members that a broader and more balanced approach was needed for improving Eskom’s credit rating.

The meeting was adjourned.
 

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