EE BUSINESS INTELLIGENCE ANALYSIS
Diesel or darkness: PetroSA charges Eskom unfair prices, extracts upfront payments
Eskom has been forced to pay exorbitant prices for diesel it buys in bulk from PetroSA, the financially distressed state-owned entity which is its main diesel supplier, even as the utility battles in vain to stave off worsening stages of rolling blackouts.
The diesel is needed to power Eskom’s two open-cycle gas turbine (OCGT) power plants, Gourikwa and Ankerlig, which are effectively its emergency backup generators that can mitigate against two stages of rolling blackouts if running at the full output of 2,067MW.
The OCGTs are, however, very expensive to run, and were intended for use only in peak demand periods, but are now being heavily relied on to meet daily demand as breakdowns and unplanned outages spiral within Eskom’s ageing fleet of coal-fired power stations.
Eskom’s management first warned that they had run out of money for diesel in November 2022, after spending double the R6-billion budget allocated for fuel in the financial year ending 31 March 2023, with four months still to go.
Because of these financial constraints, Eskom initially indicated it would stop using the OCGTs to meet daily electricity demand. However, rolling power cuts immediately significantly intensified to 6,000MW, which resulted in massive political pressure to ramp them up again.
Capitulation
The admission that Eskom had no money for diesel drew fierce criticism from National Treasury and other government departments, and finance minister Enoch Godongwana accused Eskom of profligate spending and mismanagement.
With no funds forthcoming from government, Eskom capitulated and somehow managed to scrape together funds from savings in capital and operational expenditure for a first emergency procurement of diesel in late November 2022 from stock held by PetroSA.
Eskom paid R1.3-billion for this first tranche of 50 million litres of diesel, which translates to an extortionate R26.00 per litre — about R1.00 per litre above the retail pump price at which people in Cape Town could fill up their car with just 50 litres of diesel.
At the time, the public was led to understand that in view of the deepening power crisis, PetroSA had supplied the diesel as some form of “donation”, while agreeing to resolve the issue of payment later after further negotiations between itself, Eskom and the government departments involved. But, in fact, Eskom had to pay upfront for the first emergency tranche.
Further diesel procurements
Then, on 6 January 2023, Eskom made a second procurement of 56 million litres of diesel from PetroSA for some R1.265-billion, which translates to a price of about R22.59 per litre — a more realistic 10% bulk discount off the retail diesel pump price in Cape Town.
According to sources within the organisation, this second tranche would enable Eskom to continue burning diesel at a relatively high rate, until close to the end of January 2023.
Then on 23 January 2023, the purchase of a third tranche of R1.5-billion worth of diesel was approved by the Eskom board, which Eskom has since begun burning. This was originally expected to last until the middle of February 2023, but at the current high burn rate, it will run out much sooner.
Source: Eskom data portal https://www.eskom.co.za/dataportal/ocgt-usage/ accessed 1 February 2023.
Eskom’s data portal shows that the load factor for its two OCGTs was nearly 50% on 31 January 2023, compared with an average of about 16% for the financial year prior to that date.
Sources within Eskom have indicated that another R5- to R6-billion will be required to buy more diesel before the financial year ends, bringing the diesel spend to about R22-billion for the financial year, or close to four times the budgeted value.
Contract prices and unsolicited proposals
PetroSA is currently the biggest supplier of diesel to Eskom, but the utility also procures smaller quantities from other commercial diesel suppliers, namely Astron, Engen and Shell.
Eskom’s current normal contact prices for diesel, confirmed by two reliable sources, are R23.51 per litre with PetroSA, R20.36 per litre with Engen, R20.28 per litre with Astron, and R20.22 per litre with Shell.
EE Business Intelligence has further been advised that since Eskom first announced in November 2022 that it had run out of money for diesel, it had received a number of unsolicited suggestions by the DMRE, the Department of Public Enterprises (DPE) and members of the Eskom board proposing the names of other uncontracted sources of diesel supply.
However, Eskom has resisted these suggestions, as these apparent opportunistic diesel suppliers were all offering diesel prices at just slightly below those being received from PetroSA, which indicated possible collusion and anti-competitive behaviour.
“If you cooperate and engage with irregular suppliers for ad hoc procurements suggested by politicians and board members, this will just continue and increase”, one of the sources said.
Response from PetroSA and DPE
In response to questions on pricing sent to PetroSA by EE Business Intelligence, the company replied that it operated as a commercial entity which aimed to be “profitable, convenient and efficient within the current market and industry dynamics.”
PetroSA further said that it was committed to supplying and meeting Eskom demand, and in line with best business practices, reserved the right not to disclose the prices and terms of its commercial agreements with the utility.
The same set of questions was sent to the DPE, and spokesman Richard Mantu replied that Eskom was best positioned to respond. This was despite Eskom executives having been advised by the DPE that they were not permitted to engage with the media on the subject of diesel as “this would embarrass the shareholder”.
However, Mantu did indicate in the DPE response received on 20 January 2023 that “DPE is actively prospecting and engaging diesel suppliers to expand Eskom sources of diesel and ensure that Eskom gets diesel at competitive prices in order to realise cost saving for Eskom”.
Later, on 26 January, Jacky Molisane, the acting DG for the DPE, conceded that the department had made unsolicited suggestions to Eskom as to possible unconventional sources of supply for diesel, but said that DPE was only trying to be helpful.
She agreed that the apparent overcharging by PetroSA above the diesel pump price needed to be thoroughly investigated in the interests of Eskom and South Africa, but denied that there had been any deliberate miscommunication on upfront payment terms for the three emergency procurements for December, January and February.
No support yet from government
Eskom acknowledges that it is discussing other funding mechanisms with commercial banks, but is reluctant to borrow money ahead of the national Budget speech in the latter half of February 2023. Finance Minister Enoch Godongwana is expected to announce a major relief package for Eskom’s R400-billion debt burden during the Budget speech.
Eskom has also received no support from government in clawing back some of a substantial diesel rebate claim to which the utility says it is entitled from the South African Revenue Service (SARS). In terms of an amendment to Section 75 of the Customs and Excise Act, from 3 August 2022, Eskom is allowed Fuel Levy and Road Accident Fund rebates amounting to R4.03 per litre of diesel burnt at its power generation plants.
Visit Daily Maverick’s home page for more news, analysis and investigations
According to Eskom, its current diesel rebate claims on SARS amount to about R5.9-billion. Sources within the organisation say if the utility was paid just the R3-billion of the rebate that was due in respect of the year ending 31 March 2022, the money would go a long way to paying for the diesel it needs now.
Eskom also faces a major challenge in respect of arrear debt owed by several defaulting municipalities and municipal electricity distributors, which currently stands at about R56-billion, and is rising at about R1-billion a month.
An intergovernmental political task team chaired by the Deputy President has been looking at the recovery of municipal arrear debt to Eskom for years, but there appears to be no progress, and the arrear debt continues to rise alarmingly. Recovery of just a fraction of this R56-billion would resolve Eskom’s current diesel procurement issues.
The role of PetroSA
In all these procurements, PetroSA has insisted on full payment upfront, which is said to be a result of its own cash flow challenges and weak financial position. The company, a subsidiary of the Central Energy Fund (CEF) and reporting to the Department of Mineral Resources and Energy (DMRE), posted a R1-billion loss for the financial year ended in 31 March 2022.
Eskom has also been trying to obtain a wholesale diesel license from the DMRE, which would enable it to procure and import diesel fuel directly, saving an estimated R4-billion annually. But the department has declined Eskom’s application.
There is speculation that the real motive for the DMRE’s refusal is to force Eskom to continue with its large diesel procurements through PetroSA at above-market prices, so as to mitigate the embattled liquid fuel trader’s deep financial and cash flow challenges.
The suggestions are that if Eskom were to obtain its own diesel trading or wholesale licence, PetroSA would face an unsustainable future and may fold. DM
Mariam Isa, independent journalist, and Chris Yelland, EE Business Intelligence.
© Copyright 2023 — EE Business Intelligence (Pty) Ltd. All rights reserved. This article may not be published without the written permission of EE Business Intelligence.
And that’s the trouble with a State run centrally commanded economy. Embarrassment. It comes at an expensive price for ‘the people’ and it has never, in any economy on the face of the planet, worked. Yet the cANCer persist. Why? Because it can be looted, as it always has been, in every economy that it has been tried in, on the face of the planet.
Good work Mariam and Chris, while surprising detail, the news that another SOE is using the debacle at Eskom, also an SOE, to extract unwarranted revenue does not surprise. It’s also no surprise that Gwede Mantashe is responsible for the DMRE, who overseas Petrosa and denied Eskom the authorisation to import diesel. Do enough South Africans know and care about the ANCs behaviour and actions to make a difference?
Great to see the emergency task force is pulling out all the stops. I’m currently running a book on the actual date the country grinds to a halt! All proceeds to DM.
If mismanagement, theft and corruption has got us into this situation, then privatise this SOE and it could become profitable again! No brainier in my opinion!
Agreed. That’s what I advocated in comments a long time ago. I also suggested that the new private employer should fire all present employees and re-employ them on a selective basis. This may help to get rid of the looters and saboteurs?
Does the price that is being paid by Eskom for Diesel include all the taxes that are normally paid, including contributions to the Road Accident Fund (or whatever it is called these days)? If so, surely that should not be paid when the fuel is not going to be used to power vehicles that will use the road.
When I lived in the UK the Diesel was a different colour depending on if it included the road taxes. Farmers were allowed to buy Diesel that was cheaper because it did not include these taxes, but they were not allowed to use this in vehicles that would go on the road (the Police could see by the colour if it was taxed/untaxed Diesel).
R26 per litre certainly sound like it includes all of these taxes and add-ons. So this needs to be sorted out.
If this is just opportunism by PetroSA, someone at Eskom should get their finger out and get Eskom a trading/wholesale license.
All your answers are in the article.
Petrosa, one of the biggest loss makers ever in the Govt stable
The only reason it exists is to act as a payment conduit for the cadres
Yup. Would be intersting to see what they sell diesel at to others? That’s thr difficulty with being public owned, you cannot claim ‘competitive secrecy’ – can’t have your cake and eat it. The cANCer operate ‘public’ as ‘cANCer private’ which is convenient. Until you go bankrupt. They should suffer the same consequences as private directors who trade listed companies recklessly and are held personally liable.
I don’t understand the role of Petrosa. What is the reason for their existence? It’s outrageous that they should profit even more than the commercial suppliers, selling to a SOE that provides the country with the power it requires to function economically! WTF?! It’s blackmail of the worst order.
no problem. can the Spurs 1Billion sponsorship which is downright silly and we can keep SA lit for a while. unsolicited suppliers means backhands!
The anc is simply a cost layer interjected between any transacting parties where possible. They absolutely cannot add any value anywhere. Comrade deployment is a perfect example.
Indeed, they actively destroy value wherever they are involved, entirely consistent with how grifters operate. It always ends either when the money runs out and/or the hosts simply refuse to be parasited off, any longer. Getting close to this situation in SA, today, especially as the shift to own power/rooftop solar systems etc. gathers unstoppable momentum. We all need to remember, economically, that it becomes impossible to ration what you cannot provide which, ultimately, caused the total collapse of Soviet Communism, albeit after generating industrial scale misery.
Reading articles like this creates the impression there are only idiots at work in many government departments. The answers to at least partial solutions of the many crisis we experience are there for all to see, yet these morons believe that a state of emergency is needed.
When I read a story like this everything inside me dies A little more. The people we have elected to lead and run South Africa are so out of touch and out of tune. Just like the previous guys. yet, when the President says, “Tuma mina.” And asks that we all get involved the most corrupt still get appointed and have power to squeeze the little guy. And the idea that we call a “state of emergency” – and then Eskom gets ripped off by one of its own government departments when all we need is a fair price. Where is the transparency and will of the ANC to resolve the crisis???? The people will govern? Please the elite will rule and we will comply. Unbelievable! Actually nope. This is very VERY believable. Shm!
One word ……… ineptocracy
they achieve nothing moving profits around among SOE. It is patently absurd to pay RAF and Road levies on generators that are EXTREMELY unlikely to be involved in a road or road accident.
To see one SOE after another racing to the cliff edge has somehow lost its entertainment value. The entire economy and country are set to implode and this morning’s lead news story is that the NEC lekgotla is “hoping to reduce crime within seven years!” Do these idiots even live on the same planet? So tired of hearing, thinking, believing Cry the Beloved Country. Roll on 2024 and let’s rid ourselves of this pestilence.
Holy heck Cyril – here is a no-brainer easy win for you. Give Eskom a diesel procurement license immediately!!
So Gwede Mantashe decline import permission to Eskom so another SOE PetroSA survive, insted the people of South Africa has cheaper energy. It is unbelievable. GWEDE MANTASHE MUST FALL
PetroSA should be forced by the state to supply diesel at cost, to save what is left of our economy.
It should not be allowed to profit from the energy crisis in our country.
Do we get a whiff of inter-ministerial conflict? PetroSA, a DMRE SOE , is kept afloat by overcharging ESKOM, a DPE SOE, and at the same time the DMRE prevents ESKOM from buying diesel directly, maintaining PetroSA’s virtual monopoly? One minister must be seen to succeed while another must be seen to fail? And what is the role of SARS and the fuel levy paid by ESKOM? Are we all supporting the RAF through load shedding? Can some clever person please explain this and all the other moves in this perverse game of blind chess, where the players can see the board, but we, the spectators, are blindfolded? Nobel laureate Bod Dylan is right, we are only pawns in their game.
“This would embarrass the shareholder” are these ministers so thick that they don’t realize that without the taxpayer they cannot have “shares” in anything, we are therefore entitled to know what is going on and how it is affecting us as the major investor through taxes to this so called “shareholder”
THE THIEVES NO LONGER TRUSTS THEIR FELLOW THIEVES!!
It’s all about gwede, one of the many chief thieves of the anc. Without him, apparently cr is less than useless. Not that cr is of any use whatsoever to the people of SA, with or without gwede.
Under no circumstances should the majority political party be given state of disaster powers by which it can shortcircuit parliament only months before a national election. Worse, it gets emergency powers. Just scroll through the 87 names on the ANC NEC list – this tells you why in a nutshell.
You are right. The SOD is the wrong tool. We may consider a ring-fenced State of Emergency limited to Eskom issues only. A SOE is limited in time to 21 days, and retains Parliamentary oversight, so the regime can technically not go rouge again. It can be renewed a few times but cannot go on indefinitely like a SOD.
It seems to me that everyone is attempting to eat at the Eskom trough. First the coal mines; the transport from the mines to the power stations and now PetroSA.
I would have thought the crisis the regime has put the country in, would have justified free fuel to Eskom from our Strategic Supply. Oh, wait. That was of course sold illegally by the then Minister of Energy.
Those whom the gods wish to destroy……
“DPE is actively prospecting and engaging diesel suppliers to expand Eskom sources of diesel…”?? This goes against every procurement guideline and directive that the shareholder and National Treasury so frequently issue. And how would Eskom pay for this diesel when it has no money anyway. Wait! The state of disaster will miraculously release funds, which will come with instructions on how, and with who, Eskom should do business.
Charging above street price for diesel is PetroSA’s way of recovering from taxpayer it’s R14m loss(called an impairement) on its balance sheet for losses incurred by its Mossel Bay plant in obtaining feedstock from Oteniqua gas field. It is Mantashe’s dream to re-open this plant as a state entity called National Petroleum. Another bonkers idea.