ESKOM IN THE DOCK
25 years in the making – the real reasons we have rolling blackouts according to De Ruyter
In court papers, former Eskom Group Chief Executive Officer André de Ruyter said that a number of historical factors have come together leading to South Africa’s years-long energy crisis.
Barely a week after his tenure at the helm of South Africa’s beleaguered and besieged power utility came to an abrupt end, former Eskom Group Chief Executive Officer André de Ruyter has said that South Africa’s rolling blackouts and energy woes are the manifestation of an unfortunate but predictable crisis 25 years in the making
From the flawed and allegedly corrupt building of Medupi and Kusile power stations to Brian Molefe and Matshela Koko’s refusal to conclude agreements with Renewable Energy Independent Power Producers (REIPP), De Ruyter details the historical reasons that have seen South Africa come to be gripped by energy insecurity.
He was responding in an answering affidavit filed at the Pretoria High Court, in his capacity as erstwhile CEO of the power utility in a court case lodged by the United Democratic Movement (UDM), ActionSA and 17 others who seek to declare the government’s response to shedding as unconstitutional and in violation of a number of fundamental human rights, among other things.
In the affidavit, De Ruyter explains that there are various historical reasons for the unreliability of Eskom’s fleet of power stations and the country’s energy crisis.
“While the immediate cause of load shedding is the current shortfall in electricity supply, the reasons for that shortfall are complex and can be traced back decades,” he says.
“Since at least 1998, Eskom has been calling on the Government to urgently invest in new generation capacity in the light of increasing electricity demand. Eskom was divested of its independent mandate and means to invest in new generation capacity after it was converted into a state-owned enterprise. With the building of new power stations delayed for over a decade, Eskom has had to run its ageing coal fleet at far higher usage levels than accepted international industry practice and defer planned maintenance (since maintenance requires taking the power stations offline, sometimes for as long as three months).”
“This combination of running coal-powered plants harder and deferring maintenance has, inevitably, had a knock-on effect on the performance of Eskom’s coal fleet – evidenced by the declining Energy Availability Factor (EAF) of the plants. An unfortunate (but also predictable) cycle has begun: unplanned plant breakdowns and reduced available capacity compels further increases in the usage of the working plants and continued deferral of planned maintenance outages.”
Why do we have rolling blackouts?
“To understand the challenge that ending load shedding presents, and when and how this can be achieved, requires an understanding of the causes of the problem,” De Ruyter says, explaining that “the load shedding that South Africa is experiencing today has been at least 25 years in the making. Over this period, a confluence of factors – the bulk of which are entirely out of Eskom’s control – have inhibited Eskom’s ability to ensure adequate electricity supply.”
He continues that “most fundamentally,” these factors are:
- Since 1998, there has been insufficient investment in new generation capacity, a responsibility vested in the Minister of Minerals and Energy. As a result, Eskom has had to operate with insufficient generation capacity. At present, therefore, and as Eskom has consistently and publicly explained, it requires 4,000 to 6,000 MW of additional generation capacity. It cannot obtain that additional capacity unless new capacity is unlocked. Eskom does not hold that key.
- For approximately 15 years, the National Energy Regulator of South Africa (Nersa) has not permitted Eskom to recover cost-reflective tariffs, leading to a revenue shortfall of approximately R40-billion to R60-billion per annum in recent years. Eskom has repeatedly explained to Nersa the need for cost-reflective tariffs. This need was recognised in the Department of Mineral Resources and Energy’s Electricity Pricing Policy, 2008 and in the proposed revisions to the Electricity Pricing Policy published for public comment in February 2022. Despite this, the need for cost-reflective tariffs has not been met.
- These two factors have had a mutually reinforcing adverse effect. Insufficient generation capacity has meant that Eskom has had to run its power stations at a higher-than-benchmarked energy utilisation factor (EUF) – simply put, it has had to run its stations too hard. It has also had to defer the maintenance of its power stations which requires it to take them offline. Given its insufficient generation capacity, as well as a Government instruction to “keep the lights on”, Eskom deferred required maintenance over many years, resulting in degraded power stations with reduced generation capacity or energy availability factor (EAF).
These core problems, however, have been “exacerbated by a series of other events and circumstances, which have compounded the pressure on Eskom’s supply capacity”, the former Eskom boss explains.
Medupi and Kusile
In 2005, the decision was belatedly taken by government to permit Eskom to introduce new generation capacity through the construction of the Kusile and Medupi coal power stations. These power stations were poorly designed and poorly built, partly due to the unreasonably short timeframes imposed for implementation as well as the inherent corruption in procurement activities associated with the build programme. The result is that the on-streaming and operation of these plants have been beset with problems and significant cost overruns, and they have consistently failed to generate the expected supply.
De Ruyter adds further detail explaining that “in October 2007, Hitachi Ltd, a Tokyo-based conglomerate, was awarded the tender to construct both the Medupi and Kusile boilers. At the time Hitachi was awarded these contracts, it had no experience working with South African coal.”
He continued that “Medupi and Kusile have been plagued by a litany of design and construction failures which have delayed their completion and negatively affected their performance” and that “the appointment of Hitachi for the Medupi and Kusile construction projects could be a result of possible corruption.”
In September 2015, the United States Securities and Exchange Commission (SEC) charged Hitachi with various violations of the Securities Exchange Act of 1934 in relation to the awarding of the Medupi and Kusile contracts.
It alleged, in particular, that Hitachi sold a 25% stake in one of its South African subsidiaries to Chancellor House Holdings (Pty) Ltd “knowing that this was a funding vehicle for the African National Congress”; that this arrangement “gave Chancellor House the ability to share in the profits from any power station contract that Hitachi secured” and that Hitachi encouraged Chancellor House to “use its political influence to ensure that it obtained contracts from Eskom.”
An ageing coal fleet
“Eskom’s fleet of coal power stations are, in general, approaching 50 years of service. As they age, the coal plants are manifesting increased unreliability with more frequent unplanned breakdowns and lower supply capacity (measured as EAF) and increased maintenance costs,” De Ruyter notes.
Keep the lights on
“Until recently (prior to the change in management at Eskom in 2020), there has been inadequate maintenance of Eskom’s power stations and years of deferred maintenance to keep the lights on in the absence of sufficient reserve capacity. There is now a maintenance backlog which cannot be deferred any longer. Eskom has had to take several of its power units temporarily offline, resulting in unavoidable planned outages, in order to address the maintenance backlog, safety concerns and statutory requirements.”
The 2015 decision to cease the REIPP programme
“From 2015 to 2017, under former Eskom Group Chief Executive Officers, Mr Brian Molefe and Mr Matshela Koko, Eskom refused to conclude agreements with REIPP. Mr Molefe and Mr Koko took these decisions in contravention of a determination by the Minister of Minerals and Energy that Eskom was to conclude REIPP agreements to mitigate the foreseeable supply constraints we are now experiencing. By taking these decisions, Mr Molefe and Mr Koko inhibited the necessary growth of South Africa’s generation capacity.
De Ruyter shares greater detail explaining that “From 2011 to 2015, pursuant to the Integrated Resource Plan for Electricity 2010-30 (IRP 2010), and various ministerial determinations, Eskom procured approximately 6,300MW of generation capacity from independent power producers and secured R200-billion private investment through the REIPP programme. In 2015, however, Eskom’s erstwhile GCEO, Mr Brian Molefe, took a decision that Eskom would no longer conclude agreements with independent power producers.
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“This despite Eskom having been designated as the buyer in determinations made by the Minister of Mineral Resources and Energy under section 34 of the Electricity Regulation Act. From 2016 to 2017, when Mr Matshela Koko assumed the role of GCEO, Eskom continued to refuse to buy from independent power producers.”
Read more on Daily Maverick: Grim Reippp(er) — undoing the choke-hold on SA’s renewable energy programme
State capture and corruption
State Capture, and corruption more generally, have “hollowed out Eskom’s financial resources and its experienced and skilled personnel.” The State Capture report found that “in total, R14.7-billion of Eskom’s contracts are calculated to have been afflicted by State Capture”.
In his affidavit, De Ruyter notes that “the cumulative financial impact on Eskom of State Capture and corruption more generally is difficult to quantify, but it is likely to be significantly higher than the amount of R14.7-billion” adding that “corruption has compromised Eskom’s financial position, board, and management structures; reduced its coal supply security; degraded its power stations through the use of out-of-specification coal; and thereby negatively impacted its generation capacity”.
Read more on Daily Maverick: After the Bell: There are implications to André de Ruyter’s public revelations about the Eskom crisis
Eskom’s various power stations have experienced widespread sabotage, criminality and destructive and unlawful industrial action.
De Ruyter shares an example of sabotage at Eskom. “On 18 December 2019, Majuba’s overland coal conveyor caught fire. Subsequent investigation revealed that two valves controlling water flow to a fire suppression system on the conveyor were shut off before the fire broke out. There was no record of any approval for the valves to be shut off. As a result of this fire, Eskom had to transport coal to Majuba by truck, at an approximate cost of about R100-million per year.” DM