BUSINESS REFLECTION
After the Bell: Why was Treasury so coy about a German report on Eskom’s power fleet?
Here’s a little heads-up. Sometime during the next week, the Treasury will release a report conducted by a group of German consultants called VGBE Energy on SA’s fleet of power stations. The history of this report makes interesting reading and the publication itself could make interesting reading too.
The report was commissioned last year as a condition for the Treasury R254-billion debt relief for Eskom. Treasury has learnt, to its bitter cost, that paying bailouts is a leading indicator that more bailouts will be required. So it is approaching dishing out the dosh more cautiously these days.
When you are dropping a whopping R254-billion cheque, you are in a good bargaining position to ask for an independent review, at the absolute basic minimum. I mean, it’s not much, but at least you are not relying solely on the dubious claims of the bailout-ees for a justification of why they should be rescued with taxpayers’ boodle.
So, the group, consisting of four German companies, RWE Technology, STEAG, KWS Energy Knowledge, Dornier Power and Heat, went off to examine what exactly was going wrong at Eskom’s coal power stations and submitted their findings in September last year.
Paia requests
At this point, the report got stuck, presumably because its findings were embarrassing. Two organisations promptly submitted Promotion of Access to Information (Paia) requests for the report.
DA shadow Eskom minister Samantha Graham-Maré submitted one and subsequently said the Treasury responded to her Paia by saying they were going to table the report to Cabinet and then it would be given to Parliament for dissemination. She was told it would take about three months. Then Treasury said there would be a delay because the report would be used to draft the strategic plan for Eskom for the 2024/25 financial year and would not be released until that process had been completed. Can you feel the hot potato being tossed?
The Centre for Environmental Rights also submitted a Paia because, I suspect, it wanted to know if the report was asked to recommend whether the lives of Eskom’s 15 coal power stations should or could be extended. This follows Electricity Minister Kgosientsho Ramokgopa’s suggestion last year that this might be an option. Doing so would obviously be embarrassing because SA won a huge $8.5-billion concessional loan at COP 28 in Edinburgh premised on decommissioning seven coal plants. So far only one has been closed, and the whole plan has been reversed, partly because of the crisis at Kusile.
Anyway, the issue of the report was resolved last week when Finance Minister Enoch Godongwana — apparently sick of the delays — said in his Budget Speech the report would be released within a week. “The recommendations will feed into Eskom’s corporate plans to bolster accountability and oversight,” he said, rather hopefully.
So what might this report contain? We know a little bit already, partly because many of the problems were mentioned in former CEO André de Ruyter’s book, Truth to Power. In addition, Business Day editor Alex Parker wrote in a column some of what will be in the report after talking to the authors late last year.
Parker wrote that the consultants found that procurement is overly complicated and onerous; that plant directors are disempowered due to a lack of trust at Megawatt Park; and that many processes are therefore centralised, inefficient and slow. Contract management skills were generally atrocious at plant level. Towns and villages outside the plants, such as at Kriel, Witbank, Volksrust and Vereeniging are so dilapidated, filthy and run down that highly skilled engineers don’t want to move their families there, making the skills issue even harder to crack. There was generally an “alarming hostility to change”.
There are two other issues that I hope the report will deal with, but we will see. The first centres on the topic of Eskom’s constant wailing that its power stations are old and therefore dysfunctional. This is one of the reasons this thing called the energy availability factor (EAF) in SA is down to around about 50%. This is another way of saying that the power plants are producing 50% of their total capacity.
Debunked
This story behind the whingeing was debunked by a really good report in the online publication Daily Investor, which published a report about a year ago on the topic. They found two American coal power stations that were built more or less at the same time as two of SA’s coal power stations.
SA’s Duvha power station was first commissioned in 1980, with the final unit completed in 1984. SA’s Tutuka power station was commissioned in 1985, with the final unit going online in 1990. Compare that with the Wansley power plant in Georgia which was first commissioned in 1976 and the Scherer power plant which was commissioned in 1982.
Please don’t hold your breath, but between 2009 to 2021, Eskom’s Tutuka and Duvha had an average EAF of 64% and 56%, respectively. Wansley and Scherer had an average EAF of 90% and 89%, respectively, over the same period. The EAF of the American plants got better over the years.
Tutuka and Duvha have actually got worse, I mean really much worse. In 2021, Tutuka and Duvha had average EAFs of 37% and 44%.
The second issue is about staffing. This was brought to my attention by an interested reader, Rob Tiffen, who is not in the power industry but is affected by it, as we all are. He points out that in 2003, Eskom generated about 39,000 megawatts with 31,000 employees. Over the next decade-and-a-half, Eskom hired another 17,000 employees while generation fell. In 2001, a company called Singh & Fehrs calculated for the US Energy Information Administration that the average coal-fired power plant employs 0.18 people in operations and maintenance permanently per megawatt of peak capacity.
On that basis, Eskom would need roughly 7,100 people to deliver 39,000 megawatts in the coal operation and another 500 for Koeberg. Presumably, that’s the absolute minimum. A company called American Electric Power produces about the same power as Eskom (38,000MW) with 16,000 employees. Anyway, that pales compared with Eskom’s current employment level of 42,000 people.
The point is that if the VGBE does suggest there is an “alarming hostility to change”, as I presume it will, we should know why: it’s not innate conservatism; it’s most probably huge numbers of employees who do very little while trying desperately to protect their rather undemanding lifestyle.
We will see. DM
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Are the American plants SOEs? Do they have cadres deployed? Are there cartels involved in their procurement processes? We are not comparing apples with apples. To expect similar results with completely different contexts is probably not appropriate, or useful.
Apples are being compared with apples: it’s just that their apples are healthy, and sitting tidily in a clean box. Ours, on the other hand, are worm-infested, rolling around in filth, and being eaten by greedy pigs.
I have looked through the comments and it troubles me that my African brothers are so quiet in response to this article.
Do we not recognise how bad this is and that something needs to be done urgently to change it?
I can’t see how we can be quiet here.
Bob F February 29th 2024 at 07:54
Comparing the American situation to that in South Africa it is quite apparent that a large part of Eskom’s problem is very clearly the result of ANC’S cadre employment policy. A lot of unqualified and overpaid individuals placed in positions which they just cannot hope to manage.
Referring to the second last paragraph, where American Electric Power produces 38GW, comparable to Eskom’s nameplate capacity with 16,000 employees. The comparison is actually worse than described, because Eskom’s EAF is in the low 50%s, so the equivalent number of American employees would probably be around 10,000 people!
One key difference is the contractual model. Most large projects are turn key. Contractors get paid when they reach milestones and there are performance guarantees. Eskom selected to pay time and material, carrying all the risk so they can manipulate the funds. That is the main reason why all Eskom projects are 300 to 500% over budget, took 3-5 times longer and nothing is working. The only solution is to change the contractual model. PV Solar projects work because they are turn key.
This was conceived by the ruling elite to ensure a smooth flow of tax payers money to their pockets
Also, Eskom thought that they still had skills to design and manage the new build. In hindsight, obviously not. Many of the older generation were actively excluded, so lessons learned from the previous builds were forgotten. The turnkey designs that were available were in 500 – 600MW per unit range, but Eskom wanted bigger. The turnkey projects would have been delivered in four to six years. Yet 16 years later the new build is still not finished, and the units are unlikely to ever meet their nameplate ratings.
Looking way back Eskom today has far higher TWh output per capita than the early 90’s when the opposite problem existed as now : we had far too much generation capacity to extent that some units were mothballed.
The shocking stat is Eskom today has average pay of over R800,000 per employee. There must be ten thousand or more that are paid over R2m a year for the average to be R800k when consider that general workers start at under R200k per year.
A very interesting PAIA application for a journalist would be to ask for a stratification of employees in bands of say R100k. The unions will also be interested when they figure that the 8% increase an employee on R2.5m a year receives is same as a 100% increase for a general worker.
That same stratification should be obtained for Health and Education and Police departments. A researcher once told me that we spend more on administrators in Health than we do on nurses and doctors…
That could be quite an election campaign tool to use and possibly quite an easy fix. Instead, ANC is promising more government jobs!
If I remember correctly, a general worker earned more than qualified entry level professionals such as teachers and nurses.
Was it the Treasury or Mantashe and Gordhanand ANC partners, SACP and COSATU? Anyway, its to be published, supposedly, will I daresay confirm our suspicions.
I did like the very last sentence about “undemanding lifestyle”. Presumably also a bit tongue in cheek? The truth is probably more like “work with multiple opportunities for self-enrichment” – based on all the corruption exposed in “Truth to Power”!
Chancellor House as we all know is the investment arm of the ANC. The ANC was given a 25% share of Hitachi’s SA operation and its involvement in building two massive new power stations. Corruption in the whole deal involving the construction of Kusile and Medupi power stations ballooned to crazy levels of over-spend and exceeded time frames. Right now the ANC (as the governing party), is still the owner of Eskom. That, at the end of the day is why Eskom and the country along with all other SOE’s, is in shit up to its eyeballs. The only way out is for the ANC to be voted out in May. Failing that, our lingering death throes will accelerate rapidly.
Yes, this is a huge conflict of interest. The ANC puts political pressure on management to authorise payments to suppliers in order for kickbacks to flow. This is why suppliers get paid while the work has not been done or is of substandard quality. There does not seem to be any realisation in the ANC of how unsustainable this is
As a supplier to Eskom, I have witnessed first hand the “huge numbers of employees who do very little while trying desperately to protect their rather undemanding lifestyle”. As one walks around the plants and workshops one sees many of these (mostly young) “trainees” lolling about and doing nothing, whilst the greybeards that Eskom reluctantly re-employed on lucrative contracts are the only ones doing any work!
Love the bit about no-one with a brain wanting to live in dirty and run down towns around the power stations.
In the old days, mine and factory towns usually had strict rules and regulations for people living in “company” houses.
It got on people’s tits but most put up with it because rents were low, and facilities were good.
In South Africa, of course, it was distorted by black townships and white towns.
But can you imagine what life would be like in an ANC controlled “company” town?
No thank-you.
Cadre employment again – buying election votes. That’s how regimes stay in power in a socialist environment. That, and alliances with Unions for continual wage increases all while the private sector employees suffer decreasing income annually. it is not Government’s task to create employment as such. It is the private sector that creates employment and benefits from government contracts for infrastructure etc., enabling them to hire more workers. However, we have got the reverse situation here, hence the mess. A typical marxian scenario – and we all know how those turn out.
they said the report is a precondition to yet another bail-out.
they meant the redacted version of the executive summary of the redacted executive summary
Imagine if the expert opinion says the problem is not Jan van Riebeeck’s fault. The horror!
If Eishkom is to get such a HUGE bailout, then the public should be privy to the information in the report – it is, after all, our money they’re using.
So, nothing new here then! Those people numbers reminded of a similar comparison a few year ago, this time people per aircraft. If I remember right, SAA was oversupplied with fat and lazy people by about the same multiple.
Nothing state-owned in SA will ever work as long as they don’t learn that maintenance is a main factor in anything that is supposed to work and then of course until they stop stealing the money that is supposed to be used to make things work.