Eskom has asked the National Energy Regulator to more than double the 8% annual tariff increase it has been permitted, to 16.6%. However, evidence is mounting that its “unforeseen costs” are, to a large extent, its own fault. There is also little evidence of improvement.
I recently received a tip about the circumstances surrounding what Eskom termed “an apparent over pressurisation incident” at Duvha power station on 30 March 2014. Almost two years on, little has been done to reconstruct the affected unit, which was completely destroyed. This is emblematic of the deep-seated rot at the public utility.
The whistleblower’s story, which outlines in detail how a coal-fired power station works, reads like a comedy of errors. It relates the reasons why the number 3 boiler at Duvha blew up, as well as the dismal failure, to date, to begin any sort of repair or reconstruction.
The Duvha coal-fired power station, outside Witbank in Mpumalanga, consists of six 600MW units producing a combined 3,600MW. That makes it a major supplier of electricity, and one unit accounts for 2% of the country’s generation capacity.
“Two percent of 40 000MW generation capacity is significant,” Thembani Bukula, of the National Energy Regulator, NERSA, told Moneyweb only two weeks before the incident.
One has to keep in mind that my source – who asked to remain anonymous – works for, or is contracted to, a major vendor to Eskom. This would certainly bias their opinion. However, the reported facts of the case strongly support their narrative.
For example, there was much confusion over a R4.2 billion insurance payout, which the Eskom annual report said was made, but which apparently has not been received. My source puts this down to a dispute over whether or not the payout ought to pay for a new boiler, or whether it should be handed over in cash.
The utility, while trying to downplay the severity of the incident, has also said that Duvha Unit 3 will only be back online by 2019 or 2020. A five- or six-year outage strongly supports the claim that this was more than just an over-pressuration incident. This was a major disaster.
Last week, Nic Barnes, director of the Johannesburg Property Owners and Managers’ Association, told the media: “The country is being penalised for Eskom’s mismanagement.” He was speaking to the Independent newspaper at public hearings about an additional tariff increase Eskom has requested from the National Energy Regulator, NERSA.
On 25 February, we’ll hear whether Eskom’s application for a 16.6% rate hike has been successful. It seeks to more than double the increase of 8% per year from 2013 to 2018 which had previously been agreed. In fact, it exceeds even the 16% for which it originally asked.
The ostensible reason for the extra increase is to cover the cost of diesel used to fuel open-cycle gas turbines. While this is undoubtedly expensive, and contributes in large part to its so-called “unforeseen costs” of R22.8 billion, much of these costs appears to be the result of to Eskom’s own mismanagement and operational failures.
The whistleblower says that the proximate cause of the Duvha Unit 3 boiler explosion was that Eskom changed the coal feeding the power station, from that supplied by the nearby Wolwekrans mine, for which the boiler was designed. The automated systems running the station were not able to adjust to the changed operating conditions, resulting in the boiler fire going out. Reacting to a fall in temperature, an automatic injection of fuel oil occurred. When this fuel, as well as unburnt coal dust, encountered glowing-hot slag, which usually is removed during routine maintenance, the mix exploded, ripping the boiler and its surrounding building apart.
“Such changes in the boiler’s operating conditions could normally be handled by trained and experienced engineers, but cannot be accommodated by the automatic systems that control many of the boiler’s functions because there is an assumption that the coal specifications will remain constant over time,” the source writes. “This is not to say that the Duvha technical staff were not competent or experienced, it is to point out that it is sometimes necessary to re-engineer the entire airflow, burner system and ash handling systems when the coal characteristics for which the boiler was originally designed change.”
The entire 2,500-word narrative is well worth reading. It sheds much light on the internal workings of the electricity utility and the companies it contracts with.
In pursuit of a repair contract, my source says, Eskom initially approached three vendors, giving them very short notice to prepare proposals. It sought to impose contract conditions which two of them were not prepared to accept, and continued with only a single bidder in the process. This, naturally, drove up the price, and negotiations broke down six months later. In December 2015, it restarted the process, by asking for final quotations to be submitted within three days. “[N]eedless to say they are still waiting,” the source noted.
The firm is now seeking vendor finance, but depending on companies willing to enter into such an agreement is fraught with its own risks.
Either way, my source says, expect a critical electricity shortage during the coming winter: “So folks, don’t abandon those plans for a home generator or solar panel just yet. See your lawyer about getting a rebate on your monthly service charge because there will be plenty of times when there will be no service. And don’t think that noise coming from Duvha is the turbine running again – it is all just Eskom’s spin in action.”
This is not the first time that Duvha has been involved in a catastrophic failure. On 9 February 2011, three years into a national power crisis that was blamed on lack of capital investment and delayed maintenance, a turbine spun out of control and exploded during what Eskom claimed was a routine maintenance test. The cause was reported to be “human error or lack of personnel”. The affected unit, Unit 4, was brought back online almost two years later, in January 2013.
At the time, Dirk Herman of the trade union Solidarity told News24: “We are worried that such a thing could happen again. Eskom’s investigation into the incident must be broadened to include an audit of the state of the network and the state of Eskom staff.”
Those words now seem prophetic. After the 2014 incident at Unit 3, Moneyweb asked what was going on at the Duvha power station, noting also a breakdown of the conveyor belt that supplies coal from the nearby Wolwekrans mine. It had previously quoted NERSA’s Bukula, who expressed concern that Eskom was commissioning maintenance at all costs, but that “There is an issue with the quality and management of your maintenance.”
The boiler blowup less than two weeks later was evidence that the regulator was correct in pointing out severe operational shortcomings at Eskom, which will not be fixed merely by building new power stations or throwing money at maintenance. The tale told by my source shows that little appears to have changed, except perhaps that Eskom is more reluctant to engage experts at vendors to assist in improving the quality of maintenance.
Besides focusing on new build, Eskom urgently needs a comprehensive overhaul of operational maintenance procedures, and a procurement process that places safety and power station availability first. And while Eskom is under great financial pressure, it is counterproductive to pass those constraints on to contractors, since this will merely postpone necessary maintenance and repair. This adds to the massive diesel bill the utility is running up, compounding the financial hole in which it finds itself.
Operational excellence is entirely in the hands of Eskom’s management, but despite NERSA’s dissatisfaction, there is no sign of any improvement in the years since the power crisis started. Management’s failures need to be rectified as a matter of urgency. They are not a good justification for even higher electricity prices. They also cannot be left to fester, since that can only blow up more power stations. DM