Eskom coal problems underline need for SIU inquiry

The Organisation Undoing Tax Abuse (OUTA) is concerned about current reports of serious coal supply problems at Eskom, while the utility is busy applying for R66.6 billion in its RCA claw-back from the public due largely to previous mismanagement of the entity, including coal contracts.

“South Africa cannot afford the incessant increases required of Eskom over the past decade, all due to poor leadership and mismanagement of its operations and capital expenditure programmes,” says Ronald Chauke, OUTA’s Energy Portfolio Manager.

The National Energy Regulator (NERSA) public hearings into Eskom’s Regulatory Clearing Account (RCA) applications for the past three years performance start in Cape Town today (Monday 16 April). OUTA’s presentation to this hearing opposes the granting of the R66.6 billion, which was a position that OUTA presented in a written submission to NERSA on 23 March on this matter.

OUTA’s submission to NERSA has pointed out that Eskom overspent on primary energy (which includes coal and diesel for Open Cycle Gas Turbines or OCGTs). In its presentation to Eskom this week, OUTA will show why it believes primary energy spending on coal and diesel has been excessive to the tune of almost R100 billion over the past seven years. Eskom primary energy costs grew from R18 billion in 2007 to more than R82 billion in 2017, while electricity generation has declined.

“Eskom’s poor leadership has seen its spending and contracts in coal supply balloon out of kilter with its mandate to serve in the best interests of the public and electricity consumers. We furthermore believe that Eskom is now relying on this RCA process to recover from its mismanagement and this should not be allowed to happen,” says Chauke.

Today’s reports allege coal supply problems at Eskom power stations in Mpumalanga, and must be viewed as a serious concern, especially against recent claims that Eskom has been relying on use of the expensive diesel-driven OCGTs.

These reports raise serious questions as to when Eskom’s new leadership team will begin to undo the problems left by its prior leadership, including its current operations management team. The current coal supply problems also reinforce the need for the Special Investigating Unit inquiry into Eskom’s coal contracts, announced earlier this month, and for this inquiry to be fast-tracked.

“OUTA recommends a zero percent (0%) clawback by Eskom and, instead, strongly proposes that NERSA should exercise its mandate to protect electricity customers from Eskom’s ongoing inefficiencies. It is now the people’s time to ‘claw-back’ the ill-gotten gains of Eskom’s prior leadership mismanagement and we cannot accept NERSA granting any approval for either the RCA application or Eskom’s call for an electricity price above the 5.2% increase which starts on 1 April for 2018/19,” says Chauke, summing up OUTA’s position on the RCA application.