REPUBLIC OF SOUTH AFRICA
Quarterly System Status Speech
Minister of Public Enterprises,
24 January 2017
Compliments to you all for the New Year. We are just 24 days into 2017, and the Department of Public Enterprises has kicked off the year running to keep up with Eskom.
Unlike in the past, when running to keep up with Eskom may have held negative connotations, this year we're running for the right reasons and at the right time.
I am pleased that, at a time when the country has developed surplus capacity, Eskom is not resting on its laurels:
I wish to stress my support for Eskom's debt recovery strategy which so far has yielded positive results. It is critical that Eskom recovers all its revenue to be able to honour obligations to its creditors in order to remain sustainable.
I am encouraged by the manner in which the Interdepartmental Task Team of the department, Eskom, COGTA with the support of Minister Van Rooyen, the National Treasury and provinces and the municipalities are engaging to resolve the matter. I have requested Eskom to delay implementing power interruptions until the end of the month to give municipalities a few more days to make agreed payments and avoid negative impacts on local customers and the economy.
Very positively, South Africa's power supply dialogue has shifted from load shedding and its impact on the economy to long-term and sustainable energy solutions.
The Eskom Board continues to make critical decisions that will result in a sustainable Eskom for our nation's benefit.
Let me remind you of where we have come from since I became the minister, this was a company riddled with capacity shortages, stagnant demand, excessive diesel usage, late delivery of new power station and poor financial performance.
Since the injection of the new leadership, Eskom has been able to put together interventions that have been able to steer the company in the direction where we are. I am delighted with the turnaround at Eskom in line with its five-year design-to-cost strategy to achieve financial and operational sustainability. Eskom has focused on reducing its cost base, delivering new plant and increasing its sales through cross border sales to the rest of the continent in order to maintain its financial sustainability.
The intention in the short to medium term is to lessen the burden on the South African consumer by achieving a moderate electricity tariff.
On the operational side, Eskom's capacity expansion programme has delivered more than 1 700 MW to the South African grid since August 2015 which includes Ingula, Medupi 6. That is equivalent to lighting up the greater Durban area. I am assured that the recovery plan on the build program is running a year ahead of schedule.
Today, South Africa has reliable electricity; load shedding was last implemented 17 months ago.
Albeit these remarkable gains, it is necessary to pause at this point, ladies and gentlemen, to consider how we to build on these gains going forward.
There are a few issues that I would like to raise that I think would threaten Eskom's sustainability in future:
Independent Power Producers
Firstly, there is issue of independent power producers – and the criticism that Eskom has failed to connect additional renewable IPPs.
The first key issue is on capacity. The IRP was based on the economy growing over 5% but in reality the economy has grown below 2% and consequently there has been no growth in the demand for electricity which was projected at over 2%. When Eskom presented its Interim Results which shows that overall electricity sales volumes only grew 1.2%. In fact the demand for electricity has been fairly flat for the last decade. As a result, there has to be clear consideration of the rate at which new capacity is added to the grid else we risk having excess capacity. These are the key assumptions underpinning the current IRP2010 which is basis of current choices including the renewable IPPs.
When South Africa was experiencing capacity constraints, IPPs played a critical role in the energy mix – but at a premium price. It was more expensive than coal-fired or nuclear power, but it was a price that the country was willing to pay at the time. It is therefore critical that we allow government to finalise the Integrated Resources Plan which will inform South Africa's energy choices going forward.
Due to the recovery of the Eskom performance, in recent months Eskom has ended with excess capacity. This is even without taking into account the additional units from Medupi and Kusile. While Eskom can push for a more aggressive export strategy to mitigate this, it comes with its own limitations including Transmission capacity. The challenge then becomes that Eskom would still need to collect the same level of revenue to cover the incurred costs. The addition of more capacity at a time of excess capacity will result in additional costs to the company and subsequently increase in tariff.
In my opinion, the Eskom Board would fail in its duty if it did not consider the burden of high costs on consumers.
Government remains committed to a more diversified and affordable energy mix as will be informed by the revised Integrated Resources plan.
Thirdly, there is the issue of coal contracts – an issue on which I have received significant queries. While the Public Protector report and the inquest will take their course, Eskom will continue to radically but fairly, transform coal procurement – it is a non-negotiable national imperative.
From 2010, during its tariff submissions to the National Energy Regulator of South Africa, Eskom had painstakingly outlined its concerns relating to the high cost of coal and coal quality from coal suppliers. Coal costs were rising at rates well above inflation and escalating the electricity tariff.
Unlike in the past, when Eskom's playing hand was tied due to the constrained power system and there were limited options to pay prices as set by the industry, today Eskom is in a stronger position to negotiate, as the playing field has changed. Eskom will continue to source coal, as with renewable energy, at the right quality and the right price. I like to believe that these are good business principles that benefit the South African consumer.
I leave you with the words of the late Dullah Omar, our democracy's first Minister of Justice: "Some people interpret human rights to mean you must curb the power of the state, which is the wrong view. You must curb abuse of power by the state, but the state must have the power to implement programmes and policies."
I thank you.