Eskom’s black hole of debt keeps on getting bigger

Moody’s credit opinion issued yesterday on the heels of its recent decision to keep South Africa’s credit rating one level above junk, said elevated government debt and contingent liabilities risks from state-owned enterprises (SOEs), limited government’s ability to absorb shocks.

The note came after Eskom’s announcement of a R2.5 billion loan from the New Development Bank in China on top of the R420 billion debt it’s already carrying, and there’s no say when the 670 MW of renewable energy it’s meant for, will come on line.

Today, Public Enterprises Minister Pravin Gordhan and Eskom Board chair Jabu Mabuza are expected to deliver an update on the status of the electricity supply.

The biggest problem nearly two weeks ago was a lack of diesel, understood to be between 20 and 25 million litres and various units failing at various plants.

Some diesel was subsequently delivered, however the Eskom media team has remained obdurately mute over how much and at what cost, despite Gordan’s promise they would do better in terms of conveying information.

Gordhan is expected to deliver his update to journalists at an as yet undisclosed power station.

According to Moody’s, Eskom is rated as B2, ie, its obligations are speculative and subject to high credit risk.

Monday’s loan joins a plethora of others.

On May 30, 2011, the Export Import Bank of the United States lent us about R5.7 billion adding at the time to “the R31 billion in export credit agency backed finance” Eskom had already raised.

“Export credit agency finance is one of the sources Eskom is tapping as part of its R300 billion funding plan for the new build programme. More than three quarters of that funding has now been secured,” Eskom said then.

On August 25, 2011, Eskom signed a more than R980 million loan agreement over 20 years with Agence Française de Développement (AFD) for the 100 MW Sere Wind Project in the Western Cape.

That was followed by another on September 25, 2011 when the African Development Bank put more than R5.1 billion in the kitty to “enable the first large-scale implementation of renewable wind and solar generation in Eskom’s history”.

Eskom and AFD signed another loan agreement on October 15, 2013, for more than R1.4 billion to finance a “100 MW Concentrating Solar Power (CSP) plant near Upington, Northern Cape”.

On August 7, 2014, the European Investment Bank gave another R1.1 billion “to support Eskom’s 100MW Concentrating Solar Power (CSP) plant close to Upington in the Northern Cape”.

Fast forwarding to 2018, February 28, another R20 billion was piled on after signing a “short-term credit facility with a consortium of local and international banks”.

These have not been identified by Eskom.

Then on June, 29, 2018, the German Development Bank KfW loaned Eskom more than R1.4 billion “to support further investments in the transmission network in the Northern Cape” to facilitate grid integration for renewable energy.

These are a few of the loans making up the R350 billion government guarantee to Eskom of which the contractual details are being kept quiet.

Two weeks ago, Eskom chairperson Jabu Mabuza said Eskom had spent R4.5-billion in six months on diesel to keep the lights on. In 2013, Eskom spent R10 billion.

While Eskom works on its balance sheet, reports of rocks and poor-quality coal being delivered to its coal powered plants has Eskom fighting back.

The utility’s media desk told The Citizen a procurement process was in progress to install cargo seals, which would indicate if the load has been tampered with.

These seals would be installed at the mines and verified at the power station before off-loading and in the meantime, people have been posted at plants with the express job of monitoring coal deliveries.

Eskom also noted verification tests of coal were being conducted at sites where random spot checks had picked up problems.

In the medium term, Eskom will also be using on board computer and satellite tracking to monitor deviations from approved routes, unscheduled stops and load-bin tipping.

A feasibility study is already under way for a fully automated supply chain management system, which Eskom said would enhance coal accounting and reduce manual coal sampling and analysis interventions.

Eskom is also conducting a feasibility study to implement a rapid coal sampling and online testing kiosk for all truck deliveries at the power station, prior to weighing and offloading.

In the middle of all this, is the Coal Truckers Forum, recently slam-dunked in its second attempt to prevent Eskom taking on independent power producers.

According to the Pretoria High Court judgement by Justice Pieter Meyer – which found its application “null and void” and whacked it with the costs of opposition for 30 respondents including those of two counsel – CTF is a “voluntary association with legal personality whose approximately fifty members are companies transporting coal for Eskom”.

As what appears to be the biggest – and only – coal transport organisation dealing directly with both the mines and Eskom, The Citizen asked CTF spokesperson Mary Phadi for some insight into how this happened.

With around 52 members owing about 700 trucks, Phadi confirmed all transporters of coal by road/truck to Eskom were affiliated to CTF.

Phadi explained there transporters on contract for Eskom, as well as Mine to Mine contracts.

“Incidents differ. Drivers get involved in the stealing of coal as well and all our companies are targeted,” Phadi said.

“It was an empowerment initiative but now the opportunity is open for public tender. We are just contractors with each company contract direct with Eskom.”

Eskom noted during the 2019 financial year, coal quality related load losses fluctuated between 200 to 500 MW per day, which on average accounted for 7.9% of “partial” losses.

The utility noted its year-to-date coal-quality related load losses were equivalent to 0.7% of Eskom’s total installed capacity and 1.2% of the current available capacity, with load losses predominantly at Matla and Tutuka coal-fired power stations.

Meanwhile, as of 25 March, only five of its plants were below its Grid Code of 20 days.

These were Arnot, Duvha, Kriel , Matla and Tutuka while the “total system stock day”, excluding Medupi and Kusile, was just over 35 days.

Eskom’s media desk noted “significant” improvements had been made at Camden, Hendrina, Majuba and Kendal, with these stations recovering above the Grid Code level of 20 days.

It now had 41 new coal contracts which were placed between January 1, 2018 and December 31, 2018, with total additional coal contracted volume of 106 million tonnes.

“The actual coal supply performance is on track to surpass the recovery plan target (excluding Medupi and Kusile). All power stations will recover to expected levels, by end of the 2019 calendar year, which is about two months ahead of the recovery plan,” Eskom said.

“Matla and Tutuka coal-fired power stations accounted for 74% and 13% respectively of the declared Financial Year 2019 year-to-date coal-related load losses.”

In order to remedy the coal quality issue at the Matla colliery, “a high quality 2 seam total extraction short-wall section will be re-commissioned in May 2019, which will subsequently improve the coal quality from this tied mine. Concomitant to this, the low quality 4 seam total extraction short-wall section is reaching the end of life”.

“In the case of Tutuka, the New Denmark tied colliery challenging geological area (low seam height) has been being mined through already, resulting in improved qualities. Tutuka coal-related load losses have been cleared already,” Eskom noted.

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