Eskom caught in ‘serious loot’ trap with IPP contracts

In what has been described by an energy analyst as “a serious loot”, Eskom yesterday said it was legally obliged to continue buying electricity from independent power producers (IPPs) and honour payments – despite a power abundance in the country and a stable grid.

The long-term multimillion-rand contracts were entered at the height of load shedding.

Board chair Mteto Nyati last week revealed how the stateowned enterprise could not opt out of the “take or pay” contracts as this would cost the power utility “a fortune”.

Eskom-IPPs contracts ‘a serious loot’

However, energy expert Tshepo Mahlaba labelled the contracts as “a serious loot”.

“They allowed IPPs to sell power at a time when Eskom did not need the power, but Eskom had to pay regardless.

“This has caused Eskom to be heavily indebted on power that was meant to evaporate with no demand,” said Mahlaba.

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Nyati said Eskom was “dealing with a different problem – more electricity supply than demand”.

“At the time, the country was reeling from load shedding and we signed contracts with independent power producers at huge prices. Signed contracts are called ‘take or pay’ – meaning regardless, you have to pay…”

Eskom spokesperson Daphne Mokwena, concurred, saying the National Transmission Company of South Africa (NTCSA) – a designated buyer of the section 34 IPP power purchase agreements – would “continue to honour the remaining tenure of the contracts, the first of which were concluded 13 years ago, under the Renewable Independent Power Producer Programme bid windows”.

Utility has to honour tenure of contracts

Mokwena said: “In order to maintain investor confidence in the electricity sector, it is critical that the NTCSA continues to honour and abide by our undertaken contractual terms.”

On unbundling, Nyati said the turnaround strategy was “not privatisation”. It involved the legal separation of Eskom into three distinct entities – generation, distribution and transmission – “a crucial component of Eskom’s turnaround plan”.

In July, the department of public enterprises, Eskom SOC Holdings Limited and the NTCSA announced the NTCSA has commenced trading – a milestone marking the NTCSA’s establishment as a duly constituted separate, distinct and wholly owned subsidiary of Eskom Holdings.

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