IPPs, renewable energy projects didn’t cause Eskom’s challenges – Ramaphosa

President Cyril Ramaphosa told parliament today that the severe operational and financial challenges that are currently being experienced by Eskom are not caused by the Independent Power Producer (IPP) programme and in particular, the renewable energy projects.

Ramaphosa was responding to a question by EFF leader Julius Malema on what the total cost is to the power utility of the IPPs that signed the latest round of power purchasing agreements (PPAs) with Eskom and, secondly, whether it has been found that the PPAs will collapse the power utility if not cancelled immediately.

The president said Eskom’s challenges have been driven by a number of factors, which include massive costs and time overruns on the new build programmes of power stations.

Ramaphosa said the effects of state capture and corruption also contributed to these cost overruns.

“The collapse and weakening of governance structures at Eskom also had an impact and unsustainable debt levels that Eskom accumulated,” Ramaphosa said.

The maintenance of Eskom’s current plants is another problem, with the age of some of these plants a concern.

“On average, some of the plants are 37 years old. The IPPs are investing their own debt and equity to construct the projects they are awarded,” Ramaphosa said.

He said the value of the 27 IPP agreements that were signed in April 2018, in terms of private sector investment, was R57 billion.

To date, the total value of private investment in South Africa’s renewable energy capacity is R202 billion, the president added.

Ramaphosa said it is expected that a total of 372 megawatts will be connected to the grid between now and March 2020 and that Eskom will buy R170 million worth of electricity in the 2019/2020 financial year.

The president said the IPPs’ costs are fully covered by  the National Energy Regulator of South Africa (Nersa) through the cost recovery mechanism in the multi-year price determination process.

“In other words, the cost that Eskom incurs buying electricity is covered by the tariff,” the president said.

He said the costs of the most recent power purchase agreements will only be incurred when these plants are constructed and connected to the grid.

“The costs will therefore not collapse the power utility,” Ramaphosa said.

He said Eskom faces serious structural and financial challenges and that government is working closely with the power utility, and has embarked on a range of measures to respond decisively as well as with urgency to the challenges.

The president said to support Eskom’s financial turnaround plan, which focusses on driving efficiency and reducing costs, government has allocated – as announced by Finance Minister Tito Mboweni – R23 billion a year for the next three years to support Eskom during its reconfiguration.

Ramaphosa said in turning its operations around, Eskom developed a plan focussing on resolving unplanned breakdowns, addressing the performance and reliability challenges that affect new units at Medupi and Kusile, improving coal stocks, and strengthening human resource capacity.

He said the plan is to restore Eskom into separate state-owned entities responsible for generation, transmission and distribution.

“The proposed restructuring is in line with the 1998 proposed policy white paper,” Ramaphosa said.

He said contrary to what some have claimed, the restructuring of Eskom will not result in privatisation.

Watch the president give oral replies to questions in the National Assembly:

(Compiled by Makhosandile Zulu)

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