South Africa will unlikely experience load-shedding next year, as state-owned company Eskom has set its sights on improving generation capacity and starting to make profit.
So says Eskom chairman Mteto Nyati, in an interview with ITWeb TV on Friday. Nyati is former CEO of Microsoft SA, MTN SA and Altron, and was appointed chairman of Eskom in October.
During the interview, he pointed out that Eskom has gone 51 days without implementing load-shedding.
Critics have said the consistent power supply is a ploy by government to woo voters ahead of the elections. However, Nyati explains: “When it comes to a company like Eskom, you have to take a step back. You cannot just jump right in and say this is how I am going to fix it.
“No, we took the time as the new board; we invited the power station general managers and we listened to them. That’s when we began to see the trends and started to see the systemic issues that were affecting the business.
“We came up with the Generation Recovery Plan. Now it looks simple, but at the core of that is we found there were some power stations that were doing well. So, we had to make sure these power stations continued to do well. It was a maintain strategy.”
He notes the new board also discovered some power stations were contributing 70% of the power utility’s problems.
“These problems were coming from six power stations. So, from a big problem, we decided to focus on just those six. If we focused on those six, we were going to solve 70% of the problem. We also had to make sure each of the power stations was being led by somebody who knew what they are doing.
“These were the three simple measures that we took, but at the back of that was: how were we going to fix the six power stations? We then looked at our planned maintenance and if we had the funds to implement the maintenance.
“The next question was: did we have the people to fix these machines when we take them down for maintenance? We realised we did not have all of the people we needed, and decided to have discussions with the original equipment manufacturers so that they could partner with us in executing.”
Motivation matters
The other issue, according to Nyati, had to do with restating employee incentives. “We realised all of the incentives had been removed by government because the company was not performing.
“As a new board, we had to negotiate with government for the incentives. We needed to make sure the behaviour of Eskom employees is consistent with what we were trying to do. To be able to motivate them to be able to do that, we needed the incentives. We had to convince government to approve the incentives.
“We also had to make sure we had the right leaders, since most of the leaders had acting roles. We had to appoint Bheki Nxumalo as new executive for generation to drive this strategy for us.”
As to if the improved energy situation is an election gimmick, Nyati says “numbers do not lie”.
“We always encourage people to look at the data on our website. If you look at the amount of planned maintenance that we did in the last financial year, it is more than the maintenance that was done over the last three years.
“In order to do that [maintenance], we ended up using a lot of diesel in open cycle gas turbines to minimise the impact of load-shedding, while making sure we do the maintenance. We planned to have a budget of R30 billion just for diesel; that is a huge amount of money to spend on diesel, but it was a necessary investment to help us get the capacity to do the planned maintenance that is going to be a long-term solution to the problem.
“If you look at the current financial year, starting on 1 April, the budget for diesel is less than half of what we spent last year.
“We have done proper maintenance, and now that we have brought back all the equipment online, we were able to reach an energy availability factor (EAF) of 70%. A two-year plan that we approved last year said that by 1 April this year, our EAF should be 65%, then on 1 April next year, EAF should be 70%. We did not achieve the 65% this year, we only achieved 61%, but we are coming from 51%. We missed, but a month later, on 1 May, we were already at 66% EAF. Last week, we achieved a target we had planned for next year, 70%. That’s a big deal.
“We are very unlikely to have load-shedding because what it means is that the available capacity that we had yesterday [Thursday] is 32 000MW, and the demand yesterday was 28 000MW. There is a huge surplus, and that’s the same problem you have when you don’t have enough supply.
“The grid always has to get balanced – so what you do is you switch them off and we put them on what is called cold reserve. So, we are in a position where some capacity that could be used is not being used because we have over-supply, which is a good position to be in, especially as we are going into winter.”
Splitting apart
According to Nyati, the unbundling of Eskom into three separate entities (generation, transmission and distribution) is a positive move for SA’s energy security.
Last week, the Electricity Regulation Bill was passed through the National Council of Provinces, ending Eskom’s 100-year monopoly in the power sector.
“It’s something we should have done a long time ago as a country, but we should be happy that it’s happening right now. Many developed countries have long done this.”
He explains that in January, Eskom set up a board that is going to manage the National Transmission Company of South Africa.
“This entity is about buying and selling of electricity. If Eskom does not have the electricity that they are looking for, they will buy from whoever. They are not limited to only buying from Eskom. If there are independent power producers out there that are able to produce power at a rate that is much cheaper than Eskom, they will buy from them. Their interest is to provide energy to SA at a rate that is affordable.
“Structurally, it’s a difficult thing for us but it means we need to look at our costs as Eskom and make sure we are comparative. You can say it’s terrible for Eskom, but it’s making us become better, to find ways to be efficient. It’s a challenge but I know that it’s challenge that the people of Eskom will be able to do because these are smart engineers and many other professions that we have.”
According to Nyati, the National Transmission Company of SA will be operational on 1 July. Over the next two years, the focus will be on distribution and finalising the unbundling by establishing the generation company.
Diesel dynamics
He reveals Eskom has R400 billion debt. “Our expectation is that at the end of three years, we will probably be sitting at around R200 billion debt, which is a much better place than where we are.
“The good thing is that at that time Eskom is going to be profitable. How are we going to make Eskom profitable? Last year, we spent R30 billion on diesel; if we now reduce our usage of that diesel, all of that money goes to the bottom line. The next thing is because we are not going to be doing load-shedding, our revenue is going to go up. For the past 51 days [of no load-shedding] our revenue is significantly up compared to the previous period last year.
The reduced interest charge is the third element that is going to drive Eskom into profitability. “Because our debt is going to be small, the annual interest charge that we are paying is going to be lower. Our interest goes to about R30 billion, so just by reducing it by maybe a third, that goes a long way.
“When the unbundling is concluded, a significant amount of the debt, about 80%, will be allocated to the generation company, 12% to 13% will go to the transmission company and the remainder goes to distribution. As we allow these companies to go independent, each one will go with their own debt.”
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