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Jan de Lange

Eskom must prove competence

Jan de Lange | Mon, 19 Oct 2009 09:19
[miningmx.com] -- IN the coming months South Africa will be chatting about electricity more than ever before. Electricity prices, as we now know, will probably rise 45% a year for three successive years.

Cosatu is likely to launch mass action - perhaps even call out a countrywide strike. Many interest groups will make submissions to Nersa about the proposed increases.

In February or March next year Nersa will be holding a public hearing on the matter. Many civil groups and organisations will be objecting and testifying as to how the proposed increases will impoverish their members.

"I am deeply convinced that we have to choose between much more expensive electricity or no longer having a reliable electricity supply," said Eskom chairperson Bobby Godsell in an interview with Sake24 last week.

These are weighty words with enormous implications for everyone, but they come from one of the country's most respected public figures. Just take a look at Eskom's 92-page tariff application that was published on the electricity giant's website last week - the facts underlying Godsell?s statement are well founded.

Nedlac is unlikely to hold another summit as it did on last year's increases, hoping to force a more lenient tariff settlement from Eskom. There is no space or time for that. Eskom already has government support for the proposed hikes.

The reasons for Eskom's application to raise electricity tariffs are beyond question. Even before the electricity crisis in January last year there were several power-industry analysts who reckoned drastic increases of up to 200% were already unavoidable.

Eskom's numbers and funding requirements to complete its construction programme should not be the main consideration when Nersa decides whether it will permit the electricity giant to inflict such hardship on the country. There are other issues that should concern Nersa more.

These relate to statements made by Solidarity deputy general secretary Dirk Hermann last week to the congress of the South African Chamber of Commerce and Industry: that government can forget about any policy options until it raises the capacity of the public sector to a point where policy can effectively be applied.

A reshuffling of policy stances like affirmative action, land reform and black economic empowerment are actually a fruitless waste of time. An average of 23% of the positions in the public service are vacant - and in categories demanding high levels of skill the percentage is considerably higher.

There are about 1 350 civil engineers in local authorities, equating to three per 100 000 of the population. A decade or so ago the number was 21 per 100 000.

At the same time, public services and infrastructure have been expanded to serve a section of the population that is many times larger than before.

"The situation is, quite simply, that perfectly formulated policy will fail at the application stage because of the large number of vacant posts and lack of skills," Hermann said. Does this apply to Eskom? If so, Nersa cannot approve Eskom's application.

Something seriously amiss

The electricity crisis that on January 24 last year resulted in the suspension of electricity to the mining industry is an indication that something is seriously amiss at Eskom.

To date Eskom chief executive Jacob Maroga has declared on various platforms, as well as in Eskom's previous Nersa application, that the reason for the crisis was Eskom's low reserve margin (the difference between its peak generating capacity and its peak demand for electricity), which is currently between 8% and 9%. It needs to be more than 15% to guarantee a reliable electricity supply.

More recently Godsell publicly admitted what everyone knew: that Eskom had made a hash of supplying coal to power stations. "If coal-fired power stations have no coal, you have a problem," he quipped. Then, on a serious note: "We have messed up. We apologise."

It was a R50bn bungle, Godsell. But that's in the past, it's water under the bridge.

What is troubling is that six months earlier Maroga received a report from American consultant Susan Olsen - which bluntly warned that Eskom's coal operations were heading for collapse - and Maroga had done nothing in those six months to avert the crisis.

"The Eskom board is currently examining the report. It is analysing the validity of her criticism when it was delivered, as well as whether there was any part of her criticism that was not fully addressed. The board has a list of her points of criticism and a list of management's responses," Godsell commented.

He believes the report raises extremely important issues. A private-sector chief executive making an error such as this would quickly be ousted. Reflect back on how abruptly Bernard Swanepoel departed a little over two years ago when an error was discovered in Harmony's financial results - for which he himself had not even been responsible.

This appears not be Maroga's fate, despite the board?s scrutiny. Why not?

Could it be that he knew that Eskom?s coal division did not have the capacity to act? If so, has the capacity in terms of skills since been taken on board? If Eskom still lacks those skills, the tariff hike should certainly not be approved.

Or did Maroga perhaps lack the managerial ability to act? Eskom's coal procurement is an enormous business with many vested interests. Might there have been political influence preventing him from taking action?

Eskom's R385bn construction programme is even bigger than the arms procurement programme of the 1990s, which is today better known as the "arms deal scandal".

Godsell retired from AngloGold Ashanti after a glittering career. It's difficult to imagine that he would permit his life's work to be sullied by a similar scandal.

But even with his credibility underpinning the Eskom application, Nersa should insist that the utility prove its competence in terms of expenditure before the tariff hike is approved.

- Sake24.com



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