A journey to the heart of South Africa’s darkness, with apologies to Conrad and Verne
It has been months since this writer tackled South Africa’s electricity crisis, but the October 2022 Medium-term Budget Policy Statement (MTBPS) in which government, on behalf of long-suffering taxpayers, declared that it would soon take on between ZAR120-ZAR240 billion worth of Eskom’s debt has reopened that proverbial can of worms. This de facto financial chicanery plays out against the backdrop of a very dark year for South African citizens, with estimates of around 1949 hours of loadshedding countrywide in just 10-months of 2022, eclipsing the record of 1153 hours set in the prior full year.
Can you stomach 100-plus days of 12-hour-per-day outages?
There are none among us who would welcome a ‘new normal’ consisting of 100-plus days of 12-hour-plus-per-day of loadshedding each year; and this writer would venture that everyone would gladly vote to wrest the marionette controller from the current crop of Eskom puppeteers, if given the opportunity. The MTBPS ‘Eskom debt’ solution prompted a flood of interviews, opinion pieces and news reports. A few applauded the decision, many criticised it and a handful, simply too tired to care, offered up little more than a literary ‘shrug’. This writer’s approach is to offer three fundamental, objective truths.
First, the South African government owes as much to its global creditors after this balance sheet ‘sleight of hand’ as before. Or put differently, Eskom and the South African government may operate separate balance sheets but since government is the sole shareholder of Eskom, it must stand as ultimate security for the parastatal’s debt. In an interview broadcast on Biznews.com, global energy restructuring veteran, KW Miller, explained that Eskom’s real debt represented over 75% of South Africa’s total debt. “From a country risk point of view, Eskom and South Africa are one and the same [and] putting some portion of Eskom’s debt on government’s balance sheet is nothing more than a shell game,” he said.
Second, each and every citizen of the world, likely hypnotised by the unrelenting net-zero narrative, is navigating life under the false illusion that solar and wind power can solve a country’s base load dilemma. Miller warned that the green solutions being pushed on large scale electricity producers were unsustainable and unworkable, siting on-the-ground experiences in California and Texas in the United States, and more recently Germany. “South Africa’s power woes are not going to be solved by renewable energy; [solar and wind] is good for intermittent power for pockets of demand, but this country has an immediate 30000MW base load generation problem, 35000MW to allow for enough reserve margin, that is not going to be replaced by solar and wind,” he said.
And third, being more of a subjective (sic) objective truth, is that to hand the people responsible for the Eskom fiasco more money to fix their mess borders on insanity. Pumping billions more into Eskom without addressing corruption, incompetence, mismanagement and issues around staffing levels and remuneration will deliver more of the same, being less electricity to a plug point near you.
There is some solace, however, in the broad acceptance among decision makers that the state-owned utility is teetering at the brink. Miller, who was scathing about the situation that has been allowed to unfold over two or more decades, fired the following broadside: “Eskom is as bad as I have seen in my entire career, it has every single problem you can imagine in a restructuring, financially and operationally”. He was also critical of the myriad renewables contracts that had been hastily concluded in recent years, warning that many were “wrought with fraud” and that South African citizens would once again emerge as net losers.
Three mostly objective truths and a dollop of concern
These objective truths aside, there should be some concern about the Eskom-related media posturing by the incumbent finance minister. In an article on New24.com, Minister Enoch Godongwana reportedly “defended minerals minister Gwede Mantashe against a ‘massive attack’ from renewable energy lobbies”. According to the minister, government’s onboarding of a portion of Eskom’s debt would be subject to various conditions, “including that that the utility invests in gas and nuclear power”. This adds weight to the second objective truth introduced earlier, namely that South Africa will need a mixture of coal, gas and / or nuclear to achieve adequate base load.
Sadly, local experts have issued warnings about the suitability of gas in the South African context. An opinion piece titled ‘Big gas is a huge risk for SA’, written by Richard Halsey and Richard Bridle, reveals that “most, optimised [energy] pathways only use gas in low volumes, for short periods of time”. They warn that the Department of Mineral Resources and Energy’s push for a new fleet of high-utilisation gas power plants “would be a costly mistake and against national interests”. Miller added fuel to the ‘gas is no good’ debate, saying that the country did not have access to wholesale natural gas, while questionable procurement contracts meant that South Africa’s existing diesel-powered ‘peaking’ plants were forecast to burn through more than ZAR20 billion in fuel in 2022-23 alone.
Gas plants should be used for peaking, not base load
The two Richards added that the intended use of gas plants was way more important than their total installed capacity. “A power station that sits idle most of the time will burn far less gas and cause far less greenhouse gas emissions than if the same plant is run twenty-four seven,” they wrote. “Using gas only when lower-cost and lower-carbon generators fall short of meeting electricity demand is an entirely different proposition to using gas for bulk supply of electricity”. In other words, gas is ideal for filling gaps when a country’s generation assets are under pressure, not for generating base load. Their concerns appear certain to fall on deaf ears though, given that the proposed on-again-off-again Karpowerships deal is being budgeted to operate for up to 12-hours per day, and other gas builds almost continuously.
Another worry is that our finance minister, though widely respected, exhibits the occasional ruling party arrogance. Quoted by News24.com, the finance minister complained that “any mention [of coal, gas or nuclear] was attacked by the green energy groups and the environmentalists” before taking a swipe at Germany’s recent fossil fuels about-turn by quipping, we assume tongue-in-cheek that “in South Africa, we prefer to freeze in the dark than burn coal”. Not true. It seems we will burn coal for as long as we can… And the irony is that many energy gurus support this view. “We are pushing back on this green agenda, which is a complete fraud, solar and wind does not provide the stability and the base load generation necessary,” said Miller.
Stand back and let the private sector shine light on the darkness
To fix South Africa’s electricity production issues will require truckloads of cash and a radical restructure of Eskom’s generating and transmission assets. According to Miller, Eskom has about ZAR500 billion worth of debt on its balance sheet, and an additional ZAR130 billion off balance sheet. And the utility will need around ZAR1.1 trillion just to nurse along the current coal fleet. Assuming this cash is somehow conjured up, the strategists can tackle the laborious task of putting the pieces back together and begin reintroducing light to the heart of South Africa’s darkness.
“We need to isolate the coal plants and the peaking plants and put them into a special purpose entity that will continue to provide power to Eskom,” concluded Miller. Success, he mused, would depend on government stepping away and giving up control, coupled with a no-nonsense approach to the renegotiation of all of Eskom’s operational contracts to eradicate any traces of corruption.
