VGBE, a technical association of power plant operators, is leading an international consortium appointed by National Treasury to review Eskom’s coal-fired power plants and advise on operational improvements, a move some observers regard as a precursor to privatising its fleet.
Eskom is a member of the association, which is based in Germany. Other companies in the consortium include Steag Power, a German energy sector turnaround expert, and engineering specialist KWS. Another German company involved, RWE Tech, describes itself as “supporting companies and organisations worldwide in their activities related to the energy transition”.
Treasury said the four-month review is required to determine which of Eskom’s coal-fired plants can be improved to original equipment manufacturer standards.
Finance minister Enoch Godongwana announced a R254bn debt relief programme for Eskom in his budget speech on Wednesday. One of the conditions attached to the package is that the stricken utility concession the coal-fired fleet to the private sector.
Duncan Pieterse, head of assets and liabilities at Treasury, said the companies were selected for their experience in running different types of energy-generating plants and advising utilities worldwide on operational improvements and the transition to renewable energy.
“Their scope is simply to review all of the coal-fired power stations in the Eskom fleet, to do an operational assessment — coal, staffing, anything related to how the power plant is organised, how the coal quality is managed, how human resources are managed, how security is managed,” Pieterse told Business Times.
Teasury and Eskom had held initial meetings with the appointed companies and a report was expected within four months, he added.
“Those recommendations from their report will then be further used to inform the operational conditions that are attached to the debt relief programme,” Pieterse said.
South Africa received $8.5bn (about R157bn) in grants, concessional loans and other finance instruments from Germany, France, the US, UK and EU last year to assist the government in its transitional to a green economy, with a specific focus on energy. In terms of the deal, South Africa has committed to cutting its greenhouse gas emissions by 1.5 gigatons over the next 20 years by, among other measures, converting some of its coal-fired power stations to producers of renewable energy.
Yet there is deep opposition within the ruling tripartite alliance and in government regarding the pace of the so-called just energy transition while South Africa has an abundance of coal and the need to maintain a reliable baseload for the national grid.
Attempts to concession Eskom’s coal fleet to the private sector could also face stiff opposition, especially from unions seeking to protect jobs at those plants.
The raising of concessioning of power stations is a complex and fraught issue, which I think the National Treasury is raising to show that generation is not going to be the same going forward ... it’s going to be exceptionally difficult, given that people will struggle to get insurance and financing to run coal power stations in the private sector
— Peter Attard Montalto, head of capital markets at research and consulting firm Intellidex
Cosatu said in response to the debt relief package that the conditions should not include “a fire sale of Eskom’s assets”.
“Eskom needs additional support from Treasury to reduce wasteful expenditure and law-enforcement institutions to tackle the endemic corruption and criminality crippling it and its infrastructure,” the labour federation said in a statement.
Still, Treasury's acting director-general, Ismail Momoniat, said the assessment and plans for future concessioning were a recognition of the need for private participation in the operation of the coal-fired fleet.
“I think those mechanisms ensure we can get at least private expertise and investment, as well to assist us in how we run our coal plants. There’s still a long way to go,” he said.
Pieterse said that in deciding on the R254bn package, Treasury had looked at the amount of debt that needed to be removed from Eskom’s balance sheet for it to become a sustainable company, and balancing that with the amount government could absorb without incurring fiscal risks. Bondholders and other investors, with whom they engaged on Wednesday after presentation of the budget, would hopefully see the intervention in a positive light, he said.
“If you are an investor in this company, what should be comforting to you is that the entire debt burden of this entity for the next three years is being dealt with,” Pieterse added.
Peter Attard Montalto, head of capital markets at research and consulting firm Intellidex, said Treasury was looking to bring in “completely independent outsiders” to get an impartial view on Eskom’s assets as part of the conditions for the massive debt relief.
“The raising of concessioning of power stations, however, is a complex and fraught issue, which I think the National Treasury is raising to show that generation is not going to be the same going forward,” Attard Montalto said.
“In reality, it’s going to be exceptionally difficult, if not impossible, to achieve, given that people will struggle to get insurance and financing to run coal power stations in the private sector.”
Mark Swilling, programme co-ordinator of Stellenbosch University’s Sustainable Development Programme in the School of Public Leadership, said Treasury’s provision for such a massive equity injection comes with an expectation that Eskom changes its primary business model from generation to transmission.
“For Treasury to hold Eskom accountable, it will need a measuring stick for power stations that should be maintained and those that ought to be shut down. They need to measure that, and this is what the consortium will provide them with,” he said.
Swilling said while many believe Russia’s war in Ukraine had triggered a long-term return to fossil fuels, even Germany has massively expanded its commitment to renewables after temporarily reopening some coal plants at the start of the conflict.
“As people realise how volatile fossil fuels are due to the war, it reinforces the case for renewables. So in South Africa it’s better to build a new renewable plant than to keep a fossil-fuel plant going. The business case is pretty clear,” he said.
While there is speculation that the consortium’s work will result in the privatisation of Eskom’s coal fleet, Swilling said it may be inevitable in any event, given the lack of political will from the government to modernise the fleet.
“Given that Eskom, for political reasons, has not cleaned up the power stations, selling them off might be privatisation, but it also may be the only way those stations will be cleaned up,” he said.
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