Sunday, 30 September 2012

Eskom's infrastructure cost breakdown

The Eskom Success Story
03 August 2012

Recently a mining company released its cost structure and it was noted that their profit margin dropped drastically due to high cost of electricity.(Harmony)

In 2008 we experienced a major catastrophe when our power provider Eskom could not meet the power requirements of the country and we were forced to endure load-shedding at its worst.

This was due to several factors – bad management of coal supplies (cancellation or not renewing supply contracts) and lack of planned maintenance of power plants being the major contributors to the problem. We also had the loose bolt story at Koeberg, and the  conspiracy plot theory (Mr. Alec Erwin) to put up with, as well as Ms Sonjica saying that we should go to bed early to become wiser.

No forward planning of building of new power stations, as this proposal was deemed to be an unnecessary expense at this point in time. As there was an abundance of power available. In fact during the late 1990’s, and early 2000’s saw several older power stations be imploded in the Vaal area.

We apparently according to newspaper reports, at that time and also recently again in the press, have the cheapest power supply in the world. The comparison apparently done using exchange rates and prices in the various countries, but not taking into consideration cost of living and actual salaries earned for equivalent jobs (buying power of the salaries earned).

All this while Eskom employees were and still are earning top-dollar and getting bonuses for excellent performance, even 14th and 15th cheques, and working in excellent working conditions and getting top of the range computer equipment, they recently upgraded work stations of certain staff and it was  found that the software that was used was not compatible and that they had no funds to buy the new software, resulting in people sitting around unable to do their work, this problem has hopefully since been resolved.

Since 2008 we the public have been hit with massive increases of around 25% plus per year, Eskom recently applied to Nersa for further increases of around 14,6% to 19% per year for the next 3 years, as they need in excess of  R1 trillion (12 zeros following the 1 ) for future development. Eskom also wants the public to be paying .90c per Kilowatt hour by 2018, so that the public pays a cost reflective price for power.

The above is strange, because as a purchaser of pre-paid electricity I am currently paying R1-049 per kilowatt hour (R500 bought 476.7 units – on 01/08/2012), which then seems to be more than cost reflective?

In a recent bar graph (NUS Consulting Group – reproduced by Graphic24) , comparing countries prices for electricity, South Africa came in 11th against the western world countries on the table at -74c per kilowatt hour. Great Britain came in at R1-01 and Spain at R1-10, so according to this table it will appear as if some of us are living somewhere   between these two countries and not where we thought we were.

Meanwhile Eskom has been providing under cost power to the aluminum industry and will contractually be doing so for the next 16 years, somewhere in the region of  .12c per kilowatt hour (but this figure can not be confirmed – as it is a secret contract), and they have since the decline in the aluminum market been “buying” back power from the industry for smelters that are not being used and would not have been used in any case.

There are probably more such cases with the big mining groups for the supply of power at next to nothing prices, while the general paying public foot the bill of mismanagement.

Apparently in 2011 it cost Eskom around .28c to produce a kilowatt hour of energy according to an article of that time. The public are now supposedly paying around .74c per kilowatt hour, the public are probably the municipalities who purchase and then resell to the households for a profit, and if you are a prepaid customer a further collection agent comes into the equation as he is probably buying from the municipality and he too has to make a profit thus explaining the cost of R1.049.

During the last year or so Government has not been taking its dividends “profit” of R7.7billion in order to assist in the public and help bring down the increases, thank you government for being so gracious. But why Government should have been earning a dividend on the whole issue is a concern, are the public at large not paying enough taxes to support the structures that are or should have been in place?, and could these “dividends” not have been used through the years to upgrade the grid infrastructure (especially when the exchange rates were more favorable) to ensure a consistent and reliable source of energy  supply.

Eskom borrowed $3.75 billion (R30,000,000,000 at R8 to the $) from the world bank in April 2010 for the Medupi power station.
Further loans were made for renewable energy projects (which will supposedly become operational in 2014?, provided  proper project planning is done and all factors are taken into consideration) –

June 2011 – African Development Bank – US365M (R2,46 Billion) for the Sere wind power station 300Km north of Cape Town, and the Upington  solar power project.

September 2011 – French Development Group – Euro100 Million (R980million) for the Sere wind Project.

November 2011 – The World Bank - $250Million (R1,93 Billion) for the Sere wind project and the Upington solar project.

Medupi power station, was scheduled to start providing to the network in 2012, and this now appears to have been moved to possibly March 2013, several sub-contractors burnt their fingers getting involved with this project, which they apparently “under-quoted” and have basically lost everything.

Kusile power station initially would have started supply by 2013, but the first unit will apparently only be supplying power by 2014 with the rest of the units coming on line every 8 months until full production is attained by 2018.

Eskom maintenance staff working 12 hour shifts have been working hard at maintaining the current infrastructure, the project planning of this obviously is done a lot better than with the building of the new power stations.

In conclusion the current management of Eskom must be congratulated in their efforts to supply us with a necessary commodity, but the only down side is that this is coming at an enormous price which could have been avoided if timeous action had been taken.

Government/Nersa also need to take a serious view on the price of energy supplied by the municipalities to the home consumer.  Eskom further need to revisit the contracts with major corporations, this may need some form of intervention as this is placing an unfair burden on the public as these corporations are also the major users of the supply.  Supply to our neighboring countries needs to be revisited as well, they should come last in the queue, charity starts at home.

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