Page 59 - IRMSA Risk Report 2020

EXPERT OPINION
EXPERT
OPINION

ROBERT KOCH
SENIOR MANAGER: ENTERPRISE RESILIENCE, ESKOM

The risk has deteriorated, considering Eskom’s financial position and coal fleet performance (energy
availability in Dec 2019 reached historical lows). Whilst the Integrated Resource Plan (IRP) was
approved in 2019, implementation is slow. Measures are being implemented to address corruption.

A factor not generally considered in debating this risk is the complex inter-relatedness between
decisions that affect the sector. The consequences of sometimes well-intended interventions are
often not adequately anticipated and addressed.

The key impediments that prevent SA from effectively dealing effectively with this risk are:
• System constraints, requiring the risk of load shedding if maintenance is to be undertaken.
• Governance, policy delays, lack of Board independence, inefficient industry structures, and
corruption.
• Lack of stakeholder alignment due to vested interests (government, coal, nuclear & renewable
industries, unions, business, local communities)
The key indicators (flags) that are indicative of how this risk may play out in future are:
• Leadership: the tone set by the new Eskom CEO/Board.
• Support for an integrated recovery plan that addresses (i) the maintenance/refurbishment backlog and performance of Medupi and Kusile, (ii)
immediate capacity solutions that balance cost and risk-taking related to load shedding, (iii) execution of the IRP.
• Support for a financial recovery plan that addresses Eskom debt, revenue, and non-payment.
• Support for approach to addressing structural inefficiencies.

Key interventions for effective risk responses are:
• Maintenance: prioritising generation recovery over short-term goals, such as avoiding load shedding “at all costs”.
• Capacity: short-term power procurement and expediting grid access for distributed generation and battery storage.
• Accountability: Setting up the conditions for accountability.
• Skills: addressing the loss and attraction of critical skills.
• Governance: Addressing inefficiencies at all levels.
• Vision: Fostering a collective mind-set that positions the sector for the future, rather than a “return to the past”.

PAUL NEL
ENERGY LEAD: AFRIC A, AURECON
The electricity crisis is still getting worse and will only improve once the finances and performance
have been turned around.

Facts that are not considered are the risks that have been neither fully understood nor widely shared
yet. These include the impact on labour and the concept of a “Just Transition” – specifically how this
relates to the timelines proposed for the unbundling and decommissioning of Eskom and/or parts of
Eskom. The key impediments that prevent SA from effectively dealing with this risk are:
• Lack of skilled personnel who understand the complexity of thermal power generation;
• Various stakeholders’ vested interest in coal mining; and
• The high rate of unemployment and the perception that this will increase with the closure of
thermal power stations and associated mines.
• The key indicators (flags) that are indicative of how this risk may play out in future are:
• The release of the Round 5 procurement programme for private renewable energy projects;
• The meeting of timelines proposed in the Turnaround Plan – specifically the rate at which
Eskom is to be unbundled;
• The timeframe for the stabilisation of Eskom’s technical performance; and
• A turnaround of finances.
Key interventions for effective risk responses are:
• Ensuring the Turnaround Plan and IRP are implemented as comprehensively as possible; and
• Recognising the opportunities: the ability to create an open energy market and ultimately allow for lower energy prices.
The alternative to tariff increases is a bailout from Government, but the Government already guarantees R350 bn of Eskom’s R440bn debt. National
Treasury expected national debt to reach R3tn in 2019, increasing to R4.5tn over the next three years, so there is little room for additional borrowing.
Bold policy reform is needed, such as reducing Eskom’s wage bill, selling assets, and appointing staff on merit. Government could also consider allowing
profit-seeking private competitors to enter the market. Until these core problems are addressed energy constraints will continue to head off any prospect
of SA maintaining emerging market growth norms.

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