The South African mining industry has proposed that Eskom should sell or concession its “old” coal power plants to the private sector in a bid to improve its generation capacity and ignite economic growth.
This bold proposal was made by the Minerals Council South Africa to the Standing Committee on Appropriations in Parliament on Wednesday during public hearings on the Eskom Debt Relief Bill.
The Minerals Council represents more than 90% of the country’s mining production by value and represents an industry that is both a significant supplier of primary energy for electricity generation, but is also a large consumer of electricity.
Minerals Council’s senior economist Bongani Motsa said the private sector would be in a position to recapitalise Eskom’s old coal-fire power fleet and raise each plant’s energy availability factor.
Motsa said that the generation aspect of Eskom should be privatised and selling the power plants to the private sector was key to relieving South Africa of inadequate electricity supply.
“The government, as the sole shareholder, and with various competing economic and social objectives, would better use the billions of rands wasted on Eskom to invest in education, health and the safety of its citizens,” Motsa said.
“It can also use such resources to invest in sectors of the economy where there are actual market failures. In short, because of competing economic and social objectives, governments eventually run out of money to recapitalise enterprises in which it is the sole shareholder.”
In the event that the government is not in a position to sell the coal power station to private companies, Motsa said they commend that a public-private partnership (PPP) model is pursued.
The government is already mulling the extension of life for the Hendrina and Arnot coal power stations through PPP, and Motsa said they were unequivocally in support of this move.
“We do acknowledge and accept that, perhaps because of one reason or the other, it may not be possible for the government to agree to privatise the generation coal-fired power plants, then we say the sub-optimal option then would be for those power plants to be operated by a public-private partnership,” he said.
“The role of the private sector would essentially be providing financial resources to recapitalise these power plants. Our view is that the government has a lot on its plate.”
Motsa also said that the unbundling of Eskom into generation, transmission and some parts of distribution would not solve the country’s electricity woes because they would still be wholly owned by the government.
As a result, he said the transmission side of the business must also be concessioned to independent private players for a period of at least 15 to 20 years.
This proposal will test the government’s commitment to safeguarding Eskom’s generation business from private ownership as President Cyril Ramaphosa has reiterated over a number of times that Eskom’s restructuring into three units did not mean privatisation.
It will also play a big role into further discussions after the ruling ANC recommended that Eskom delays the decommissioning of its ageing coal-fired power stations to help minimise rolling blackouts.
Eskom was given a lifeline by the National Treasury in February in which the government agreed to shoulder R254 billion of the utility’s colossal R423bn debt over three years in a bid to address its persistently weak financial position and enable it to conduct the necessary investment and maintenance.
However, this debt relief programme came with strict conditions, including that only capital expenditure that may be undertaken for generation relates to minimum emissions standards, flue-gas desulfurisation and required maintenance.
Cosatu’s Parliamentary Coordinator, Matthew Parks, said they were “deeply concerned” by some that the prohibition of Eskom investing in new generation capacity, saying that it made no sense.
Parks said one of the fundamental causes of load shedding was that Eskom’s generation fleet was nearing the end of its life span.
“Whilst it will take time for new generation to come onto the grid, and the immediate focus of Eskom must be on fixing existing infrastructure, if we are to ensure the long term sustainability of Eskom and to prevent load shedding becoming a permanent feature of the economy, then we need to not only fix existing generation infrastructure but also to invest in new generation capacity,” Parks said.
“This condition will ensure that Eskom will in the long term continue to spend money on ageing and expensive infrastructure when it needs to begin moving towards building new, modern, more efficient and less costly generation capacity if it is to survive and the nation to be protected from permanent load shedding.”
As a result, Cosatu has proposed that the prohibition on Eskom investing in new generation capacity be removed from the debt relief package.
Cosatu also proposed that all customers should move to prepaid electricity to end the rising levels of debt owed to Eskom and to ensure that it has the necessary cash flow, and for the government to pursue, even legally, all debt which is recoverable.
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