Wednesday, April 30, 2008

Paying for Eskom's incompetence

Eskom wants us to pay a lot more for electricity so that it can pay for unbudgeted new power stations, right? Wrong. Eskom needs the money because its managers got their sums wrong.

After months of badly managed load shedding, and facing a long, cold winter, desperate consumers are angry but mostly resigned to Eskom's demand for 53 percent electricity price increases to cover the costs of new power stations.

Nobody disputes that new power stations are needed. Fast.

But a look at Eskom's own documents makes it difficult to understand the urgent need for extra money. Instead, the documents indicate that the real problem is Eskom management's failure to budget properly.

Who knows how much a power station costs to build? Well, apparently even Eskom didn't know.

Eskom's five-year budgets have increased substantially. Budgets jumped from R97-billion for the five years to 2011, to R150-billion for the five years to 2012, to this year's announcement of R343-billion for 2008/9 to 2012/13.

But what's being built hasn't changed enough to explain the huge cost increase.

What is apparently going to cost the most is the base-load power stations: coal-fired Medupi, due to produce at least 4 500MW and be finished in 2015; coal-fired Project Bravo, which will provide 3 200MW by 2015; hydro scheme Ingula, which offers 1 332MW by 2013; and new hydro scheme Project Lima, intended to supply 1 500MW by 2014.

We're told that a project the size of Medupi will cost about R80-billion.

But these projects aren't new. They've been on Eskom's planning log for years, so why hasn't the budget been planned before the last-minute scramble this year?

Medupi, originally on the drawing board as Projects Alpha and Charlie, has been around so long that the first sod was dug in August last year. Bravo, still unnamed, is mentioned in Eskom planning in November 2006 as ultimately providing 5 400MW (40 percent more than it now will) by 2011 (four years earlier than now planned).

Ingula started off as Project Hotel and is listed in Eskom's November 2006 planning as being at "build" stage, with the same generating capacity and deadline as it has now. Feasibility studies for Project Lima were finished in November 2000 and the government approved it in October last year - its planned capacity has increased 500MW since 2006.

Two gas-powered stations totalling 2 100MW have been at build or almost-build stage since 2006.

Even the nuclear power stations being touted this year are not new.

Eskom has said up to another 20 000MW - the equivalent of about half of its existing total generating power - will come from new nuclear stations. But this has been in the planning cycle for years.

In November 2006, the first nuclear station was at "pre-feasibility" stage and expected to provide 2 000MW. By mid-2007, it was planned for 3 000MW and now it's up to 3 500MW.

It's not a project that Eskom dreamt up in January.

And as for all those smaller projects, like rebuilding the old, closed-down power stations, they have been at "build" stage for so long that surely Eskom has figured out by now how much they'll cost and how long they'll take to fix?

In November 2006, Eskom's "capacity project funnel" planning for new power stations and transmission lines listed 43 projects, 41 of them generating plants and two transmission-line projects. These included 23 power stations somewhere between the "feasibility", "business case", "contract conclusion" and "build" stages (with projects in South Africa to provide 22 500MW), while the rest were still in "pre-feasibility", "opportunity identification" and "research" stages (SA projects planned for 13 400MW).

By July last year, about 12 000MW of generating capacity was reported as being at "build" stage in SA and about 12 500MW more at the "pre-build" stage.

Didn't this planning include proper budgeting?

The R150-billion budget, split over five years, for all of this is in Eskom's 2007 annual report.

In April last year, Eskom gave the National Energy Regulator of SA (Nersa) a new capital expenditure budget - the same one it's using now to back up its request for those nasty price hikes. The current budget plans to spend R343-billion over five years.

How is this justified if all the things being built have been on the planning list for years? Even more extraordinary is that all the big (and presumably expensive) stuff is running way behind schedule.

Are these delayed because Eskom got its sums wrong and is now desperately doing fundraising?

In January, the government told us the electricity price was only 22,1c per kW hour, but the cost of producing it was double this. Interestingly, Eskom's 2007 annual report records the cost of producing electricity as R160,90 per MW hour - that's the equivalent of 16c per kW hour.

In December, the 14,2 percent electricity price increase Nersa granted Eskom meant an average tariff of 22,61c per kW hour for this year, which Nersa said included the new build's cost.

Eskom now wants to replace that 14,2 percent increase with a 53 percent increase. If Eskom gets its way, we will all be billed more to cover up for its incompetence.

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