Eskom Megawatt Park, courtesy of Eskom's Supplementary and Divisional Report 2013

Lead Opinion South Africa

Eskom’s engineered privatisation at the hand of forced Renewable Energy IPPS!

Phapano Pasha

Where are the black intellectuals and black businesspeople when White minority and foreign capital including the politically connected within the ANC  are about to benefit from another self-invented social grant scheme worth over R1.4 trillion in the form of IPPs that will see dividends flowing out of this country for the next 15 years?

 

 

 

Prominent Energy Industry players have repeatedly indicated that the landed costs of producing a kilowatt hour(kWh) from Renewable Energy Independent Power Producers’(REIPPs) costs are approximately 209 cents per kWh compared to Eskom’s costs of producing a kWh below 60 cents per kWh.

 

 

 

This simply means that Eskom must buy electricity from Independent Power Producers at 209 cents/kWh but sell it at 84 cents/kWh whilst the 125 cents/kWh deficit is to be covered by the consumers and at the expense of sustainable jobs shed out by Eskom base load generation plants and the coal mines that supply the coal fired power stations.

 

 

 

Besides shedding jobs at the Eskom Baseload Power Stations. South Africa was in desperate need for power to curb the load shedding in the recent past but Eskom is now sitting with a surplus capacity that is equivalent to a 4 000 MW baseload power station, this puts Eskom and the South African economy in a good space to plan properly for the economic growth that will require additional power anticipated from years 2022 to 2030.

 

 

 

South Africa has all the time in the world to negotiate with power generation vendors and investors on a power generation technology that will serve the best interests of the citizens (jobs) and our industry. The intensity to force Eskom to sign Power Purchase Agreements(PPAs) and to purchase renewable energy through Independent Power Producers which are twice the price of coal should serve as concern to ordinary South Africans that those who raised valid and non-antagonistic arguments against these expensive REIPP like Matsela Koko and Brian Molefe were castigated and posited as corrupt and  captured by the mainstream media without being found guilty by any court of law, thereby deviating South Africans from interrogating the pros and cons of these Renewable Energy projects which will cost South Africans more than R1.4 trillion over a next 20 years period cycle.

 

 

 

 

 

Note “A 20 years period cycle” because after 20 years the assets on the ground become obsolete and have to be replaced by brand new equipment which will lock South Africa into trillions of Rand that are currently unknown. On the 2 200 MW plus Power Purchase Agreement (PPAs) Bid Window 4 and 4b that the RE IPPs are seeking the government (DOE) and Eskom signature on, a figure of 61 000 jobs to be created is quoted, the Honourable Minister of Energy Mr Jeff Radebe also alluded to the fact that these RE IPPs will be rolled over 5 years with over R56 Billion spend, however the Honourable Minister does not outline what will happen to the 61 000 jobs after 5 years when  both the Wind Turbines and Solar Mirrors have been constructed and implemented as all these Wind Power Turbines and Solar Power Mirrors will simply harvest nature with minimum people employed compared to any other power generation technology?

 

 

 

Is this also not an unfortunate misrepresentation of facts either by the RE IPPs bidders or the honourable Minister since the number of jobs that have been created and sustained by the previous 5 000 MW RE IPPs during Bid Windows 1, 2, 3 and 3.5 and 2. A after the initial phase of constructing Wind Turbines and Solar Power Mirrors were not even substantive? It cannot be our very own government that destroys Eskom in order to entrust private RE IPPs to assume the role of a State Entity.

 

 

 

 

Private business exists solely for one purpose only and that is to maximise their profits and it is unethical for any government especially in an undeveloped and unequal country like South Africa for public funds to be used to build and sustain an energy sector that will ultimately privatise its profit . In an internal report by the National Union of Metalworkers of South Africa(NUMSA), the labour union lament that the introduction of IPPs will result in  a loss of 30 000 jobs which will threaten 6000 direct baseloads power stations and thousands of jobs in the mining and transport industry and because these IPPs will be directly competing with Eskom, the state entity will have to review its staff compliments and cut back on the coal contracts.

 

 

 

Another Union, The National Union of Mine Workers(NUM) has also bemoaned the distraction and disruptions that IPPs will have not only on jobs but on towns whose livelihoods and economic activities rely on coal mining and Eskom Power Plants such as Kriel, Witbank, Middleburg and Ermelo. Why force Eskom to approve these 20 years renewable/recycled contracts? The hard cold facts are that the RE IPPs simply have no short or medium term benefits  for the majority of South Africans who for more than twenty three years are yet to reap the real benefits of economic freedom. A disheartening fact which was alluded by the Honourable Minister Jeff Radebe, on behalf of the Department of Energy was that less than 8% of black businesses were part of the 27 Independent Power Producers which will benefit from these R1.4 Trillion RE IPPs deal.

 

 

 

Surely this is another economic program were blacks are taken for granted by a governing which claims to be representing them but for more than two decades has dedicated its efforts including legislation to benefit the White minority. As far as we know the primary owners of the RE IPP assets are a mix of Foreign investors and leading local banks like ABSA, Standard Bank, Investec, Rand Merchant Bank, Nedbank and a few politically connected comrades through investments funds schemes that are underwritten by the very same leading South African Banks.

 

 

 

It is therefore not inconceivable to conclude that international companies and The Original Equipment (i.e. the OEMs) owners for the Renewable Energy Independent Power Producers will just construct and manage their RE IPPs assets (Wind Towers & Turbines and Solar Parks) during construction phase over 5 years during which time there will be some reasonable jobs created but will then simply harvest the profits for the remaining 15 years and  get paid for doing absolutely nothing except for minimal jobs sustained here and there whilst dividends will be flowing out of this country? Not only will Eskom be forced to be on standby as and when this “intermittent” IPPs power producers don’t function when there will be no wind or sun,  it simply does not make sense to buy something at twice the price of coal.

 

 

 

 

In industrialised countries like the United States of America, Japan and Germany clean energies are just like candles in the bigger scheme of their industrialisation project as this countries still heavily rely on nuclear and hydrocarbons to generate power, hence they can afford to slowly phase in RE IPPs whilst South Africa, a developing economy is deploying these RE IPPs at a higher and faster rate than the developed economies.

 

 
Why are these European countries selling these ideas of RE IPPs at alarming rates to Africa and South Africa in particular and not taking them to their own countries at such pace and scale such as here? Could this RE IPPs be an effort to revitalise the ailing European economy which are not even using the same “clean energy” at the expense of an ailing and developing economy like South Africa?

 
The Minister of Energy and the Eskom Board have been hardly in the office for two months, but they must now sign PPAs that will destroy the very same Eskom they are supposed to protect.   It is clear why former Eskom Management and some of its Board members were crucified by the mainstream media  for their reluctant to sign these long pending IPPs (i.e. both RE IPPs and two Coal Fired Power Stations IPPs).

 

 

 

No director of Eskom who through his/her fiduciary’ duty of running Eskom and its business in the best interests of the South African government (thus the citizens) will “knowingly” sign the Power Purchase Agreements (PPAs) of the IPPs (of any technology) that will lead to the liquidation of Eskom in the next three decades.

 

 

 

What is really at Stake?

1. The following points are an attempt to show the real crux of the matter with regards to the private hands that are taking advantage of the Eskom Financial challenges:

 

 

2. Eskom Deteriorating Balance Sheet Eskom is in financial distress this is a well-documented fact; therefore, a turnaround strategy is required to rebuild the Eskom Balance sheet however technically speaking there is no business sense or business case for the IPPs for a developing country like South Africa.

 

 

3. The total power generation in South Africa is about 40 000 Megawatt to 42 000 Megawatt (MW).  These additional RE IPPs will take their share from the current 5 000 MW to 7 300 MW at the expense of a “State Owned Company” Eskom. This would mean up to 20% of our electricity generation will be privatised and placed in private hands whilst tax payers will bear the brunt of such a decision through electricity tariffs.

 

 

 

4. The real and major beneficiaries of the 27 RE IPPs (and the past ones) are the South African leading banks followed by overseas investors. The Black Empowerment Companies that partner with the local banks and overseas investors will only benefit between 20% – 30%, 70% goes to the local banks and overseas investors. Local banks borrow from international investors anyway. So, the whole 70% leaves South Africa one way or the other.

 

 

 

5. The RE IPPs bidders are not obliged to select consultants and contractors as per South African government Transformation Agenda and Interventions requirements. It is entirely up to RE IPPs bidders who they hire, the terms they hire them under and when the hire them. The past RE IPPs for Bid Windows 1, 2, 3 and 3.5 have demonstrated these trends. All of this means that the South African government has no say in driving and ensuring maximum transformation or radical economic transformation in the RE IPPs as they are private contracts.

 

 

 

6. RE IPPs are a nightmare for first world countries and developed economies. What is going to happen to a vulnerable tiny economy like South Africa were IPPs benefit no one else but the bidders themselves and over 80% of the profits of IPPs will leave our shores.

 

 

 

7. The 27 proposed RE IPPs will re-energise the economy for up to a maximum of 5 years. After that they would become a cash cow for the private interests at the expense of Eskom and the South African citizens.

 

 

 

 

8. IPPS are Twenty Year Ever Green contracts, whilst the capital equipment is imported, the cost of RE IPPs twice as much as that of coal and the beneficiaries mostly foreign companies; The is absolutely no benefit for South Africa and her citizen. Is this Radical Economic Transformation?

 

 

 

 

9. Eskom is forced to sign the Power Purchase Agreement with the IPPs who are not even negotiating prices with Eskom but are proposing predetermined prices as agreed with the Department of Energy; So, Eskom which is already Producing Power is forced to buy power from these IPPS and sell it back to consumers at twice the price.

 

 

 

 

10. Any proposal that seeks to compete with Eskom is not helping the situation but it would simply aggravate its financial challenges in the long term. Hence the proposed 27 RE IPPs will do nothing else but will worsen the Eskom situation in the medium to long term.

 

 

 

 

11. All of these point to one thing and that is that what was Eskom’s roles of providing and guaranteeing electricity availability in South Africa to power the economy is now placed and put into private hands.

 

 

 

 

12. All indications are there that the RE IPPs will follow the Telkom model which as of June 13 2016 was exempted by the then Minister of Finance Pravin Gordhan from the provisions of the Public Finance Management Act(PFMA) as well as those of Preferential Procurement applicable to Public Entities. A draconian act to exclude black businesses from procuring major services at Telkom.

 

 

 

13. The Unions would have no say or would have very limited say in these private RE IPPs contracts Why this urgent need to slip in very these expensive Renewable Energy Independent Power Producers when there is actually no urgent need for additional power right now?

 

 

 

 

It is a well-known fact that South Africa will need more power around 2021, 2023 to 2030. A right power generation technology in the interests of South African must be chosen now but not rushed through the back door as these IPPs are done. In fact if ever there was a Business Case for IPPs then these IPP bidders would be in Zimbabwe, Namibia, Botswana, Zambia and Mozambique where there is currently demand for power.

 

The only reason they are not there is because these IPPs simply don’t make economic sense for any African country. Scientist the world over also argue that what we call renewable energy is not actually renewable energy in a true sense of a word because the sum total of producing the steel material for manufacturing Wind Towers from which the Wind Turbines rest to harvest wind power are produced in the steel manufacturing process where an equivalent of around 250 of coal is burned to produce one Wind Tower.

 

This proves that in retrospect Renewable Energy does come at the expense of burning “polluting technology” like coal.   The underlying motto here is that “nothing is free under the sun” and certainly the Renewable Energy comes at huge costs in many ways. It is only reasonable that the Honourable Minister allows a transparent debate on this issue as this is a very sensitive issue with huge implications for the country and Eskom in years, the African economies are simply not in a position to accept massive rollouts of the RE IPPs.

 

In fact, South Africa is simply not in the good space to allow Independent Power Producers (IPPs) on any technology kind. Our government relies on the SOEs to have any control in stimulating the economy of the country. Any encroachment of IPPs of any technology will take Eskom out of business, thus the State will lose the grip in having its handle to power the economy. To give example: Telkom has gone this route. Lots of jobs were lost and Telkom turned around on Rural Customers to say they will no longer be installing new lines.

 

That is why no businesses in the rural area has a fixed line. The government cannot compel Telkom to assist Rural customers. RE IPPs are a big hole and a trap that will look good for the first 5 years and will become a permanent pain for the next 15 to 20 years of their life when the assets on the ground will become obsolete and new investments into their replacements will have to started all over again. They will become a vicious cycle and a nightmare for the economy of the country.

 

The RE IPPs are nothing else but an attempt to privatise the business of our SOE Eskom. This is done without proper consultation, the public taken into confidence and the key diverse stakeholders being given an opportunity have their say on what is really good for South Africa and its economy and nothing else but an attempt to privatise the business of our SOE Eskom.

 

The reality is that if IPPs just like “Free Education” benefitted the majority of South Africans , we would have seen the mainstream media positing it as corrupt and asking were the money would come from whilst “White” interest groups such as Helen Suzman Foundation, SAVE SOUTH AFRICA, FW De Klerk Foundation and Freedom Under Law in “the interest of transparency and good governance”  would be forcing the Honourable Minister to publish all the local shareholders, local banks and international investors of these IPPs including political heads in government and their families who might stand to benefit from this deal.

 

In any event whatever we do in South Africa and whatever decision is taken by the ANC led government is really a transfer of wealth from the poor to the rich.

 

Our silence on the RE IPPs and other gatekeeping mechanisms which seek to entrench White privilege and benefit the politically connected through legislations such as MFMA, PFMA and CIDB Act are but a manifestation of the power of information and what propaganda has achieved thus far to psychologically manage us from fighting for our own self determination and disrupting the systems which has concealed the extend of greed and corporatocracy by the private sector and the ANC political elite beneath the facade of common good.

 

 

By Phapano Pasha

Phapano Pasha
Political and Social Commentator

 

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