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Eskom gets approval to extend power contracts

But where is the cash to pay for it?

National Energy Regulator (Nersa) has confirmed that it granted Eskom approval to renew existing Short Term Power Procurement Programme (STPPP) agreements to buy electricity from independent and municipal power producers.

These agreements, as well as medium-term power purchase agreements were to lapse at the end of the month, which could have seen the loss of 722MW of generation capacity from the grid and sure load shedding.

Nersa confirmed that it took a decision on March 18 to grant Eskom approval to contract about 1 359.9MW for 2015/16. This will empower Eskom to also contract new generation capacity that has become available.

In its tariff application for the current tariff period stretching from April 1 2013 to March 31 2018 Eskom did not apply for any funds for these power purchases. The assumption was that its new power stations Medupi and Kusile would be coming online and there would be no need for these contracts.

With delays in construction and existing capacity being lost due to the explosion at Duvha unit 3 and the collapse of a coal silo at Majuba, Eskom now needs to contract whatever additional generation capacity it can find.

The funding question

Nersa said Eskom will have to apply to be refunded later for the cost from increased tariffs, using the regulatory clearing account (RCA) mechanism.

This is very problematic for Eskom. The utility is facing a liquidity crisis that is intensified by the increased finance cost due to the recent credit downgrade by ratings agency Standard & Poor’s to junk status.

Eskom only used the RCA once before, in relation the previous tariff period stretching from April 1 2010 to March 31 2013. This resulted in an additional tariff increase over and above the 8% annual increase granted for the current tariff period and would see the total increase for 2015/16 at 12.69%.

The RCA process took almost a year to complete, but officials close to the process said subsequent RCA applications should be dealt with faster, thanks to issues being cleared up during the previous application.

RCA applications are only submitted after the end of the financial year on the basis of audited financial statements.

The recent STPPP approval by Nersa would therefore enable Eskom to submit an application during 2016/17 to recover the cost and if granted will be recovered from tariffs only in 2017/18, as tariffs are only being increased at the beginning of a financial year. This is especially at municipal level a strict legislative requirement.

Eskom has however not yet submitted an application for 2013/14, when it spent R815 million on these contracts without having the budget for it. It is not clear why not. Eskom projects expenditure of R1.5 billion on power purchases for the current financial year ending March 31 which similarly has not been budgeted or provided for. It would only be able to submit an RCA application to recover it after finalising its financial statements around June.

Eskom is trying to take a short-cut by applying for a selective re-opener of the tariff determination to provide for funds for diesel purchases and STPPPs to take effect from April 1 2015 for direct customers and July 1 2015 for municipal customers. If successful, that could put the money for the STPPPs for the next three years in its pocket within a few months.

Eskom spokesperson Khulu Phasiwe has confirmed that the utility would ask for it to be applied retrospectively if granted after those dates. This would most certainly be the case, as Nersa has not even received the Eskom application yet.

Stakeholders have however pointed out that there is no provision in the prescribed methodology used to determine tariffs for a “selective re-opener”.

It is not clear how Nersa will resolve the situation, but whatever decision it takes, it’s bound to impact hugely on consumers. In the meantime, Eskom’s cash crisis remains unresolved as government as shareholder said it will not help beyond the R23 billion cash injection promised in the new financial year.

In its application for the tariff re-opener Eskom disclosed its current power purchases from independent power producers (IPPs) and additional capacity that may be procured:

 

Supplier

Plant

Existing MW

Additional MW

Sappi

Saiccor Mill

9

0

Sappi

Ngodwana + Tugela

18.1

60

Sasol

Secunda Synfuels

60

40

Sasol

Infrachem

110

0

USM

Umfolozi

5

0

Mpact

 

5.1

0

PowerAlt

 

5.1

5.6

Mondi

 

77

15

City Power

 

420

 

IPSA

 

13

20

Total

 

722.3

140.6

 

Eskom says in the submission that it needs R17.5 billion for power purchases over the three years and sets the cost out as follows:

Supplier

2015/16 (Rm)

2016/17 (Rm)

2017/18 (Rm)

Total

City Power Jhb

1 659

1 749

1 854

5 261

Sasol Synfuels Existing

187

197

209

594

Sappi Ngodwana

29

30

32

91

Sappi Saiccor

41

43

46

131

Mondi

327

345

366

1 039

Umfolozi Sugar Mill

32

34

36

103

Power Alt

20

21

22

63

MPact

28

30

32

90

Sasol Infrachem

445

468

496

1 409

Total extension cost

2 769

2 918

3 093

8 779

 

Additional capacity:

Supplier

2015/16 (Rm)

2016/17 (Rm)

2017/18 (Rm)

Total

City of Tshwane

521

550

583

1 653

Sasol Synfuels Gas

1 252

1 319

1 398

3 969

IPSA

68

72

76

217

Sasol Synfuels Coal

87

92

98

277

Sappi Ngodwana

8

8

9

25

Sappi Ngodwana 5 year additional

3

85

97

185

Power Alt

19

23

24

67

IPSA 5 year additional

111

118

229

Mondi additional

38

81

119

New enquiry capacity

629

663

703

1995

Total additional

2 588

2 961

3 186

8 736

Total inculsive of additional (Rm)

5 357

5 879

6 279

17 515

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Eskom hasn’t yet said what happened to money budgeted for maintenance when that maintenance never happened. Is the maintenance money still in the kitty?

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