Eskom does an about turn on Molefe’s ‘bakery’ decision

While cabinet considers CEO, CFO appointments.
Eskom acting CEO Phakamani Hadebe. Picture: Moneyweb

Eskom is resuming its investment in so-called cost-plus mines despite an earlier announcement by then CEO Brian Molefe that Eskom would phase out its agreements with these dedicated mines.

Cost-plus mines are each tied to a specific Eskom power station, which is designed to utilise the type of coal produced at the mine. Eskom and the mine owners enter into a long-term agreement in terms of which Eskom supplies the capital for mine development and expansion in exchange for security of supply at a rate of cost, plus a small margin. Eskom has oversight over the operations to ensure the prudency of cost.

Over the past number of years Eskom has failed to invest the required capital in such mines and in 2015 Molefe made it official by announcing a policy change away from the cost-plus model.

Molefe famously said Eskom wants to “buy the bread, not the entire bakery”. 

That however leaves the power utility vulnerable as its power supply is dependent on investment decisions by private mine owners who won’t necessarily base such decisions on Eskom’s needs. In the absence of such long-term coal supply agreements the utility is over-reliant on short-term contracts, which usually come at a considerably higher price.

The under-investment of the past years, as well as the failure of the Gupta-owned Tegeta mines to comply with its contractual obligations for coal delivery, has resulted in the current coal shortage at seven of Eskom’s fifteen coal-fired power stations.

This raised concern about Eskom’s ability to keep the lights on through the winter.

Eskom acting CEO Phakamani Hadebe on Thursday gave the assurance that Eskom is addressing the coal shortages and is confident that there won’t be load shedding this winter.

Hadebe said the coal supply at the Komati power station is back to the required 20 stock days and the supply at one of the other six should be back to normal within a few weeks.

Eskom hopes to restore the supply to the other five affected power stations to acceptable levels late this year.

Tegeta stopped supplying the Hendrina power station in March and Eskom is currently negotiating with the Tegeta business rescue practitioners to resume supply of at least some of its contracted 8.5 million ton annual supply obligation, Hadebe said.

He said by late last year the overall coal supply situation was looking good, but the Tegeta problems came at short notice and Eskom had to work to replace the Tegeta coal from other suppliers.

Eskom has completed an investigation into the nasty surprise it got last year when the actual coal stock levels at Hendrina were considerably lower than its records showed, Hadebe says. Staff at the power station and in Eskom’s primary energy division have been suspended and are facing disciplinary hearings as a result.

The utility has also increased the frequency of its coal stock checks over the whole coal-fired fleet.

Eskom has contracted 84% of its coal needs to 2025 and has issued a tender for 100 million tons for the next four years. These bids are currently being evaluated. Following a request for proposals negotiations will also start to secure the coal supply for Kusile for the next 60 years.

Operationally Eskom is doing reasonably well with an availability factor of 78%, Hadebe said. There has been no load shedding for the past two-and-a-half years.

Hadebe said funders have opened the financial taps again and since January the utility has been able to secure R43 billion in funding. Local and international investors were positive during recent road shows and the utility believes it will be able to secure all its funding requirements for this year.

It hopes to issue a R12 billion bond in the international market in July or August.

Eskom currently has R14 billion in the bank, which is still short of its liquidity buffer of R20 billion.

On the corporate governance front the utility is making progress on the review of 5 000 contracts. It will start with lifestyle audits on senior staff members next week.

The board has made recommendations to public enterprises minister Pravin Gordhan for the appointment of a permanent CEO and CFO, Hadebe said. Cabinet is expected to consider the recommendations on May 9, he added.

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where did this man got his glasses from…..PHELOPHEPA? Come on man, you are a CEO!

Behave Khande…it’s not about appearance ok! 🙂

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