Energy policies undermine Eskom’s viability, says Lynne Brown
But the public enterprises minister says the power utility is expected to post a full-year profit despite the pressures it has faced
Government policies in the energy and transport sectors are undermining the financial viability of Eskom and Transnet, Public Enterprises Minister Lynne Brown said on Wednesday.
However, despite the pressures, Eskom was projected to post a profit for the financial year to end-March 2017. The utility made a net profit of R4.6bn in the 2015-16 financial year, Brown said in a briefing to Parliament’s public enterprises committee.
She said the policy of independent power producers of renewable energy had a potentially adverse effect on Eskom’s balance sheet especially in the current context of an electricity surplus. Eskom has excess capacity of 4000MW at present.
"There is a risk of excess capacity; take or pay agreement commits government to long-term agreements even if the power is not required, as is the case currently. Excess capacity could lead to stranded assets, which would result in rising costs of energy, which will affect long-term growth," said Brown. "It is therefore critical that the country allows a revised plan that will better inform choices, including technology and timing of implementation."
The minister added: "As we move to implement the policy, unintended consequences have emerged and further consultations with all affected stakeholders are essential."
Brown said Eskom estimated that a total of R340bn would be required to fully meet environmental compliance obligations, placing significant upward pressure on the overall electricity price, which was unsustainable and unaffordable considering the current economic environment.
"The regulatory uncertainty regarding National Energy Regulator of SA’s [Nersa] multi-year price determination (MYDP) decisions poses a significant challenge to Eskom’s revenues and the SOC’s [state-owned company’s] ability to meet its debt payment obligations. Nersa only approved 2.2% price increase in its latest determination, and the court case regarding the legal challenge on RCA [regulatory clearing account] determination still remains unresolved," Brown said.
With regards to Transnet, the planned corporatisation of the Transnet National Ports Authority under the National Ports Act posed a serious risk to the company’s balance sheet and its future investment programme, Brown said. The company is committed to spending more than R200bn in infrastructure over the next 10 years.
"The collapse of demand for commodities and the subsequent decline in export volumes has had a major impact on the sustainability of the company. The funding model explored by the company during the commodity super cycle is no longer feasible as most of its clients cannot commit to long-term off-take agreements," Brown said.
"Diversification through expanding networks beyond the national borders and pursuing adjacent market such as manufacturing of locos is important for the sustainability of the company," she said.
Among the most common challenges facing state-owned enterprises was the number of top executives in an acting position, the minister said.
A decision had been taken on a CEO for Denel but this had to be approved by Cabinet. Recruitment processes were under way for the appointments of CEOs at Safcol, Alexkor and Eskom.
With regard to the controversial report by Dentons into Eskom, Brown gave the assurance to committee members that they would be given a copy. "I am happy for you to get a copy of the Dentons report," the minister said.
Eskom could also give a briefing to the committee on the report, she added.