IPPs not to blame for Eskom’s financial woes, says Jeff Radebe
The energy minister says the assertion is both misleading and false because renewable energy produced is cost neutral to the power utility
The assertion that Eskom incurs losses as a result of its Independent Power Producer (IPP) programme is misleading and false, energy minister Jeff Radebe said on Sunday.
The IPP programme has been criticised by trade unions, the EFF and former Eskom officials who claim that the costs are responsible for the financial crisis at Eskom, which is unable to service its debt of more than R419bn.
Radebe told reporters on Sunday that the renewable energy IPPs were cost neutral to Eskom as the cost was passed on to the consumer.
“The assertion therefore that Eskom incurs losses as a result of the independent power producer programme is without foundation, misleading and false. Since 2013, Eskom has not incurred a cent in buying electricity from the independent power producers which they have not been able to recover through the tariff allowance,” the minister said.
He said a peek at the financial statements of Eskom reflects that, after deduction of the cost of electricity bought from the IPPs the earnings before interest, tax, depreciation and amortisation (ebitda) margin was positive. After the first renewable energy projects came on stream in the 2013, Eskom presented an ebitda of R26bn, nearly twice the earnings of the previous year, said Radebe.
“This points to one thing: Eskom’s financial problems are mostly related to the cost increases, including the increased interest during construction, associated with the delay of the new-build projects, Medupi, Kusile and Ingula.”
Radebe emphasised that the cost of buying from the IPPs is included as an expenditure before the calculation of the ebitda number. This means after all operational costs have been paid, including the electricity from the IPPs, but before the payment of interest.
“Eskom is not borrowing money for buying the electricity generated by IPPs or for funding the construction of the IPPs. Similarly, up to 2018 Eskom has presented annual positive ebitda margins,” said Radebe.
Radebe said in order to ensure a competitive, open, fair and transparent process in the IPP programme, the government established the Independent Power Producers Office, under the direction and guidance of the department of energy and the Treasury. This mechanism of procuring the renewable energy IPP programme is aligned with the Public Finance Management Act.
“The tender process and the awarding of contracts are fair, open and transparent and the security around the evaluation process mitigates the risks of corruption and interference,” said Radebe.
The EFF and the National Union of Metalworkers of SA have suggested Radebe and President Cyril Ramaphosa are both “conflicted” in the programme because of their links to business tycoon Patrice Motsepe, whose company African Rainbow Energy and Power is involved in IPP projects.
Radebe and Ramaphosa are married to Motsepe’s sisters.
Radebe maintained that he has no conflict of interest.
“The 27 IPP agreements that I signed in April 2018 were to execute what was already a decision taken by [former] minister Tina Joemat-Pettersson back in 2016 and 2017,” he said.
Last week Motsepe also dismissed claims that his company was unduly benefiting from the programme.