Higher-than-expected revenue collections can fund Eskom’s diesel: Roodt

If government must give Eskom an additional R10 billion to R20 billion to buy diesel, it won’t break the bank. But the more logical thing is for Eskom to cut its costs, says Dawie Roodt, chief economist at the Efficient Group.

Roodt was responding to the announcement by Eskom COO Jan Oberholzer during the quarterly State of the System briefing on 15 November, that Eskom has already spent about R11 billion on diesel in the current financial year, which is about double the budget for the whole year.

Oberholzer said Eskom is no longer going to overspend on diesel to power its open-cycle gas turbines (OCGTs) and warned that load shedding will intensify without the buffer of diesel generation.

This message was brought home on Sunday afternoon when Eskom announced its load shedding schedule up to Wednesday (23 November), featuring up to Stage 5 load shedding.

Tough questions, frank answers …

The severity of the situation was further emphasised later on Sunday night when Chris Yelland, managing director of EE Business Intelligence, published on Twitter a very frank discussion he had with Eskom spokesperson Sikonathi Mantshantsha:

I have just contacted the Eskom spokesperson by phone and received the following clear answers in respect of Eskom diesel supplies for the emergency diesel driven open cycle gas turbines at Gourikwa and Ankerlig:

— Chris Yelland (@chrisyelland) November 20, 2022

Question: When will the diesel for the OCGTs will be replenished?
Answer: Not until 1 Apr 2023 at the earliest, or until someone provides Eskom with more money for procurement of diesel, noting the Eskom spend overrun on diesel to date is 2x budget for the current financial year.

— Chris Yelland (@chrisyelland) November 20, 2022

Question: Who will pay for the diesel as Eskom has indicated that it has no money for this?
Answer: Unknown. But nothing is currently on order by Eskom or outstanding for delivery to Eskom.

— Chris Yelland (@chrisyelland) November 20, 2022

Question: Can you confirm how many litres of diesel has Eskom burned this calendar year to date?
Answer: As many litres as R11bn could buy.

— Chris Yelland (@chrisyelland) November 20, 2022

 

Clarification: the Eskom spokesperson has contacted me back with one clarification, namely that he did not use the words: “until someone comes up with the money for Eskom” or “until someone provides money for procurement of diesel”. However, to my mind, this was what was implied.

— Chris Yelland (@chrisyelland) November 20, 2022

Recoverability of diesel spend

Eskom’s concern is clearly the recoverability of its diesel cost for the rest of the financial year ending 31 March.

National energy regulator Nersa determines the load factor at which Eskom is allowed to run its emergency diesel reserves to be allowed to recover the cost from consumer through the electricity tariffs.

If that load factor is exceeded, the utility must prove that the additional spending was efficient before it can be recovered through the tariff.

In the past the regulator has allowed the additional diesel cost only at the level it would have been if Eskom’s coal-fired power stations did the job, which left Eskom with a considerable hole in its pocket.

This seems to be what Eskom wants to avoid in stopping the excessive spending unless it has assurance about how the bill will be paid.

Roodt expects revenue collections for the current tax year to be even better than announced by Finance Minister Enoch Godongwana in his October medium-term budget policy statement (MTBPS) and says there is room in the fiscus for an additional R10 billion to R20 billion for Eskom.

“When the electricity goes off, one immediately sees it in the economic data. There won’t be any economic growth [at these levels of load shedding],” he says.

Roodt says it is however time to make the right economic decisions “and that is for Eskom to reduce staff numbers by 20 000”.

He says Eskom must reduce its costs and questions management’s decision to give staff a 7% salary increase “just because they were being held hostage”.

The alternative?

Citibank economist Gina Schoeman says if government does not step in to fund Eskom’s diesel cost, the results for the economy will be devastating.

“Intense load shedding for such a long period will be more costly than if Eskom was provided with the liquidity.”

She says an additional amount on top of the R23 billion National Treasury gives Eskom every year should be feasible, in light of government’s revenue overrun.

“This was used to improve the fiscal position and has given the budget credibility, but there is still some room” to find money for Eskom.

Schoeman emphasises however that this must be a once-off and will be “somewhat forgivable” in light of the energy plan that will bring relief in about 18 months’ time.

That is when self-generation becomes a reality at many large power users, which will reduce the demand on Eskom’s limited supply.

The Department of Public Enterprises (DPE) said in a statement on Sunday night that “government and Eskom” will find the money for diesel generation.

According to the statement, Public Enterprises Minister Pravin Gordhan met the newly appointed Eskom board on Sunday night.

“The DPE is urgently working with National Treasury and Eskom for it to find the money to buy supplies of diesel,” reads the statement.

It went on to say that the DPE will be engaging Eskom among on “savings within the existing Eskom funds for the ongoing purchase of diesel and maintenance” among other things.