Anti-Poverty Forum urges Mkhwebane to probe the expensive RE IPPs signed by Radebe, Eskom Board

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Staff Reporter

The Anti-Poverty Forum has written to the Public Protector Busisiwe Mkhwebane to urgently investigate the Department of Energy Independent Power Producers projects signed by minister Jeff Radebe on behalf of Eskom with a potential R 1.4 Trillion wiped off Eskom balance sheet over 20 years.

The letter was written by APF’s director Phapano Phasha on Wednesday.

Eskom, South Africa’s power utility is facing dire financial situation due to the systematic encroachment of private hands and politicians. Over the years Eskom has found itself having accumulated debts of over R 419 Billion as a result of greed, and now the cash cow has been depleted that it can no longer honour its debts.

Phasha alleges that the bulk of this R 419 Billion debt that Eskom owes is as a result of three main contracts that Eskom has had to fund at the expense of its mandate of providing reliable power to the country.

According to APF the three contracts includes:

  • Introduction of Renewable Energy Independent Power Producers (RE IPPs) in South Africa.
  • Eskom New Build Medupi Coal-Fired Power Station
  • Eskom New Build Kusile Coal-Fired Power Station

“As Anti Poverty Forum (APF), we therefore refer to the above matter to raise our grave concerns about the very expensive RE IPPs which were signed into place by Minister Jeff Radebe and the Eskom Board on the 4th of April 2018 and hereby submit an urgent complaint for The Public Protector to investigate the Independent Power Producers contract for Bid Window 4 and 4b that was signed into place by Minister Jeff Radebe and the previous RE IPPs that were signed by the previous Ministers of Energy under Bid Windows 0, 1, 2, 3 and 3.5,” the Phasha said in a statement.

Phasha further said that R93 Million per day is paid by cash-strapped Eskom to the Independent Power Producers. Phasha also added that Eskom is forced to buy from the signed IPPs.

“So Eskom which is already Producing Power is forced to buy power from these IPPs who are not even negotiating fair prices with Eskom but are proposing predetermined prices as agreed with the Department of Energy and National Treasury as per the Power Purchase Agreement and sell it back to consumers at a loss of either R21 Billion per year or
R34 Billion per year.

The money eaten away by the IPPs makes it difficult for Eskom to save money for maintenance of its coal fleet which requires roughly R 200 million per month per power station. Eskom has detailed planning for maintenance and the schedule for implementation of the maintenance programme. However, Eskom is currently bleeding out money that is meant for its own power maintenance that would have been sufficient to maintain the high efficiency of the coal fleet such that it would not need the IPPs power for a long as the economic growth is below 2.5% – 3%”.

According to APF, it is estimated that these RE IPPs twenty-year contracts for Bid Windows 0, 1, 2, 3, 3.5, and the new Bid Windows 4 and 4b will together cost South Africans more than R1.4 trillion over a 20 years period cycle.

“Note: A 20 years period cycle because after 20 years the assets by these RE IPPS on the ground will become obsolete and have to be replaced by brand new equipment which will lock South Africa to other contracts that will likely cost taxpayers Trillions of Rands that are currently unknown:

Example 1: “For-Bid Windows 1 to 3: Eskom buys the power from the IPPs at an average of 222 cents per kWh but can only sell it at 89 cents per kWh. The deficit of – 133 cents per kWh is absorbed by Eskom by way of making it bleed money that is meant for the maintenance of its own baseload power stations. This translates to between R 11 Billion and R 21 Billion per year that Eskom bleeds out due to reselling the expensive IPPs Power at a loss.

Example 2: For Bid Windows 4 and 4b: These are new bids IPPs which we are told they have now become cheaper at 60 cents per kWh. But again, these IPPs are a problem because they have a lot of hidden costs in that not all costs are reflected in this 60 cent whose deficit is to be covered by both Eskom through redistributing and normalising it to its cheap produced electricity and asking for increases from NERSA to pass this through to the consumers”.

The movement said that they are of a view that RE IPPs have a right to enjoy the support of Treasury, Department of Public Enterprise (DPE) and Department of Energy (DOE) but it is unlawful and unethical for any government minister or public official to compel Eskom to buy expensive and uneconomically power that it then sells at a loss.

“In the 2017 budget review from National Treasury, government committed that if Eskom was unable to afford the expensive Renewable Energies, government will either “terminate” the Power Purchase Agreement and it will “loan the utility money to honour its obligations”, instead of government committing to its obligation it is now resorting to unbundling of Eskom and bringing in bias and conflicted “International Experts” such as Enel when this risk of these RE IPP projects on Eskom balance sheet was already projected by National Treasury. See a copy of Government’s borrowing requirements and guarantee to Eskom marked and attached as (ANNEXURE PP3)”, said APF.

Phasha said that it does not make business sense for Eskom to have signed the Power Purchase Agreements as the terms and conditions of the contract signed by this RE IPPs clearly stipulate that this Renewable Energies will not be available all the time especially when urgently needed to deal with power demand and in some instances to avert load shedding; Renewable Energy Power Producers don’t work during loadshedding as they also depend on Eskom’s grid; saying that South Africa can’t rely on RE IPP power supply when it needs it the most.

“We are also of a view that the Honourable Minister of Energy, Mr Jeff Radebe and the Eskom board, who were not even in office for more than two months before they rushed to sign the IPP contracts, did not properly or reasonably apply their mind when they approved these Evergreen contracts which will cost South Africans trillions if not more in a space where Eskom is also faced with cash flow of refurbishing and replacing its own fleet.  Why was the a need to slip in very expensive Independent Power Producers by DOE into Eskom which are a big hole and a trap that will look good for the first 5 years and become a permanent pain for the next 15 to 20 years of their life when the assets on the ground will become obsolete and new investments into their replacements will have to start all over again; a vicious cycle of debt and a nightmare on the pocket of ordinary South Africans and the economy of the country?

“It cannot be our very own government that destroys Eskom in order to entrust private IPPs to assume the role of a State to provide electricity which is classified as a basic need to the nation and it is equally unethical for any government especially in an underdeveloped and unequal country like South Africa to use public funds to build and sustain a private energy sector industry controlled by banks and foreign companies that will ultimately maximize its profits which will ultimately go outside of the country. How can government create more sustainable jobs, roll out free quality education, a minimum wage for youth, free quality health care and improve security when dividends earned in South Africa by these foreign companies leave the country to build the ailing European and American economies?”

The forum said that the urgency of the investigation is also necessitated by the announcement on the 12th of February 2019 by Minister Pravin Gordhan that Italian Energy Company Enel also trading as Enertronica has been appointed for technical assistance to end the power cuts at Eskom and will also be sending two to three coal power station engineers to South Africa shortly.

“This is the same company  that has seen most of its contracts either in Spain, The United States of America and even in Italy being suspended hence in 2018 The Italian stock exchange announced trading in the shares of Enertronica had been suspended (https://www.pvmagazine.com/2018/09/24/italianstockexchangesuspendstradingofenertronicashares/) but Minister Pravin Gordhan wants this company which is battling in its own country and abroad to advice a giant utility such as Eskom.

“Minister Gordhan forgot to disclose that Enel/ Enertronica is highly conflicted as they have a direct interest at Eskom as part of the Renewable Energy Companies that has so far won more than 8 Bid Windows contracts that have crippled Eskom balance sheet”, said the movement.

Phasha said that it is also public knowledge that Enel through its consortium Enertronica is in joint partnership with President Cyril Ramphosa’s Shanduka Group (20%) and Shanduka Black Umbrellas BBBEE Trust(15%) in the various RE IPP Bid Windows project which Enel and Shanduka won in 2015.

“As Anti Poverty Forum we, therefore, are of a view that Minister Pravin Gordhan is not fit and proper to make such decisions as he has total disregard for PFMA to which embattled and conflicted American and European Consulting companies are continuously commissioned to worsen the situation at most of our State Owned Entities”.

According to the documents, Phasha claims that in 2016 in his capacity as Minister of Finance, Pravin Gordhan recommended the appointment of the embattled Bain & Company with their advisory local partners (Abacus Advisory), Coleman Andrews as well as Seabury Consulting (Accenture) to Treasury “to plan the merger and reorganisation of the state’s three airlines: SAA, Mango and SA Express”, a decision which was finally approved by the then Minister of Public Enterprise, Lynn Brown, as the custodian of the National Carrier in 2017.

“What is also disturbing is that South Africans are kept in the dark by Presidency, Ministers, Eskom’s board, The “8th” persons task team and mainstream media on the impact of RE IPPs on Eskom’s deteriorating balance sheet and what exactly these RE IPPs are supplying to the Eskom grid to power the country. The is simply no transparency by key stakeholders on key factors that have seen Eskom imploding

“We therefore kindly submit this complaint for you to investigate and decide whether our assessment of the crisis and collapse of Eskom are true or not. There could be corruption and impropriety, individually or in groups, either personally or through family or political connections at these highest levels between the Eskom board, interested parties and various government departments. If true, the individual names companies and their motives must be investigated and exposed. In summary, the individuals and motives of those involved in the collapse of Eskom through IPPs must be investigated and exposed. South Africa does not need another Arms Deal!

Click here to view the memo which was submitted to public protector by anti-poverty forum below