Samantha Enslin-Payne
21 May 2008
Durban — Eskom management has been blamed for South Africa's power crisis by the body set up by the government to oversee the utility.
The National Energy Regulator of SA (Nersa) said that complacency in Eskom's management was responsible for the debacle, which cost the economy N$50 billion, earlier this year.
The reasons for the crisis are well documented: unplanned outages and depleted coal stocks tipped an already tight supply system over the edge.
But Eskom found itself in such a precarious situation because its management was caught napping.
Fresh blood at the helm of the utility may be necessary to restore the confidence of consumers, who will be expected to fork out more for electricity, and the capital markets (and the rating agencies that guide them), where Eskom plans to borrow billions to build new power plants.
Asked whether a management change was due, Cornelis van der Waal, an analyst at Frost & Sullivan, said: "My gut feel is that it is not a good time to remove management.
Instead management's bonuses should be based on service delivery and not cost-cutting."
Thembani Bukula, who is responsible for electricity regulation at Nersa, said: "I am not in a position to comment on whether management needs to change."
Poor planning was particularly evident on coal.
The regulator said that in the six weeks to January 31, coal stocks held at stations fell "drastically" by 2 million tons to 4 million tons.
Eskom's minimum target is for a 20-day supply, but instead supplies fell to dangerously low levels despite Eskom's coal procurement plan last year predicting that coal stocks would increase to above 50 days.
The rapid decline in stocks in December was because mines that supply on short-term contracts stopped doing so and tied collieries were operating on skeleton staff.
Compounding the situation at the beginning of the year was that power stations were burning more coal to increase output and heavy rain affected the handling of coal.
Nersa said one of the reasons given by Eskom for the rapid decline in stockpiles was that it was not able to absorb the cost overruns without incurring a loss.
There also appears to be a conflict between Eskom's business objectives of making a profit and the power utility's reason of existence: the supply of electricity.
Bukula said there should be a mechanism, perhaps through quotas, that limited exports of low-grade coal, which Eskom uses.
But coal suppliers would see the foregoing of foreign exchange as "crisis management in its worst form", says the report.
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