Johannesburg — Eskom is struggling to secure land for its expanding transmission system and this could put its long-term build programme and the entire electricity grid at risk, its CEO, Brian Dames, said yesterday.

Eskom's R385bn expansion programme - which includes the recommissioning of some power stations and the building of two new ones - means it has to acquire land rights for the power lines and substations that will transmit the increased power around the country. The problems stem from long winded negotiations with property owners for access rights and servitudes.

Mr Dames, briefing Parliament's public enterprises committee, said gaining land for the expansion of the transmission system remained a problem two years down the line.

"We can't get land and it will put the grid at risk," he said.

MPs were also told that the funding shortfall up to 2017 would be R190bn. Should there be further failures of preferential pricing deals, coal supply and bad debts, this situation could deteriorate. Suggestions for a new funding model for Eskom were with the Cabinet, but there was no timeline for a response.

The message from Mr Dames and his financial director, Paul O'Flaherty, was that the build programme had to go ahead and a funding model for the second new power station at Kusile had to be found in order to meet SA's power needs to 2017. For this to happen the problem of land for the transmission lines had to be solved.

Mr O'Flaherty said that at present the interest on loans, including the one from the World Bank, was being capitalised into the cost of contracts. This assisted in a positive balance sheet.

Mr Dames said that should the economy grow better than expected, this would also constrain the supply of electricity.

Mr O'Flaherty said that there had not been any load shedding since early 2008 and this was because demand for electricity had decreased as a result of last year's recession, but this year sales had increased by 4%, indicating economic recovery that would "put pressure on the build programme". They added that the 15% reserve capacity was also at risk as a result of higher economic growth, meaning Eskom had less room to manoeuvre in a crisis.

In this year's annual report, Eskom said that problems with gaining access to land was slowing its efforts to strengthen the national grid. Eskom's transmission network covers about 29 000km, and an ageing transmission infrastructure would lead to electricity load losses.

In the annual report, Eskom said acquiring land rights had become increasingly difficult. "The biggest challenge experienced with land and servitude acquisition is the inability to match the landowners' expectation of their land values.

"Landowner expectations are normally above the market value, sometimes resulting in deadlock during negotiations," Eskom said. It said expropriation was a last resort as it can harm relations between Eskom and landowners.

The new electricity tariffs controversially increased by more than 30% earlier this year, had helped the power utility out of the red. Eskom was now selling for 31,9c a kilowatt- hour, slightly more than its operational cost per kilowatt-hour. "So we are making an operating profit," Mr O'Flaherty said.

The two men confirmed that preferential pricing deals with BHP Billiton were being renegotiated. One at Mozal, the aluminium smelter in Mozambique, had already been renegotiated and the other two at Hillside and Bayside smelters in Richards Bay were also on the table. Buying power from Mozambique's Cahora Bassa and then selling it to Mozal for less than was paid had contributed to past losses.