Major coal supply shortages and an estimated R1.3 trillion overexpenditure on capital projects mean the utility is running at less than 75% efficiency.

Eskom has 10 days to get its house in order or South Africans will face a cold, dark winter, experts have warned.

The state utility admitted this week it was facing major coal supply shortages at seven power plants in Mpumalanga.

It has been relying on transporting “surplus” coal from other mines this year – a feat experts say is unsustainable and costly.

Ted Blom, a partner at Mining & Energy Advisors, said the simple diagnosis for Eskom’s financial woes was its 2001 policy to move from long-term supply contracts with major listed companies to several short-term contracts, purportedly aimed at advancing transformation in the sector and getting cheaper coal.

He said in the old system, long-term coal contracts produced cheaper coal than today.

If Eskom did not act fast in the next 10 days, he warned, load shedding was a very likely prospect this winter.

“What we need is the four ugly sisters,” said Blom, referring to major coal companies, some of which Eskom previously had long-term contracts with: Anglo American, BHP Billiton, Xstrata and Glencore.

“They need to declare an emergency, so they can double up on labour and production by 10% or 20% within a week or so.”

The utility’s recent coal supply crisis was attributed in part to the Gupta-owned coal supplier, Tegeta.

Blom recently called for an independent audit of the utility’s finances which, he said, should have been done after former public protector Thuli Madonsela made adverse findings against the utility regarding contracts connected to the Gupta family, in her State of Capture report.

He also cited massive over-expenditure on capital projects such as the Medupi, Kusile and Ingula power plants, estimated at R1.3 trillion.

Blom said Eskom’s reliance on transporting coal from other suppliers was a scam to push for short-term contracts without tenders.

The mining director at Cadiz Corporate Solutions, Peter Major, said the country was in more danger of rolling blackouts than Eskom was letting on.

“All of a sudden, we have found that we were in a lot more trouble than we thought. We’ve been using diesel generators. All those diesel generators were supposed to be mothballed, but now we are burning a lot of diesel and they had not told us how bad things really are. Eskom is not even at 75% efficiency and we are supposed to be at 88% to 90% minimum at all times.”

EE Publishers editor Chris Yelland said Eskom’s supply problems also stemmed from its failure to provide capital expenditure at collieries tied to plants, resulting in production levels dropping to as little as 20%.

Editor of Energise Magazine Roger Lilley said the cost of transporting coal from non-adjacent mines was driving costs up further.

But, he argued, Eskom could not afford another load shedding season.

“Eskom will do anything in its power to not have load shedding, primarily because they can’t afford to not sell electricity. They are already suffering from not getting enough revenue and they can’t do anything that will further undermine revenue.”

Source: The Citizen