Eskom blows its diesel budget but treasury tightens purse strings

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Eskom will have to look for money to buy more diesel because the treasury will not advance it more funding than it already has. 

This comes as the power utility has overspent its diesel budget of R8 billion, according to Electricity Minister Kgosientsho Rampokgopa. In April, the minister said Eskom would spend R30 billion on diesel to keep the lights on — the bulk of which (R22 billion) would come from treasury’s debt relief.

But the treasury told the Mail & Guardian that although Ramokgopa says he plans to use some of the debt relief money to buy diesel, this is not possible.

The treasury would have to make a separate concession for the diesel funding, but it was not prepared to do so.

“It is not the treasury’s practice to provide ad hoc funding for Eskom … money given to particular departments or state companies is governed by the Public Finance  Management Act, which sets out the process for funding requests,” the treasury said. 

“These funding requests must come before the national budget is tabled to be considered, and then be approved or not, by parliament. The national treasury has not yet considered any additional funding from Eskom.” 

In his February budget speech, Finance Minister Enoch Godongwana proposed that the government take over R254 billion of Eskom’s debt to enable the utility to catch up on maintenance programmes and have a financial break.

The treasury said the Eskom Debt Relief Bill was debated in the National Assembly and will today be debated by the select committee on appropriations in the National Council of Provinces. Only after that process can it be enacted.

Ramokgopa told the M&G that despite extensive consultations for the utility’s winter plan, Eskom had already depleted its emergency diesel budget to alleviate load-shedding.

Eskom uses diesel-fuelled open-cycle gas turbines in emergencies. Rampokgopa said the cost of diesel had to be weighed against the cost of higher stages of load-shedding to the economy.

The treasury’s deputy director general of public finance, Mampho Modise last week in parliament said Eskom’s financial situation continued to deteriorate despite fiscal support because the utility seemed to be acting with impunity and continued to pass high costs to the end users. 

He said any financial assistance without addressing structural and governance problems, corruption and malfeasance, inefficiencies and industry-wide issues would do little to turn around Eskom.

Energy specialist Tshepo Kgadima said Eskom’s dependency on diesel was financially ruinous to Eskom.

“It is apparent that Eskom management is somewhat oblivious to the fact that open cycle gas turbines were never designed to be operated as baseload power plants and therefore at the current extreme rate of usage, these open cycle gas turbines are soon going to experience technical breakdowns.”

He added: “If Eskom’s preliminary unaudited financial results for the end of March 2023 are anything to go by, I am afraid the proverbial light at the end of South Africa’s economic tunnel is that of an oncoming high speed train.”

Eskom says it has been unable to cover its financial losses because municipalities have failed to pay it for electricity used. Municipalities owe Eskom about R56 billion in total.

It hopes to recover some of its money through the 18.65% tariff increase granted by Nersa.

In the first six months of last year, Eskom had spent double its budget of R2 billion.

The high cost of using the gas turbines during load-shedding was one of the factors considered by Nersa in January when it granted Eskom the tariff increase for 2023-24.

Last week during a media briefing, Ramokgopa said the Eskom board did not have an estimate yet of how much additional funding it would need as it ramps up the use of the open-cycle gas turbines to prevent load-shedding from escalating beyond stage six.

“We are working on what that amount is, but if we cannot get additional funding that would mean additional load-shedding,” he said.

“The budget available for the Eskom open-cycle gas turbines for the 2023-24 financial year is R19.6 billion, including independent power producers OCGT [open cycle gas turbines] spend.

“The year-to-date spend for the 2023-24 financial year, as of May 8, 2023, is R3 billion,” he said.

As part of its plan to reduce the level of load-shedding this winter, Eskom said it will run the gas turbines at a load factor of 20% over the winter months, contributing roughly 500 to 600 megawatts to the grid.

Mandisa Nyathi is a climate reporting fellow, funded by the Open Society Foundation for South Africa