Ten reasons why Eskom is working again

#1 Diesel

In May, former Eskom CEO André de Ruyter told a PSG Financial Services conference that Eskom's improved performance was due to the utility burning diesel in its open-cycle gas turbines. These are so-called “peaking” power stations intended for use during emergencies.

“If the lights are on, well done. However, they are on because we are pouring money into diesel at a rate of knots,” De Ruyter said

De Ruyter left Eskom in February 2023.

In an answer to a parliamentary question in April, the then-Minister of Public Enterprises, Pravin Gordhan, confirmed that Eskom's expenditure on diesel had increased from R5.8 billion in 2020 to R21.25 billion in 2023 and R23.38 billion in 2024.

Eskom says diesel use is now on a downward trajectory because the maintenance plan is bearing fruit and the other power stations in the fleet are operating at a far more optimal level.

#2 Allowed to circumvent ‘localisation’

The energy availability factor (EAF) reflects Eskom's plant performance.

In March 2023, just after de Ruyter left, the EAF was around 51%. It has improved remarkably, hovering around 65%.

According to Eskom, an EAF of 60% is good enough to avoid load-shedding, but the reserve margin is still tiny. An EAF of 70% provides a reserve margin of between 10% and 15%, and Eskom wants to reach this by March 2025.

How was this achieved?

De Ruyter says the maintenance plan at coal stations that began under his and Jan Oberholzer's leadership has contributed to the gains we are seeing now. 

Eskom chairman Mteto Nyati says it is due to the generation recovery plan that was launched the month after he left.

Oberholzer, Eskom's former chief operating officer, says  to get a holistic picture of how the utility turned a corner, you need to understand that a complex turnaround process takes time.

“I give the team at Eskom all the credit for what they are achieving. It is wonderful to see, but the roots of the current success do also lie in what was done in the past."

One of the big reasons for the radical improvement at power stations is that Eskom started working directly with original equipment manufacturers (OEMs), the importance of which Oberholzer highlighted in an interview with Vrye Weekblad in 2022.

Nyati says people previously maintained plants with limited or no understanding of the equipment, but Eskom has now restored relationships with OEMs, which has improved reliability and helped bring down the cost of parts.

Nyati says the unintended consequence of “the localisation policy" to empower local companies was that it drove up costs and impacted quality. 

As a result, repairs were often of such poor quality that units would trip soon after returning to service. 

#3 Wrong people

Eskom's undeniably impressive improvement is driven by having the right people in the right place.

Nyati became the chairperson of the Eskom board two months before De Ruyter resigned.

He says he was convinced from the outset that Eskom's problems lay more with its people than with the ageing coal fleet. He believed the maintenance challenges were a symptom of a different issue.

Nyati launched a series of engagements with power station managers, which he says were profoundly insightful and revealed that the problems at Eskom had been misdiagnosed. The critical issue was that the wrong people were in charge of power stations. 

He estimates that up to 45% of managers have been changed, and “the best people were redeployed to the six worst-performing power stations that contributed to 70% of the failures in the coal fleet".

According to Nyati, appointing Bheki Nxumalo as group executive for generation was also a “game-changer". Nxumalo has deep experience in Eskom. He is a former station general manager who later led Eskom Enterprises and Eskom Rotek Industries. “This is somebody the people within Eskom highly respect," says Nyati.

On the right-people-in-the-right places front, Nyati, too, was an excellent appointment. He is a mechanical engineer and the former CEO of MTN and Altron, where he spearheaded a dramatic turnaround of the company's fortunes. He is, in essence, a turnaround specialist.

#4 Incentives reinstated

The cash-strapped utility eliminated performance-based bonuses in 2017 as part of the National Treasury's bailout conditions when Tito Mboweni was finance minister.

Last November, electricity minister Kgosientsho Ramokgopa appeared before parliament’s portfolio committee on public enterprises and asked that bonuses be reintroduced to improve morale because the utility was struggling with “people problems”.

This is now happening. Eskom is paying performance-based incentives to staff at power stations that meet specific targets.

Nyati says: “Incentives matter, they drive the behaviour".

Performance bonuses are an arrow in the new leadership team's quiver that De Ruyter did not have at his disposal.

#5 Debt relief

Last August, Eskom received the first R16 billion of a more extensive R254 billion package from the National Treasury to help pay off its debt load of R423 billion.

At the time, acting CEO Calib Cassim, who had taken over from De Ruyter, said it relieved “tremendous” financial pressure, allowing the utility to use electricity sales revenue to fund its operations instead of servicing massive debt repayments.

#6 ‘Private power’ and reduced demand

According to a South African Reserve Bank economic bulletin, the electricity price has increased by 450% since load-shedding started in 2008, driving down demand.

In addition, there is also a lot more “private power" around, further contributing to a decline in demand for Eskom grid electricity, says energy specialist Chris Yelland. Over the past four years, customers have increasingly moved to self-generation and alternative energy sources, including rooftop solar PV, battery storage, gas for cooking and solar hot water geysers to reduce their reliance on Eskom.

“The pipeline of big renewable energy and battery energy storage plants is now coming to the grid, and this trend is accelerating," says Yelland.

“A fundamental change is taking place in South Africa's electricity sector as it starts to catch up with those in many other parts of the world."

For example, according to Eskom’s latest estimates, South Africa has about 5,440MW of rooftop solar capacity that is not connected to its grid and an additional 2,800MW of solar power feeding into the grid. And this excludes additional capacity from wind.

The general manager of Eskom’s system operator, Isabel Fick, recently explained how this helps the utility. She says the additional power is 2,100MW more than at the same time last year, and it enables Eskom to replenish its emergency generation capacity, including water levels at pumped storage dams and diesel supplies for open-cycle gas turbines, during the day.

#7 Kusile temporarily fixed

Three of the six units at Kusile power station in Mpumalanga have been temporarily brought back into service by bypassing the flue gas desulphurisation plants, which are proving highly problematic for Eskom to operate.

This means the units are generating electricity but with extremely high pollution levels. This temporary fix was possible only because the Department of Forestry, Fisheries and the Environment allowed Eskom to circumvent emissions regulations. These units are essentially operating outside the law.

#8 Crackdown on crime

When he was CEO, De Ruyter complained about cartels with impunity at Eskom, saying the cost the utility billions of rand a month.

The new CEO, Dan Marokane, has admitted that the Eskom is “playing catch-up". However, much work has been done to understand the modus operandi of criminal networks, and the results seem to be starting to show.

Just last week, Eskom announced the arrest of four employees and a contractor security guard for stealing heavy fuel oil worth R500,000 from Camden power station. Earlier this month, Witness Sibanda was sentenced to 15 years' imprisonment for damaging and stealing essential infrastructure after being caught cutting and removing copper cables. Maybe the most significant was the successful operation to remove 35 illegally connected transformers in Diepsloot, Gauteng.

In the 2022/23 financial year, Eskom ascribed losses of about R5 billion to illegal connections and meter bypasses. However, illegally connected transformers also destabilise the network, leading to outages.

# 9 Clampdown on poor coal

Eskom has also taken steps to clamp down on poor-quality coal.

Apart from ensuring managers follow controls at power stations, it has partnered with Vodacom, which provides geofencing technology to prevent trucks from going off-route when delivering coal.

# 10 Political will

Many factors have contributed to Eskom's improved performance, and it seems a key element was appointing Ramokgopa in March 2023 as Minister in the Presidency responsible for electricity (he is now Minister of Electricity and Energy). This brought Eskom's woes right into the heart of political decision-making, something De Ruyter did not have during his time at the helm of Eskom. 

Yelland says President Cyril Ramaphosa's signing on August 16 of the long-awaited Electricity Regulation Amendment Act provides the legal, policy, regulatory and planning framework for reforms, including the establishment of a competitive electricity market, increased investment in new generation capacity, the establishment of an independent transmission company and severe penalties for damage to and sabotage of infrastructure.

Yelland says we should be cautious about declaring load-shedding over. Still, there is reason for optimism that the pace of reform in the electricity supply industry is gathering momentum.

♦ VWB ♦