Brian Molefe is the man to blame for this week’s record-setting power cuts.
During Molefe’s 19-month stint as CEO of Eskom he awarded long-standing coalsupply contracts to small BEE suppliers.
Eskom COO Jan Oberholzer said the substandard coal being delivered by these new companies was in large part the reason for Eskom’s near collapse.
SA is set to lose its last strand of creditworthiness as a result of the latest round of power cuts, according to economists. They said a junk rating by Moody’s in March now seemed inevitable.
In a further warning of economic catastrophe, Minerals Council CEO Roger Baxter said power cuts at stage 4 or higher amounted an “an industrial policy decision to downscale the mining sector”.
But independent power producers said the government had shown little interest in what they had to offer.
Writing for the Sunday Times, social development expert Rudy Oosterwyk said Eskom’s travails were increasing poverty, and the company should be shut down.
“We must build an entirely new energy architecture that will result in job creation and economic development for decades to come,” he said in the article.
● Dodgy short-term coal supplies to Eskom have been linked to SA’s catastrophic descent into stage 6 load-shedding this week.
Sabotage, poor maintenance, rain, leaky boilers and broken conveyor belts took the blame. But Eskom COO Jan Oberholzer says a large part of the reason for Eskom’s near collapse are its multibillion-rand coal contracts, most of which were implemented by disgraced former CEO Brian Molefe in 2015.
“What we pay for is often definitely not what we receive in terms of specifications,” Oberholzer said this week.
Eskom in the past had 50-year contracts with companies that mined near to power stations. This restricted coal supply to a small number of large, established mining houses. These were being phased out to enable smaller BEE suppliers to enter the market. When Molefe was appointed in 2015, he ramped up the process.
Oberholzer said though the intention of the policy was good, this had led to some “opportunistic suppliers taking advantage of our huge supply demands” by supplying substandard coal which poses risks to boilers and ash systems.
He said a network of people — both inside and outside of Eskom — had used these contracts to “get hold of Eskom’s money purse”.
Contract reviews are under way to ensure adherence and price fairness. “We are reviewing supply contracts and also looking for potential suppliers across the border,” Oberholzer said.
This week’s load-shedding cost the economy nearly R12bn in lost revenue, according to energy experts.
Molefe defended his policy to broaden Eskom’s coal-supplier base. He told the Sunday Times the move away from contractors was “to change the complexion of the contracts”. “The preference was for BEE companies.” He said he had never been in favour of Eskom paying companies to mine coal for it, as had been common in the past.
But experts said Eskom’s hundreds of short-term suppliers had brought issues of:
● Much higher transport costs for the utility because suppliers are not always close to power plants;
● Substandard-quality coal slipping through checks because Eskom’s quality controls department has been “gutted”; and ● A lack of expertise by some suppliers. In July, Eskom predicted it would pay 20% more for its coal this financial year because of its short-term supply contracts.
After Eskom’s year-end results last month, public enterprises minister Pravin Gordhan slammed a 17% price increase in what Eskom is paying for coal.
Energy expert Ted Blom said when Molefe arrived at Eskom he “went berserk, curtailing … long-term contracts”.
He said poor-quality coal was a big concern. “Worldwide, ‘fine coal’ limits are 10%. That’s to ensure power plants can function. When it rains, fine coal becomes sludge and cements conveyor belts, and damages boiler and ash systems.
“Eskom exceeds these international limits because of questionable supply contracts. Accepting fine coal has become part of the utility’s DNA. If kickbacks are big enough there are good reasons to supply such coal. Eskom doesn’t do quality testing on coal. How can you when you have up to 1,400 trucks arriving at a power plant daily?”
Mining and commodities expert Peter
Major said Eskom has incompetent people behind dodgy short-term coal supply contracts which were designed to rip off Eskom.
He said while long-term contracts had been allowed to lapse before 2010 and were quietly being replaced with short- to medium-term contracts, Molefe took the process to “insane levels” when he got to Eskom.
“Now Eskom functions on multibillionrand long-haul coal supply contracts, which are all short-term, which has doubled supply costs with the quality often junk.
“Many short-term contractors don’t have the expertise to actually supply coal. Compounded with poor maintenance, and the lack of money for repairs, it’s a disaster,” he said. “Grave damage is caused by substandard coal which is now being provided.”
A senior Eskom insider said Molefe had gone “crazy” when it came to handing out short-term contracts.
“It was a total free-for-all. The contracts were being handed out left, right and centre, without due diligence being done to ensure the coal is the right quality for the plants.”
Oberholzer said Eskom urgently needs to move away from this business model (shortterm contracts).
“We are remedying the situation, especially around quality control, which we are trying to mechanise … There are shenanigans, including negligence.”