Eskom is tasked with keeping the lights burning, an increasingly difficult task in the changing economic climate of South Africa
Written by Robert Michaels & Produced by Dee Nazer
Eskom, the South African Government’s electrical utility, is one of the largest in the world in terms of sales and has one of the highest generating capacities. The utility has more than 29,800 employees, 24 power stations and annual sales of over R40 billion.
Structured as a vertically integrated company, Eskom has four regulated divisions, Generation, Transmission, Distribution and Key Sales and Customer Service, as well as a non-regulated division, Eskom Enterprises, which is a wholly owned subsidiary.
The subject of this piece (because frankly Eskom is simply too large and complex to tackle in one article) is Eskom Distribution, which has a distribution network of some 320,035 kilometres of line and 3.6 million customers, including major wholesale customers in municipalities, aluminium smelters and railways.
“Eskom Distribution is responsible for the distribution of electricity,” says Brenda Changfoot, Divisional Business Support Manager, Distribution Division. “Eskom is South Africa’s primary electricity supplier and supplies some 95 percent of the country’s electricity requirements.”
She explained that power is distributed, amongst other means, from the transmission grid via a distribution network of overhead lines, cables and transformers.
“We want to offer universal access to electricity and are building new generation capacity to achieve this,” Changfoot adds.
South Africa’s electricity consumption is certainly on an upward trajectory; the country consumed 3.2 percent, or 599 GWh, more electricity in November 2009, than in November 2008, Statistics South Africa recently reported.
Consumption increased to 19,239 GWh, compared with the 18,640 GWh of electricity used in November 2008, and electricity consumption for the three months ended November showed a 1.3 percent increase on the 63,083 GWh used in the previous three months.
The official data also showed that electricity production for November had increased by 1.2 percent month-on-month, while production for the three months ended November was also 1.2 percent higher than for the previous three months.
Meanwhile, Statistics South Africa also reported that South Africa had imported more electricity in the first eleven months of 2009 than it had in the first 11 months of 2008. But electricity exports to neighbouring countries dropped by 1.5 percent to 12,789 GWh in the first 11 months of 2009, compared with the first 11 months of 2008.
“Eskom has been looking at how leading utilities across the world have responded to an increasingly challenging operating environment, and have recognised opportunities to learn from world best practice,” says Changfoot.
This approach is vital. Eskom’s assets have, in recent times, come under a lot of strain. This has resulted in a decline in network performance and a lot of unhappy customers. The main reasons for this increase in strain include the rapid expansion of the distribution network to serve South Africa’s increasing electricity requirements; the aging of the distribution network and the management problems this causes; and the limited resources (particularly money and people) available to manage the network assets.
“It is clear we need to always come up with ways of better managing our assets in order to improve the performance of the distribution network,” Changfoot says.
Controversially, Eskom is proposing a 35 percent price hike each year for three years to pay for network improvements. A necessary evil, some say. Others feel it might be a bridge too far for those already struggling in the current economic climate.
DISTRIBUTING ELECTRICITY
Why is the work Eskom Distribution does so important? Well, it provides a vital link between the supplier (Eskom) and customers that buy and use electricity. Without them, South Africans simply wouldn’t have access to power.
“Eskom constructs and maintains equipment that transforms the power supply to the type that meets the customer’s needs, meters the amount the customer uses, provides the appropriate billing and collects the payments,” Eskom says.
“Traditionally, distribution has been managed by us,” Changfoot adds.
At one time there were nearly 500 distributors of electricity in South Africa, but this number has been reduced through consolidation to less than 300, according to Eskom’s research.
This presents a problem. And for nearly 20 years, the utility has been talking to central Government and the other stakeholders — namely the National Energy Regulator (NERSA) — about further rationalising the electricity distribution industry, to increase competition and provide better coverage and service.
Eskom’s proposal is to form six regional electricity distributors whose sole responsibility would be to “manage and drive all electricity distribution” throughout the country. It says this would “allow tariffs to be aligned, service to be improved and the equipment to be better maintained and updated.”
But life isn’t that simple. And, says Eskom, there are several hurdles to overcome before progress can be made.
“Stakeholders, for instance, will need reassurance that their assets and investments will be protected, and that the new structures will provide a clear benefit to all involved,” says Eskom. However, because of the uncertainty hanging over the sector, coupled with the global economic crisis, this has been extremely difficult and many have been reluctant to allocate new resources. “The result is that some equipment and levels of service have even been allowed to deteriorate,” Eskom says.
Another problem is a lack of spare generation capacity in the system. Many commercial customers have slowed operations, for instance, because electricity supply has now been added to the CEO’s list of issues that could be problematic.
“It’s a problem we are working hard to fix,” says Changfoot.
Eskom has tried many different initiatives in an attempt to find a solution, and it is still trying. Perhaps the most publicised initiative has been so-called “load shedding”, which it introduced in 2008. It planned rolling blackouts based on a rotating schedule, in periods where short supply threatens the integrity of the grid. The move was heavily criticised by industrialists and other commercial businessmen.
“We’ve also brought in some demand-side management, which has focused on encouraging consumers to conserve power during peak periods,” says Changfoot. This too has helped reduce the incidence of load shedding.
Unfortunately though, unreliable power supplies have caused many organisations to invest in their own backup supply equipment at considerable cost. This has affected the way they view Eskom and its reputation has taken a bit of a battering.
“We do have some work to do in terms of restoring our reputation,” says Eskom, whose goal is to continually improve services to customers. That has never, and will never, change. “That is true,” adds Changfoot, who is working hard, as is the whole division, to ensure customers don’t suffer unexpected interruptions. “Continuity of supply is a real challenge,” she says.
KEEPING THE LIGHTS ON
Eskom, of course, is faced with the challenge of keeping the lights on. It’s not easy and its 2008/9 annual report says that South Africa needs to build 40,000MW of new generation capacity by 2025, of which 12,476MW are already under construction.
Of these, 4,454MW have already been commissioned and 6,184MW will come on stream within the next five years.
“Current problems will continue until new power stations start coming online,” says Eskom. “We have a comprehensive build programme which is on track to deliver new generation as planned,” Changfoot adds.
ROLE IN THE COMMUNITY
As a state-owned enterprise, Eskom plays a significant role in the community — far beyond the mere supply of electricity. It also supports South Africa’s growth and development aspirations.
Eskom’s value proposition is to “provide electricity for all South Africans”, “support other industries”, “drive transformation”, “create jobs”, and provide a “reliable electricity infrastructure”.
The company says: “Electricity is a necessary and important input to all economic activity, and in particular is important for realising national socioeconomic objectives. The consequences of operating a power system with a limited reserve margin became apparent in January 2008 when Eskom was forced to introduce emergency load-shedding. Investment in electricity generation and transmission infrastructure is a necessary precondition for sustained economic growth. Fundamentally, new investments in other sectors can only proceed if the future supply of electricity is secure.”
It adds that “over and above supplying electricity, the size of the organisation’s current operations and expansion makes Eskom an important economic stimulant”.
“Eskom’s affirmative procurement strategy has a direct bearing on redistributing wealth and income in society,” the company continues. “Eskom continues to support procurement with BEE and BWO suppliers, thereby channelling significant amounts of money into these sectors.
“Over the five years to March 2013, Eskom plans to spend R385 billion on capital expenditure; this is the biggest build programme in the country and will have large spin-offs through the awarding of contracts, investment by suppliers and purchasing of goods and services sourced from South Africa. This will help to create approximately 40,000 direct and indirect new jobs, with the related skills development benefits.”
It adds: “For direct foreign investment, a secure and reliable electricity supply is a prerequisite. Eskom must ensure that South Africa remains an attractive investment destination.”
ESKOM ACTING CHAIRMAN APPOINTED
This is a fairly turbulent period for Eskom. In November 2009, it appointed Mpho Makwana Acting Chairman following the resignation of Bobby Godsell as Board Chairperson and Mr Maroga as Chief Executive.
Maroga’s offer to resign was clear and unambiguous. It was accepted by the Board of Eskom Holdings Limited on 28 October, 2009.
“The Board recognises that Mr Maroga’s resignation brings uncertainty which requires urgent normalisation at Eskom,” the company said at the time. Makwana will guide the company until a new Chairman and Chief Executive are appointed.
“My role is to help employees with the healing process after this difficult period and to instil in them a sense of belonging, pride and team spirit. Eskom relies on the resilience and drive of employees to deliver on keeping the lights on," Makwana said. "They are the guardians who make the electricity that makes everything else possible. Of fundamental importance for South Africa is that, along with providing a reliable electricity supply, Eskom remains financially sustainable as we proceed with the tariff application process and, going forward, that we are able to secure sufficient funding to proceed with our build programme,” he added.
A new Chairman and Chief Executive are expected to be appointed shortly after publication. That will herald a new era for Eskom, one in which it is eager to perform.
While this is undoubtedly a difficult time for the utility, it remains focused on the job in hand and will continue to power South Africa’s economy through the supply of reliable electricity.
BUILD PROGRAMME
Several additional power stations and major power lines are busily being built to meet rising electricity demand in South Africa and achieve Eskom’s aim of supplying “reliable electricity”.
Its website says its capacity expansion budget is R385 billion up to 2013 and that is expected to grow to more than a trillion rand by 2026.
“Ultimately, Eskom will double its capacity to 80,000MW by 2026,” the company says.
The programme started in 2005 and, since then, an additional 4453.5 MW has already been commissioned. The plan is to deliver an additional 16,304MW in power station capacity by 2017.
“The formal opening of both Ankerlig and Gourikwa open cycle gas turbine stations took place in October 2007,” says Eskom.
“Both these stations have subsequently been expanded. At Gourikwa, two more units have been added, each with 148MW capacity. These were completed in March 2009. The building of five additional units at Ankerlig with capacities ranging between 148.3 and 149.2 MW was also completed in March 2009.”
In addition, in 2006, Eskom received a licence to build the first new coal-fired power station in more than 20 years — Medupi power station in Lephalale, Limpopo Province.
“An official sod turning took place on 14 August 2007 and, to date, terracing is approximately 60 percent complete and slip columns construction on the first two units is near complete,” the company website says, adding that, “on 29 February 2008, Eskom awarded contracts worth about R31.5 billion for its “Kusile Project”, a coal-fired power station being built near Emalahleni in Mpumalanga.”
It continues: “This station is expected to be completed in late 2016. Terracing work begun in mid 2008 and the first unit is planned to be online by 2013.” Three mothballed coal-fired power stations — Camden, Komati and Grootvlei — have also returned to service, according to Eskom’s website.
Sure, with a planned capacity of 100MW, and Majuba rail have been put on hold, however, pending review. Other projects have also been halted. “A team of more than 2,500 engineering, project management and commercial resources, supplemented by 19 local and foreign engineering and project management companies who are contracted as partners over the next 10 years, are working full-steam on the build programme,” Eskom says.
FACTS AT A GLANCE
COMPANY NAME: Eskom
ACTING CHIEF EXECUTIVE: Mr PM (Mpho) Makwana
OPERATIONS: The South African Government’s electrical utility
ESTABLISHED: 1923
EMPLOYEES: 37,857
REVENUE: R199,302 million
www.eskom.co.za
View Digital Corporate Profile of Eskom in SupplyChain Digital February 2010