[DEBATE] : Eskom: The real cause of the crisis, James Myburgh, Politicsweb
dominic.tweedie at gmail.com
Fri Feb 1 12:05:51 GMT 2008
Eskom: The real cause of the crisis
James Myburgh, Politicsweb, 1 February 2008
The policies which led to last week's massive black-outs.
Since 1997 the ANC government has used various methods to fend-off
criticism. These have run from attacking motive to bullying,
obfuscation, bullshitting, lying, and outright denial. Over time civil
society and media became inured to these tactics. So it was something
of a welcome surprise when senior government officials - including the
president and his deputy - started admitting responsibility for South
Africa's energy shortages.
The basic line pushed by President Thabo Mbeki (and others) was that
government underestimated the likely rate of economic growth and
wrongly ignored Eskom's warnings that it needed to start building new
capacity. For this they were very sorry.
These apologies have not silenced criticism, but they have been very
effective in drawing attention away from where it should have been
focused. This is known, in other fields, as misdirection. A Wikipedia
entry notes how "The magician choreographs his actions so that even
the critical and observant spectators are likely to look where the
magician wants them to. More importantly, they do not look where they
should not." One way of doing this is through movement, whereby "A
larger action covers a smaller action."
Similarly, it is to the government's advantage to admit to failing to
approve the building of new generating capacity on time. At worst they
can be accused of ideological prevarication. Meanwhile, our gaze is
shifted away from places where the ANC would prefer it not to wander.
One of these is the way in which the ANC funding vehicle - Chancellor
House - has been cut-in on massive contracts for the building of the
Bravo and Madupi power stations. The other relates to the way in which
the Eskom's racial obsessions were responsible for last week's massive
On Wednesday this week there was a heated debate in parliament on
these outages. The Minister of Minerals and Energy, Buyelwa Sonjica,
spoke first for government; and the DA MP, Hendrik Schmidt, led the
response for the opposition. The debate between the two of them
centred on the failure to build new generating capacity soon enough.
Strikingly, neither side mentioned the word "coal" in their prepared
speeches. This is rather surprising because the cause of last week's
"national emergency" had relatively little to do with the generalised
power squeeze. It had everything to do with Eskom's negligence in
securing enough usable coal for its power stations.
The roots of last week's catastrophe lie in two fateful decisions made
by Eskom soon after Thulani Gcabashe was appointed CEO in 2000. The
first of these was to sell off most of Eskom's coal stockpiles.
Eskom's annual report for 2001 states that the decision had been taken
to "reduce actively its coal stockpile levels to reduce working
capital and related holding costs." In 2000 Eskom had 19,8 million
tons (Mt) of coal in stock or 61 days of burn. By the end of 2001 this
had been brought down to 14,8Mt or 44 days of burn.
The second decision was to not extend the existing coal procurement
regime to meet the expected increase in demand over the following 15
years. Through the course of 2001 Eskom had burnt some 94.1Mt of coal
in its power stations. This was provided to the company by the big
mining houses on long-term 40 year contracts. In terms of those
contracts the coal they were supposed to supply was required to meet
certain specifications. One of these was that it had to be useable in
It was evident then that as Eskom would need to provide more power in
the future, it would also have to burn more coal. In February 2002
Gcabashe told a conference that Eskom expected its demand for coal to
rise by some 30Mt to 40Mt by 2015. However, he said that Eskom wanted
to limit the "the bidding for the bulk of [Eskom's] additional coal
requirement contracts to black economic empowerment companies." Eskom
was also keen to move away from long-term contracts and create instead
an "active coal spot market."
In June 2002 Gcabashe approved a corporate directive on procurement
from black suppliers. This established a "Hierarchy of Procurement"
which had to be followed in "sourcing products and services." Although
existing agreements were to be respected, for any further purchases
drawn from outside the company Eskom was required to go first to
"Black Women-owned Suppliers," then "Small Black Suppliers," then
"Large Black Suppliers," then "Black Empowering Suppliers." Only once
these options had been exhausted could "other" South African suppliers
Eskom's annual report for 2002 stated that the company had now
implemented "the first phase of the long-term plan to support BEE and
introduce flexibility in purchasing coal requirements (over and above
the existing long-term contracts.)" Implementing this directive would
be an "important part" of all the performance compacts of senior
Over the next few years Eskom pursued parallel policies of reducing
its coal stockpiles and increasing its reliance on BEE companies for
the transport and purchase of coal. The 2005 annual report stated that
it was supporting tiny, small, medium and large black businesses when
it came to "purchasing coal". It also used BEE road transport
companies for the transport of coal. In the 2006 annual report
Gcabashe noted that each power station now only targeted "a 20-day
By the following year the problems with the new procurement regimen
were becoming apparent, even to the Eskom top brass. The 2007 annual
report noted that "coal procurement has continued to be problematic
due to under-production at the tied colleries, availability of coal of
the correct quality from short-term suppliers and transportation of
increased quantities of coal by road." However, there was no
suggestion that it was planning to modify its policy. It made clear
that "Eskom continues to support BEE coal-mining initiatives when
buying coal and uses [only] BEE hauliers for the transport of coal."
In mid-2007 Rob Lines, Eskom's generation general manager, told Justin
Brown of Business Report (June 26) that "Eskom was increasingly buying
coal on the spot market rather than using its contracts with coal
mining firms. The group was buying up to 24m tons of its annual coal
need of about 120m tons in the market rather than on fixed contracts.
The utility had a total stockpile of more than 6m tons at its power
stations [about 18 days of supply]."
Something was going seriously wrong with Eskom's coal procurement for
in December last year - Reuters UK reported this week - it issued a
tender "seeking consultants to review and improve its coal buying
The power crisis of last week was caused by the combination of low
stockpiles of coal, the long-term power squeeze, and the consequences
of Eskom's pathological racial procurement policies.
South Africa currently has 39,200MW of generating capacity. Of this
3,700MW (9,4%) was offline for maintenance in January. This left
35,500MW available to meet the country's power needs. However, over
the week before last Eskom was hit by massive unplanned power outages.
For instance, on January 16 there was an unplanned outage of 5,600MW -
14,4% of total capacity or 16% of available capacity. According to
Carte Blanche on Thursday last week (24 January) the outages had
spiralled to 8,500MW - 21,7% of total capacity or 24% of available
capacity. Including planned outages 31% off South Africa's power was
now offline. The programme stated, "coal problems were given as the
reason for breakdowns at more than 20 power stations."
This is what brought South Africa's national electricity supply system
to the brink of collapse, and forced the closure of the mines on
Friday 25 January. The government's own report [PDF] - published on
January 25 - identified the main cause of the crisis as problems with
the quantity and quality of coal supply. It states that "some of the
reasons for these failures were: Boiler Tube leaks/failure; Various
small equipment failure; Generator output reductions (load losses) as
a result of coal quality; Problems with coal supply."
As Ann Crotty noted in Business Report this week there are few systems
in place to control the quality of coal bought on the spot market and
delivered to the power stations by truck. She quoted one expert as
saying: "Coal that is being delivered by trucks ... is often of very
poor quality and very fine in size." The "rocks in trucked coal" cause
boiler tube leaks, and fine coal dust operational problems. A
spokesman for Eskom admitted last week that "heavy rain in Mpumalanga,
where Eskom had most of its coal-fired power stations, turned [this
kind of] coal into mud, which needed to be dried before it could be
Crotty noted that despite growing problems with securing sufficient
coal supplies last year, Eskom was restricted by its BEE procurement
requirements from meeting "its increased needs by modifying the
existing contracts it had with its three major suppliers."
So far government and Eskom have refused to provide the real reasons
for last week's national emergency - even as they rush to undue some
of the effects. Although all this information is in the public domain
- thanks to some excellent reporting - public attention is far away.
There is far more discussion of the 1998 White Paper on Energy Policy
than there is on the mismanagement and racial preoccupations which
brought South Africa's economy to the brink last week.
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