Komati’s R9bn World Bank loan gamble

Komati’s R9bn World Bank loan gamble. City Press, 20 November 2022.

MC Botha comments as an energy tariff expert on Eskom’s R9 billion from the World Bank to decommission the Komati power plant and convert it to delivering renewable energy. If Eskom plans to recover the loan costs from electricity consumers, it would need to adhere to electricity pricing policy guidelines and disclose the impact in public hearings, Botha said.

Original article on CityPress

Eskom’s job is to generate power, but the utility was involved in politics – at huge cost – said Dawie Roodt, chief economist of the Efficient Group. Roodt was responding to Eskom’s recent announcement that it had taken a loan of R9 billion from the World Bank to decommission its Komati Power Plant and convert it to one that delivers renewable energy. Komati had reached the end of its lifespan and the last unit was closed on October 31.

However, the loan also provided for the costs of the “just transition” to a greener power supply, which
included the retraining of staff and other “community beneficiaries”, and the development of small businesses and supply chains around Komati. Eskom admitted that either the electricity users or the taxpayer would bear the cost and said that it was planning similar projects at Majuba, Lethabo and several other old coal-fired power stations.

“For the R9 billion, Eskom also planned to generate 150MW of solar power, 70MW of wind power and install 150MW of battery storage on the premises.

Thomas Garner, chairperson of the SA Independent Power Producers Association (Saippa), said the estimated cost of wind power in South Africa was currently R20 million/MW, solar power was R12 million/MW and battery storage was R16 million/MW.

According to that, it could be estimated that this part of Eskom’s project might cost it R5.6 billion. Other sources believed that Saippa’s figures were too conservative and that the cost would be closer R6.5billion. In both cases, a huge sum was provided in the loan for decommissioning and social interventions to limit the impact on the community of Komati’s closure.

In addition, provision had already been made earlierfor the costs of environmental rehabilitation after the closure of the power station. According to Eskom’s financial statements for 2020/21, the total provision for this at coal-fired power stations was R15.2 billion.

The question that Eskom could not answer was how the R9 billion was allocated and how much value electricity consumers and taxpayers would get for their money in terms of power supply.

Eskom told City Press that the terms of the facility had been negotiated and agreed on, but they would
be considered final when the actual concession loan documents had been signed by all parties. That included details about the final allocation. Roodt said Eskom was already about R400 billion in debt and that it was only able to service half of the debt itself.

Government had promised to take over between one-third and two-thirds of that amount, but had not yet done so. Roodt believed it was foolish for the organisation to borrow any more at present, because, although a lot of funding for green energy projects was available, Eskom needed to focus on power generation. It would have done better to sell Komati to a private investor and thus limit further expenses, he said, adding that Finance Minister Enoch Godongwana had already publicly warned that Eskom should sell its old power stations.

Roodt said it was not Eskom’s responsibility to get communities situated around old coal power stations to support the conversion to green power, and the cost of community initiatives could not be added to electricity tariffs. He said that politicians were behind the development goals and needed to allocate tax money for that purpose. According to a discussion document that Eskom published earlier on the socioeconomic impact of the closure and conversion of Komati, 4 166 direct and indirect jobs were at stake, 800 of which were on the power station site, as well as a contribution of R1.71 billion to the country’s GDP.

Among the interventions discussed were the establishment of a production facility for micropower networks, a training facility, the retraining of staff and eligible beneficiaries from the community, as well as the development of enterprises and value chains. MC Botha, a tariff expert and lawyer with severalcourt victories against energy regulator Nersa to his credit, said time would tell whether electricity tariffs would be increased to pay for the loan.

“When Nersa considers Eskom’s tariffs, it is bound by legislation that only allows Eskom to recover efficient costs, plus a reasonable return on its capital.”

Furthermore, there are guidelines in pricing policy for electricity – for example, that electricity tariffs must be affordable, transparent and reflect the cost of power supply. If Eskom planned to pass the cost on to the consumer, its impact would have to be disclosed during public hearings on the power tariff. Only then could the cost implications of such a loan and the legality of including it in the tariff be questioned and evaluated, said Botha.

Eskom said that, if it complied with the prescribed legal and regulatory processes for the closure and conversion of Komati, the loan would be recovered from consumers through the electricity tariff as depreciation and return on capital. Whatever was not recovered through the tariff would ultimately have to be paid by taxpayers.

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