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Projects and Energy Weekly Snippets

26 September 2014

Eskom to receive a lifeline of ZAR50 billion, and expansion of IPP programme
On 14 September 2014, National Treasury published brief contents of Eskom’s recent Cabinet-backed “support-package”. As part of the package, Eskom will receive an equity injection that will be generated through “leveraging non-strategic government assets”. In addition to this, Eskom will be raising further debt in the region of ZAR50 billion. This is over and above its original plan of ZAR200 billion during the 3rd Multi Year Determination Period. While going to negatively impact on Eskom’s balance sheet, this has been justified as “necessary to reduce the impact on electricity consumers”.  Furthermore, there are going to be various demand management measures put in place to assist in improving the electricity supply-demand balance. Also, our current energy policies are going to be refined to give more certainty regarding the industry going forward. Through the package, interventions will be introduced to ensure allocation of free basic electricity to poor households to assist them in coping with the impact of the imminent higher tariffs. As part of the package as well, there will be an expansion of the independent power producer programme to complement Eskom’s build programme. Eskom will need to improve on the efficiency of its operations through more effective maintenance and better use of working capital.

Tariff reopener possible after cabinet endorses Eskom support-package
Cabinet recently approved a “support-package” for Eskom, and in an announcement on 14 September 2014, reaffirmed that tariff adjustments “remain the key mechanism that will provide the electricity supply industry with a sustainable solution”. This includes a further allocation of funds through equity injection generated by “leveraging nonstrategic government assets” in order to assist Eskom in building power stations and repay debt and interest. Details of the planned injection are anticipated to be released as part of the Medium-Term Budget Policy Statement in October 2014. The consequence of Cabinet’s decision is projected to be tariff hikes expected to take effect on 1 April 2015, over and above the already sanctioned 8%. This might create a platform for a tariff “reopener”, which will see Eskom pursuing the 16% annual increases it had initially requested over a period of five years spanning between 1 April 2013 and 31 March 2018.

100 days to Medupi synchronisation
On 15 September 2014, Eskom announced the start of the 100-day countdown to the launch of the Medupi Power Station. Medupi is the first new power station built by Eskom in the past 20 years. Medupi is made up of six 800MW units with a total capacity of 4 800MW. The name Medupi is a Sepedi word that means rain that soaks parched lands, giving economic relief. The synchronisation of the first generator is a major milestone not only for the energy sector but for the country as a whole.

Eskom warns of more outages as “high-maintenance” summer season approaches
In a recent revelation that 32 of its 87 coal-fired generating units require what has been termed ”major surgery”, in addition to four already in a “critical condition”, Eskom has warned of more power outages over the upcoming holiday season. Eskom needs an additional capacity of 7400MW to sustain supply while it deals with the maintenance crisis.  At this stage, not even Medupi’s first 749MW unit anticipated to be synchronised to the grid on 24 December 2014 can help in stabilising the situation. Eskom advised that summer load shedding periods are likely to be between 06h00 and 22h00.

Russia and South Africa sign $10 billion nuclear deal
On 22 September 2014, Russia’s state-owned nuclear company, ROSATOM, signed an intergovernmental agreement with South Africa on strategic partnership and cooperation in South Africa's Nuclear Energy and Nuclear Industry. The deal was signed on the sidelines of the 58th session of the International Atomic Energy Agency General Conference in Vienna. In a statement by representatives of both countries, it was indicated that “the agreement lays the foundation for the large-scale nuclear power plants procurement and development programme of South Africa based on the construction of new nuclear power plants with Russian VVER reactors with total installed capacity of up to 9.6 GW (that is up to 8 NPP units) in South Africa by 2030”. 

These will be the first NPPs based on Russian technology to be built on the African continent. In addition to building the nuclear units, the agreement provides for partnerships in various areas including the construction of a Russian technology-based research reactor, assistance in the development of South African nuclear infrastructure, and the education of South African nuclear specialists in Russian universities. There will be broad localisation of equipment for the new NPPs through the joint implementation of the Agreement. ROSATOM’s director general, Sergey Kirienko, said that “the new project for up to eight nuclear power units will contribute to the creation of thousands of new jobs and place a considerable order to local industrial enterprises worth at least $10 billion”. ROSATOM currently has 29 projects for the construction of nuclear power plants, including 19 foreign commissions in India, China, Turkey, Vietnam, Finland, Hungary and others.

The above reflects a summary of certain news articles published during the preceding week. It is not an expression of opinion in respect of each matter, nor may it be considered as a disclosure of advice by any employee of Hogan Lovells. 

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