Green IT

Numsa slams govt over renewable energy bias

Read time 6min 50sec
Over the 20-year period, the IPP agreements will cost Eskom more than R1.2 trillion, says Numsa.
Over the 20-year period, the IPP agreements will cost Eskom more than R1.2 trillion, says Numsa.

The National Union of Metalworkers of South Africa (Numsa) believes the liquidity crisis confronting Eskom is self-generated by the ANC-led government, which is looking to "privatise" the power utility mainly to renewable energy independent power producers (IPPs).

In his State of the Nation Address earlier this month, president Cyril Ramaphosa proposed the splitting of Eskom into three separate units: generation, transmission and distribution.

Ramaphosa said the move was aimed at bringing credibility to Eskom's turnaround and position SA's power sector for the future. Last week, government said the troubled state-owned power utility, which generates more than 90% of the country's energy, was "technically insolvent". Eskom's debt is R420 billion.

Government also plans a massive bailout for the troubled power utility, of R150 billion over the next 10 years.

However, the trade union is not buying any of government's interventions at Eskom, arguing that most of the problems the power utility faces are self-inflicted. "Numsa condemns in the strongest terms the decision taken by the ANC government to unbundle Eskom, which we reject with the contempt it deserves."

Rolling mass action

Numsa, the biggest single trade union in SA with more than 338 000 members, issued a statement yesterday, saying it has "decided to embark on a rolling mass action through a declaration of Section 77 in defence of Eskom".

The labour organisation argues that government went ahead and signed the IPPs despite the fact that it had enough capacity when the demand in the economy was on a decline.

"They did this without NERSA [National Energy Regulator of SA] calling for public hearings. This was the case in 2011, 2012, 2015, 2018; ie Bid 1, 2, 3 and 4.

"When NERSA allowed Eskom to sign the IPPs without calling public hearings, they acted recklessly and both the Eskom board and minister of energy [Jeff Radebe] as well as Phakamani Hadebe [Eskom's chief executive] acted against the Constitution of the country which they swore to uphold," says Numsa.

In April last year, Radebe finally signed the outstanding 27 renewable energy projects with IPPs. The contracts are valued at about R58 billion.

It's only an idiot who cannot see that the biggest beneficiaries of the IPPs are the banks and the owners of the IPPs.


Numsa charges that the early warnings of government's "reckless decision" were very evident and glaring as far back as 2015.

It notes that of the R8.2 billion generated in revenue through NERSA tariff increases, R6.5 billion went to the IPPs.

"Such a decision militated against the interest of Eskom and as such Eskom's equity was eroded and its profits were depleted," says the trade union.

"It's only an idiot who cannot see that the biggest beneficiaries of the IPPs are the banks and the owners of the IPPs as they have earned whopping profits at the back of an extravagant tariff structure with a lavish return of 17% on equity on Bids Window 1 and 2."

Unaffordable tariff

According to Numsa, the "costly IPPs are destroying the economy, formal and informal jobs because of an unaffordable tariff. The very same public are paying for the IPPs that are destroying their well-being.

"This unbundling of Eskom is about privatising Eskom which does not address its key fundamental challenges such as increasing interest payments, borrowing levels that are excessive, the operating costs (IPPs and coal costs) and sales volumes which are declining. These are subsequently having a disastrous effect on the cash flow from operating activities."

Thus, Numsa says it is demanding an independent investigation into the IPP procurement process.

"In 2018, Numsa teamed up with the Coal Transporters Forum to oppose the reckless signing of Bid Window 4 and we have taken a decision to continue to take up this fight with them. We are approaching the court on 18 and 19 March."

Last week, public enterprises minister Pravin Gordhan appointed Italian renewable energy firm, Enel Green Power, to investigate the problem of load-shedding at Eskom.

"It is our firm view that the appointment of Enel is not to fix load-shedding but to conduct an assessment in order to evaluate the worth of the assets with the aim of selling them. The fact that the minister sees nothing wrong with announcing Enel - which is a competitor to Eskom and owns 27 IPPs - explains the bias of government towards the costly IPPs."

The trade union adds the IPPs that were connected in 2016, were connected when SA had enough capacity to generate a unit of electricity for 42c per kilowatt hour. The connection of IPPs cost Eskom an average of R2.22 per kilowatt hour against the "must buy first" principle from the IPPs, forcing Eskom to sell at a loss of 83c, it notes.

"Over the 20-year period, the IPP agreements will cost Eskom more than R1.2 trillion in nominal rands (present value) which is more than the nuclear deal."

For the 2017 financial year, says Numsa, the IPP's expense was R21 billion, adding that all bid windows 1 to 4 and the connection of IPPs mean Eskom's loss will grow to R100 billion by 2022, according to its own calculations.

"We note the intention by government to renegotiate bid windows 1, 2 and 3. Our demand is simple: the IPPs signed in April 2018 must be cancelled and if IPPs really are a means to offer SA a sustainable and competitive electricity tariff, those who signed them into the national grid would offer full disclosure of all possible options for an energy mix, and in what way IPPs are the better choice in the best interest of the people of South Africa."

Energy mix

Meanwhile, renewable industry body the South African Wind Energy Association (SAWEA) contends that Bid 4 of SA's renewable energy programme was initiated by government in 2011 as a premier procurement programme with the intent that climate and energy security should be addressed.

It points out that the need to diversify SA's energy mix as well as transition away from coal-fired power were primary motivators for the launch of the programme.

SAWEA says to date, it has been one of the most successful attractors of investment to SA, raising R202 billion so far; 24% of which is foreign direct investment.

It adds the programme has contributed 26 840GW to the national grid and created about 36 500 jobs. South Africans own, on average, 48% equity in all IPPs while black South Africans own, on average, 31% of project equity, says SAWEA.

Brenda Martin, CEO of SAWEA, explains round one projects were bid in line with tariff ceilings offered by government, which recognised that in order to initiate the growth of a market, attractive terms needed to be offered initially.

According to recent models from the CSIR, future wind energy investments alone have the potential to realise 70 000 jobs (in construction, operations and maintenance) through the smoothed allocation of 1.5GW of wind a year between 2021 and 2030, and to make a total GDP impact of about R20 billion between 2021 and 2030. That is approximately R200 billion in total, says SAWEA.

However, Martin says, consistent rounds of procurement, innovation and expanding global markets have led to dramatic cost reductions and a global trend of rapidly declining tariffs to date.

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