Speech by Minister of Public Enterprises, Lynne Brown MP, in the debate on energy supply, National Assembly, Parliament, November 27 2014

Minister Lynne Brown: Parliamentary address on energy supply

28 Nov 2014

Speaker,

I feel a bit like Winston Churchill felt when he made his famous speeches to the British public during the Second World War. I was a bit nervous about saying that because some may be tempted to say that I look a bit like him too.

Speaker,

Humour aside, there are certain parallels. As then, all the citizens of the country face a very serious national challenge.

As then, there is hope. As then, overcoming the challenge lies in every citizen who is able to help, pulling together.

Speaker,

So much has been said and written about this subject. So many statistics quoted. So many facts stated. So many analyses done. So many opinions expressed.

So, Speaker,

I really do not want to assault this House and the nation with more of the same. Permit me to begin by attempting to explain to our families and our neighbours who are not experts, and who simply want electricity to be there when they want it, why that is not always the case.

In simple terms, as most of us know that electricity is generated in power stations. We build most of our power stations to last for 50 years. If power stations were perfect and never encountered problems and could stay on all day every day for 50 years, we would not have a problem in South Africa.

Right now, if the power stations were perfect, we would have more than enough power to keep the lights on all over the country all the time. Nobody would think about the fact that electricity was even there and we would certainly not be in this House having this debate now.

Let me state that differently: If we run all our power stations at their ideal operating capacity at the same time, we will have more than enough power to meet the nation's current and some future needs. The problem is that power stations are not perfect.

Like cars, they need servicing from time to time. Because we know that our cars need servicing every 20 000 kilometres, we plan to have them serviced after having travelled that distance. What this means is that when we want to service a power station, for the period that it is being serviced we have less electricity available.

So, we service the power stations when the nation needs less electricity, mainly in summer. And, in the normal course of events, we have enough power from the rest of the power stations to compensate for the loss of the electricity from the power station that is being serviced.

However, as with cars, power plants break down unexpectedly. But even then, with one unexpected breakdown, even two, we would have enough electricity if all the other power stations are operating perfectly. Our problem is that sometimes, like the recent collapse of the coal storage facility at Majuba, too many break down unexpectedly at one time.

In simple terms, that is what is happening now. Given that a power station is not like a car, when it breaks down, it sometimes takes months to repair which means that we have less power than we need for that period of time.

You may then ask: Why are we not making sure that we have more power stations to deal with the planned servicing and any unplanned breakdowns. The answer is that we are building two very large power stations right now - among the top five in size in the world - and they should have been delivering power by now.

And, if they had been available as originally planned, once again, we would not have been having this debate right now. We would have had more than enough power available for all eventualities. But, they are not yet delivering the additional power that they will bring.

Why? There are a number of reasons.

Some of the international contractors who we hired to build crucial parts of the new power stations let us down badly and we lost many months as we tried to rectify their mistakes. Then, too, almost a year was lost as a result of work stoppages because of strikes. As a result we are running between three and four years late.

Speaker, this is the moment to ask and answer the tough questions frankly. Does Government have to take a share of the blame? With the benefit of hindsight, we have to accept that we probably took the decision to build these two new giant power stations later than we should have.

Does Eskom have to take any blame? Again, with the benefit of hindsight, there was a very long time between the building of the previous power station and the building of the two which we are building now - Medupi and Kusile.

As a result Eskom and the country in general lost many crucial skilled individuals who could undertake the work and could manage projects of this size. Clearly, this time around, Eskom did not have all the skills it needed to manage and oversee the construction of these two new giant power stations when the projects started.

But, while I do not intend to dismiss these lightly, this is not the time for focussing on blame. This is the time for pulling together as a nation to turn things around and get back to where we were at the start of the century when we hardly ever spoke about Eskom because the lights were on all the time.

Possibly, we need to remind ourselves that keeping the lights on then as well was no ordinary feat. Possibly we need to remind ourselves that in the period up until 1994, the previous Government connected only 5.2-million households to the grid. Since 1994, 7 million more were connected to the grid. This means that now 85 percent of the population has electricity in their homes.

Speaker,

Let me now turn to the road ahead. The bad news is that it is going to be very tough for about two years longer and patience will be needed on the part of all citizens.

The good news is that people who know what they are talking about are saying that, if we take certain critical actions, there is every reason to believe that, from 2018, things are going to be looking a whole lot brighter.

There are major challenges ahead to achieve a much improved outlook in 2018. The first challenge is to make Eskom financially stable. As you heard, the first major step to address that challenge came with the decision by Cabinet to combine a number of large-scale initiatives to set Eskom on the road to financial stability.

The detail of the package was dealt with earlier. What I want to add is something about what it represents. It is not simply a temporary fix. This package marks a seminal change in the way in which government is addressing the centrality of energy, and particularly electricity, in the economy and society as a whole.

As you have heard, it is multi-faceted and complex and we will have to climb and move mountains to make it work, but I believe it is the sea change that we have all been looking for.

But, Speaker,

This is not only my view. Some of our toughest critics in the ratings agencies, while having some reservations as they always will, are recognising that it is the kind of intervention which signals absolute seriousness and commitment by this Government to dealing with the issue.

For the first time in a while, those with a nuanced understanding of the electricity supply industry are saying that we have a chance of turning this super-tanker around. The second of our major challenges is halting and reversing the decline in Eskom's total generation capacity.

On many of those days when you did not think about Eskom because it was delivering power all the time, there was drama happening behind the scenes. In utilities like Eskom, there are always unplanned breakdowns which increase the risk of outages. So, to keep the lights on, Eskom has had to make the other power stations work harder than the ideal level and service them less frequently than is ideal.

Given that most are beyond the middle of their planned life, they also need more attention. If we simply allow this to continue, we will get less out of the system and breakdowns will become more frequent which means the possibility of load-shedding will increase.

I am happy to report that earlier this week, for the first time in six months, I was able to exhale after I was given the assurance by a global expert on this topic, whom I have come to trust, that he believes that we can halt and reverse the decline.

He is not promising miracles.

He says that we will have to do some extraordinary things to achieve this but that we have the experience and capacity to do so.

Third, there is the problem of the so-called coal cliff.

In simple terms, this means that between now and about 2050, Eskom will need about 4 billion tons of coal. In the short to medium term, not all of that has been secured. It is not that we do not have the reserves. It is about it being contracted and the logistics of supply.

Once again, even as a relative newcomer to the detail, I am persuaded by the belief of the top experts that there are ways to mitigate and overcome this problem. Once again, it comes with the health warning that much needs to be done and faster than it has been done before.

And before the question is asked, I will share the detail once it is available. As we speak, Eskom and the experts are on a breakaway refining the details.

The good news is that by the middle of next year, the first unit of the giant Medupi power plant should be adding 800 MW of power more to our system. This will be followed by another 8 800MW of new power at regular intervals as the other five Medupi units and Kusile come on stream.

So, the bottom line is: The next few years are going to be tough. We will be hit by the inevitable unplanned problems which hit all utilities globally. However, we have an excellent understanding of the problems ahead and have every reason to believe that, with the right kind of commitment, there are credible solutions to all of these problems.

Speaker, I would like to touch on a few of the most important  policy issues which live around the electricity supply industry and which must be resolved in the very near future.

The first is the notion of so-called "cost-reflective tariffs". In simple terms, Eskom does not set its own tariffs. Those are set by energy regulator, NERSA. The matter which requires resolution is how to ensure that Eskom is able to balance its books without having the authority to set its own tariffs.

Next: How do we ensure that the poor are shielded from above-inflation tariff increases?

How do we fund the building of future power plants?

When to begin the detailed planning for additional power plants?

How do we strike the balance between the need for the State to ensure Energy Security and the need to draw more private financing into the system as we have done through the very successful renewable energy IPPs?

How will the possible restructuring of the electricity supply industry through ISMO affect its efficiency, cost effectiveness and sustainability?

These are complex issues and must be consulted widely and clearly, cannot be covered effectively in a debate like this

Speaker,

In conclusion, I want to reiterate my appeal to all of us in this House and all of our social partners: This is not only an Eskom problem. This is not only a Government problem. This is problem which affects all of us. In the interest of the nation, can we please work together to solve our collective problem in the spirit and manner in which we rose to the challenge of 2010.

As in 2010, failure is simply not an option.

Thank you!

Issued by the Department of Public Enterprises, November 27 2014

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