“It is no secret Eskom is haemorrhaging funds following a series of poor management decisions since 2007 and wide-scale looting and corruption caused by successive ANC deployed cadres and the Guptas,” states Ted Blom, Mining & Energy Advisers Partner.
The initial quote for Medupi construction stood at around ZAR32 billion and because of kickbacks and corruption, was pushed up to some ZAR91 billion and approved by the then corrupt board. The same board then ordered a second station, Kusile, at the same inflated price and without going to tender and while appointing Chancellor house as the BEE beneficiary. Logic dictates the economies of scale would have applied to lower the overall costs.
“Its a case of why build one when you can build two for four times the price using public money,” says Blom.
Meanwhile, at exactly the same time, India procured its Mundra power station for ZAR35 billion and completed construction on time in 2012, while using a consortium which contained SA skills.
Early signals in 2009 indicated Eskom was running into problems and despite Blom’s incessant questioning around the costs to completion (CTC), Eskom remained secretive around Medupi and Kusile.
Blom, however, persisted to a point where The Minister of Energy at the time became so infuriated at Blom’s questions on Medupi, that she prematurely left a meeting fuming.
Blom’s estimate is that Medupi & Kusile will not receive much change from ZAR300 billion each.
“That is nearly 10 times the market price and World Bank average,” says Blom, “At that price, Eskom would have been able to build twenty new power stations instead of only two.”
Blom also estimates that neither station will be fully commissioned before 2026, partly because of water issues which were overlooked, combined with funding constraints by reluctant lenders who can all see this is a National Disaster.
Given that the cost to completion for each of these stations is more than the costs of a brand new power station, Blom is calling on the new Eskom Board to immediately cease construction on both these projects and write off these excesses as expensive school fees.
“Why would you continue wasting another ZAR100 billiob plus of taxpayers’ money on each station when the facts are so blatant that you could build an entirely new station for less than the outstanding amount?” asks Blom.
Blom makes it clear that any clinical evaluation will reveal that stopping these blunders of poor management, incompetence and corruption is the right way to go. He further questions that if the new Eskom Board cannot understand this simple fact, are they not fit to lead the organisation.
Blom has previously criticised the lack of industry and Eskom experience in the New Eskom board and has presented a compelling case to Nersa to reduce the electricity price to 40 cents /Kwh – the price it would have been without all the wrongful expenditure and corruption.
To date Eskom has raised over ZAR1 trillion extra to fund ZAR100 billion of Capital expenditure, according to Blom, the balance has been squandered and stolen.
“If Nersa does not hear us, I will suggest that we consider moving to the next step which could include boycotting any tariff increases,” says Blom.
Blom estimates that if Kusile and Medupi were halted immediately, there would be no reason why the price of electricity should not revert to 40cents/Kwh – where it should have been in the first instance for 2018.
This would mean at least a 50% reduction in electricity costs for most households and business – a significant saving which will stimulate the economy and job creation while addressing a high priority on President Ramphosa’s list.