Africa’s Largest Power Utility Now Considers Selling Its Coal Power Plants- Here Is Why

By  |  August 28, 2019

The government of South Africa has revealed plans to sell Eskom’s coal power plants as part of a restructuring plan aimed at rescuing the loss-making state enterprise.

“Through these auctions, Eskom would sell the power station itself, all its power station-specific obligations (staff contracts, coal-supply contracts, supplier contracts, environmental obligations, etc), together with a power purchase agreement (PPA) at a predefined, power station-specific tariff,” the treasury said in an economic policy paper released for public comment.

Through selling the power plants, the debt-ridden utility would raise ZAR 450 Bn, the Treasury said, citing an independent study.

The policy paper highlighted alternative options that could be adopted in a bid to rescue the loss-making state power utility. Splitting Eskom into three, a suggestion which was first floated by President Cyril Ramaphosa in February was also explored.

The idea of selling power plants has received a backlash from a number of people. National Union of Mineworkers (NUM) energy sector coordinator said, “Our thinking as the NUM is that the selling of power stations or whatever will not help Eskom,” adding that auctioning the plants to private investors would not tackle the issue of emissions that it’s trying to reduce.

Ted Blom, an energy expert gave his view on other matter and he said the selling of the power stations was a great idea further noting that the government has taken too long to consider this alternative.

He, however, pointed out that the coal power plants have lost value highlighting that the plants may not pump in tangible money since they are old and not performing optimally.

“You can’t go around selling broken things and expect buyers to pay top price for broken stations while they will need to spend more money fixing them. I believe even if they go ahead and sell them they will not raise the type of money they expect.”

The treasury noted that Eskom’s unwillingness to engage independent power-purchase agreements undermined investor confidence adding that enabling the independence of the single buyer’s office “will ensure the sustainability of independent power producers.”

The cash-strapped power utility recorded its largest-ever financial year loss for the year ending March 2019, this is despite numerous government bailouts.

The utility’s crippled financial and operational situation continues to pose a huge threat to South Africa’s already debilitated economy. The financial rescuing of the entity by government and the huge losses it has continuously recorded has taken a heavy toll on the Southern African country’s economy and fiscus.

The Cyril Ramphosa-led government is giving Eskom ZAR 128 Bn bailout over the next three years to ensure it remains afloat.

Featured Image Courtesy: Ashraf Chemban from Pixabay

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