Eskom will urgently have to find about R10 billion for a new mega construction project to avoid severe penalties on its World Bank loan for its two mega-construction flops – Medupi and Kusile.
The World Bank lent Eskom $3.75 billion of the project cost of $10.7 billion (about R163 billion) for the construction of Medupi. It also provided $250 million for renewable support projects, including a battery storage project.
This project involved installing batteries on various premises around the country to store power from renewable sources.
According to the World Bank’s public documents this clean energy project is expected to cost about $661 million (more than R10 billion).
Eskom will have to borrow this money. But the power utility has an abysmal record when it comes to completing large construction projects on time and within budget.
According to sources in Eskom, the R10 billion it will have to borrow was not included in the R440 billion debt that was disclosed by Eskom during the announcement of its year-end results.
In the previous financial year, Eskom had already made a loss of more than R20 billion and its income was insufficient to service its debt.
The battery project was meant to make use of renewable energy more effectively and integrate it in the power network.
Mikhail Nikomarov, chairperson of the SA Energy Storage Association, said the batteries can be used to store energy during times when demand is low and Eskom has an electricity surplus.
That power can then be used during peak times at a lower cost than the diesel turbines Eskom is currently running during these times.
According to information the World Bank published, Eskom plans to set up 360MW storage batteries on 40 different premises throughout the Eastern Cape, Western Cape, Northern Cape and KwaZulu-Natal.
The batteries will be able to store about 1 440MW of energy daily.
One of the premises is Eskom’s own Sere wind farm near Koekenaap in the Western Cape and the other one is Melkhoutbos in the Eastern Cape.
Eskom did not want to give more details on the premises and the project because it is still investigating the finer details.
Eskom has already had to renegotiate its loan conditions with the World Bank once, when it neglected to establish a concentrated solar energy power plant which was part of the original loan conditions.
In 2017, the World Bank accepted Eskom’s proposal to convert the project to battery storage. Eskom was expected to go out on tender in April this year and complete the project by October next year.
However, this did not happen.
In May this year, the World Bank published a notice about the project, with expected time frames. However, since the notice was published, there has been dead silence, said industry sources. Eskom told our sister newspaper Rapport it was waiting for regulatory approval, without providing any details.
According to the World Bank documents, environmental approvals must be obtained for the various premises and the National Energy Regulator of SA must also give the green light.
Eskom said it would be difficult to say exactly when the approvals would be in place. In the meantime, the World Bank has granted an extension.
Eskom has not said how long the extension is, but Rapport has established that it will only be for a year.
The energy provider will therefore have to urgently acquire financing for this project.
The World Bank documents make it clear that the organisation is well aware of the dismal state of Eskom’s affairs.
The bank points out the risk that the project could be delayed, but is clearly encouraged by the appointment of a new board last year and attempts to rid the organisation of corruption.
A source close to the process told Rapport that the World Bank realised that Eskom’s recovery was in everyone’s best interest and that it would not yank the rug from under Eskom’s feet.
This article was amended on August 23 2019. In the original, it was reported that the World Bank lent Eskom about $10.7 billion (about R163 billion) for the construction of Medupi and Kusile power stations. It should have read that the World Bank lent Eskom $3.75 billion of the project cost of $10.7 billion (about R163 billion) for the construction of Medupi. The heading of the article “World Bank flags Eskom” mischaracterised the risk analysis done by the World Bank, which is normal on a project of this nature.