The answer is that - in respect of the cost of electricity produced by Eskom, compared to that by independent power producers (IPPs) - Godongwana, Godsell, Dames and Etzinger all repeat fallacious, misleading and tired old propaganda that has been put out by Eskom for ages, fuelling and building (instead of correcting) common misperceptions, to the extent that politicians, policy makers and even Eskom people start believing this nonsense. They should know better. Please allow me to elaborate...

In an interview published in the July 2009 issue of Energize magazine [1], Dames states that "The one debate that nobody has is how much do you pay for this lot [IPPs]? And I can say to you, it's not the price we have just got from the Regulator, and it's not what we asked for - it is at least double. The South African consumer needs to understand that the price [of electricity from IPPs] is double Eskom's price, and again, the country must be ready to pay for it." Dames misleads by failing to indicate that the price of electricity from Eskom's next power station (Madupi) will be higher still - comparable if not higher than that of IPPs.

An Independent Online (IOL) news report on 7 October 2009 [2] quotes Godongwana at a briefing of the parliamentary committee on Public Enterprises as saying that private producers [IPPs] were charging at least 75c/kWh for electricity, while Eskom was still charging about 33c/kWh, even after factoring in the 31% price increase which came into effect in July this year. He told MPs that "The argument that they [IPPs] are going to bring prices of electricity down is incorrect... they are going to push the price of electricity up". Again, Godongwana misleads by failing to tell MPs that Eskom's next new power station (Madupi) will be pushing Eskom's price up as high if not higher than IPPs would.

Godsell goes even further in misinformation about IPPs. In an Engineering News report dated 9 October 2009 [3], he is quoted as telling delegates at a recent Steel and Engineering Industries Federation of South Africa (SEIFSA) breakfast that it was not the utility's job to subsidise private producers of electricity. "In my job, I do get to see the applications for independent power producers. I would prefer not to see them. I don't think Eskom should have anything to do with licensing independent power supply. But at the moment, Eskom does, because it has to buy all the power from these producers. And, I can tell you that those applications are coming in at between 75c/kWh and 120c/kWh, while Eskom's average tariff is 33c/kWh, and the way the system works at the moment, Eskom has to pay the difference". Not true at all. Eskom will be paying as much if not more for electricity from its own new power station, Madupi, than if it had procured this electricity from IPPs instead.

Finally, in an interview on the John Robbie Show on Radio 702 on 8 October 2009 [4], Eskom spokesman Andrew Etzinger again paints IPPs as expensive, with prices at a premium above that of Eskom, even going as far as comparing Eskom's current price of electricity (33c/kWh) - which even Godsell concedes is completely unsustainable and way below the monopoly's actual cost of generation - with the cost of electricity generation from solar photo-voltaic systems (R5/kWh). Then when challenged by this writer on air, Etzinger concedes that for the next kWh, the price of electricity from IPPs would in fact be comparable with that of Eskom, thus revealing the extent of the misleading statements by Dames, Godongwana and Godsell.

As usual, Godongwana, Godsell, Dames and Etzinger have also each said how Eskom welcomes and needs IPP participantion in the generation sector. But do you, dear reader, discern a sincere welcome in their sentiments expressed above, or do you (as I do) see a welcome that is not exactly honest, indeed somewhat hostile? Perhaps this mirrors the difference between Eskom's long, drawn-out talk in respect of IPPs, and the reality of inaction on the ground.

The point is, as algebra school teachers drum into their learners time and again, one has to compare apples with apples, and not apples with dogs. One cannot add 3x to 4y and come up with an answer like 7 or 7x or 7y or 7xy. These would all be wrong. Yet this is exactly the sleight of hand that Dames, Godsell, Godongwana and Etzinger try to pull off.

To confuse and fudge a misguided IPP stance, the cost of electricity generated by an aging fleet of Eskom power stations (procured and amortised years ago when the rate of exchange and price of plant were very different, with no provision made in the costing for building of new generation capacity or replacement of old plant), is (wrongly) compared with the cost of electricity produced by a new IPP power station built now. Of course, they should be comparing the full electricity cost (including the cost of externalities) of the next new Eskom power station (Medupi) with that of electricity from a new IPP power station. Such a consideration will reveal a cost per kWh of electrical energy from Madupi up to 15% higher than that of an IPP, while the IPP could deliver power in about half the time of that of a new Eskom coal-fired power station.

This is because the costs of capital, generation plant and primary energy for both Eskom and an IPP would essentially be the same. However, IPPs manage risks and cost over-runs better, and their project lead times are much shorter, leading to lower interest and project costs. Globally, IPPs have also proved themselves adept at operating and maintaining generation plant with significantly lower staffing levels and costs compared to state-owned monopolies. In addition, there is the question of timing - Eskom procured Madupi with long lead times at the market peak, whereas an IPP could procure plant now at cheaper prices.

The full cost of electricity produced by a new Eskom power station like Medupi will not be 33c/ kWh at all - the cost will be much, much higher, and one can say without any doubt that IPPs can deliver new generation capacity and the next new kWh of electrical energy at costs matching and even lower than Eskom. And, comparing apples with apples, this also applies whether considering coal-fired generation capacity, or other generation technologies such as open or combined cycle gas turbines, wind, concentrating solar, photo-voltaic, etc. Furthermore, in contributing new generation capacity, IPPs are faster and more flexible. They introduce new capital, skills and diversity, and in this way, they serve to reduce risk and increase efficiency, while introducing competition and benchmarking of an incumbent monopoly in trouble.

Eskom is a public utility, 100% owned by the South African government and the people of South Africa. Eskom is currently entrusted with being the sole-buyer of electricity generated in South Africa, including that from non-Eskom generation sources. As such, Eskom is duty-bound to consider all generation options (and not just its own parochial business interests) in a national integrated energy resource plan, and to procure new generation capacity and electricity on a rational basis in the best interests of the South Africa, the productive economy and the general public as a whole. In doing this, it has to balance the requirements of security of supply with affordability, cost, efficiency, environmental impact and sustainability.

If Eskom does not do this, it will not only be failing in its duties, it will be failing the country.

[1]  "Absence of funding plan inhibits Eskom and South Africa on many fronts", by Chris Yelland, Energize, July 2009.

[2] "Eskom 'no blackout' assurance under scrutiny", by Caiphus Kgosana, Independent Online, 7 October 2009 

[3] "IPP tariff applications up to three times more expensive - Godsell", by Terence Creamer, Engineering News, 9 October 2009

[4] "Eskom's Andrews Etzinger debates with Chris Yelland over agreements with IPPs", Podcast: Talk Radio 702 - The best of John Robbie, 8 October 2009

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