Eskom’s R24 billion ‘magic’ that ended load-shedding

Eskom’s ability to spend R23 billion on diesel for the past two years is one of the key reasons why load-shedding can be halted for extended periods of time. 

This luxury was not afforded to former Eskom CEO Andre de Ruyter, who told the second annual BizNews Investment Conference that spending billions on diesel can make problems “magically” disappear. 

De Ruyter explained that load-shedding coming to an end was not a miracle, but a simple mathematics problem that has been solved over time. 

“The end of load-shedding is not a surprise. As a matter of fact, in a previous interview that I did in 2023, I said that load-shedding would end. The math is very simple,” De Ruyter said.

The replacement of the steam generators at Koeberg’s two units, multiple Kusile units coming online, and the return of Medupi Unit 4 have been crucial in adding capacity to a strained grid. 

This has been coupled with immense private investment in renewable energy capacity, which has relieved pressure on Eskom. 

However, one of the other major reasons for the apparent end of load-shedding is the billions of rands spent on diesel. 

De Ruyter explained that Eskom has been allowed to spend much more on diesel in recent years than it has in the past. 

This enabled the utility to run its open-cycle gas turbine (OCGT) power stations much more frequently, despite their cost, to supplement Eskom’s coal-fired plants. 

“When I was at Eskom, we were allowed to burn about R5 billion of diesel a year, which is a lot, and I felt bad for it because it’s very, very expensive electricity that we generate,” De Ruyter said.

“The latest budget is sitting in the region of about R23 billion to R24 billion. That’s not affordable. It costs about R6/kWh to generate electricity from diesel. So, if you’ve got unlimited money to throw at diesel, then problems magically go away.”

De Ruyter has previously said that during his tenure, Eskom only had a diesel budget of around R6 billion a year. 

“We were very aware of how we had to scrimp and save to use diesel very frugally and carefully,” he explained to PSG Financial Services’ Annual Conference in May 2024.

However, he said the current administration has a diesel budget of around R24 billion – four times what De Ruyter’s team had.

“So, if the lights are on, well done, but they are on because we are pouring money into diesel at the rate of knots,” the former CEO said.

However, according to RMB’s economists, Eskom has achieved over 140 consecutive days without load-shedding while shaving R10.2 billion off its diesel expenditure. This contradicts De Ruyter’s version of events.

Eskom vs De Ruyter

Various individuals on Eskom’s management team and board of directors have been at pains to show that this is not the case. 

“It has been part of a plan that we put together, and that plan was developed jointly with management, and it was presented to the board and approved by the board in March last year,” Chairman Mteto Nyati said in response to De Ruyter’s comments at the PSG event.

“That plan is really about accelerating and executing planned maintenance, and that planned maintenance that we did, unlike in the past, what has changed was that we made sure that we are partnering with the original equipment manufacturers.”

Nyati has admitted that Eskom spends a lot of money on diesel to keep OCGTs running and limit the impact of load-shedding. 

“We spent a lot of this budget in the last 12 months, and rightly so because we needed to minimise the impact of load-shedding on South Africa. We had to make choices, and those choices were difficult – remove the equipment, go and fix it,” he said.

“But the beauty of what we did was that it was a pain in the short term, and as we were bringing the equipment back, we were bringing equipment that was much more reliable, and this is what we are seeing now.”

The increased spending on diesel gave the utility the space to implement its Generation Recovery Plan, which Nyati made clear that De Ruyter was not a part of formulating. 

Electricity Minister Kgosientsho Ramokgopa has also been clear in explaining that Eskom’s turnaround is more sustainable than just spending more money on diesel. 

Ramokgopa said the utility has created a template on how to rescue a state-owned enterprise, with the government learning many lessons from De Ruyter’s tenure at Eskom. 

He explained that the most important thing for a utility of Eskom’s nature is competent leadership with experience within the relevant sector. 

“At the board level, we have Mteto Nyati at the top and a competent set of men and women with exceptional credentials, who have cut their teeth in the electricity sector,” Ramokgopa said.

“At the administrative level, you must get individuals who are technically competent and who can be trusted to run power plants.” 

Ramokgopa said that in the past Eskom was misdirected when it had individuals at the helm who did not have an appreciation of how to run a utility of this nature.

The minister has also said that Eskom’s staff morale plummeted under De Ruyter and it was necessary to encourage improved productivity and reward individuals for doing their job. 

Nyati agreed, saying De Ruyter spent a significant amount of his tenure as CEO blaming Eskom’s staff members for the utility’s problems. 

“They found that each time they were listening to their leader, the leader was saying all sorts of things about them being the source of the problem,” Nyati said. 

“How can you be excited to come to work when you are being seen as the person who is creating the problem?” 

Nyati previously explained his surprise at how little support De Ruyter had from within Eskom due to his management of the utility. 

“He had a lot of support externally. What surprised me was that there was no support for De Ruyter in Eskom,” Nyati said.

“That is dangerous. Who are you leading when you see nobody is following you? That is the problem.”