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Cablegate: Eskom Avoids Load-Shedding - for Now

VZCZCXRO6537
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #1751/01 2211203
ZNR UUUUU ZZH
R 081203Z AUG 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 5345
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0828
RUEHRL/AMEMBASSY BERLIN 0634
RUEHBY/AMEMBASSY CANBERRA 0704
RUEHLO/AMEMBASSY LONDON 1574
RUEHMO/AMEMBASSY MOSCOW 0832
RUEHOT/AMEMBASSY OTTAWA 0670
RUEHFR/AMEMBASSY PARIS 1411

UNCLAS SECTION 01 OF 02 PRETORIA 001751

SIPDIS
SENSITIVE

STATE PLEASE PASS USAID
STATE PLEASE PASS USGS
DEPT FOR AF/S, ISN, EEB/ESC AND CBA
DOE FOR T.SPERL, G.PERSON, A.BIENAWSKI, M.SCOTT, L.PARKER

E.O. 12958: N/A
TAGS: ENRG EMIN EPET SENV BEXP AMGT SF
SUBJECT: ESKOM AVOIDS LOAD-SHEDDING - FOR NOW

REF: PRETORIA 1288 AND PREVIOUS

1. (SBU) SUMMARY: South African state power utility Eskom has
managed to avoid load-shedding this Southern Hemisphere winter, but
still faces short and long-term shortfalls in power generation and
distribution capacity. The power crisis - which reached its height
with significant mine closures in January this year - is not over,
but rationing to big users and mild weather have kept supply ahead
of demand. Johannesburg's municipal City Power has taken steps to
increase its independent power reserve, but its claim to be
"load-shedding-proof" is overly optimistic. Its Kelvin Power
Station provides the bulk of its power cushion, but an Embassy team
visit found the plant antiquated and in need of refurbishing. End
Summary.

----------------------------
Chronic Power Woes Unchanged
----------------------------

2. (SBU) State power supplier Eskom has threatened, but not had to
resort to load-shedding this winter. However, the utility still
faces multiple challenges:
- Shortfall in capacity vis a vis demand until 2013 when new
coal-fired plants start to come on line;
- A razor-thin reserve margin of around six-eight per cent;
- Persistent and vexing skills shortages;
- Difficulties in procuring and transporting coal; and
- Underinvestment and uncertainties in distribution.


3. (SBU) Two weeks ago, Eskom had to shut down three generating
units (totaling 2,154 MW, over five percent of its capacity) and
barely avoided a return to load-shedding. Coal-fired units at
Majuba and Duvha and one of the units at Koeberg nuclear station
went down. The coal-fired units were quickly put back on line, but
the Koeberg unit remains off-line for repairs. Stories of Eskom's
skills gap are legion. Recently an Eskom grid planner told
Information Officer that his office had not been able to retain or
recruit qualified personnel. Eskom has been struggling to procure
and transport coal. On August 7, Eskom took its 1500 coal trucks
off the battered roads of Mpumalanga and Limpopo to highlight safety
concerns in light of sixteen fatalities last month. Eskom has
brought in two miners, Anglo-Gold Ashanti's ex-CEO Bobby Godsell and
ex-Kumba iron miner Ras Myburgh, to provide sorely needed leadership
as chairman and coal guru, respectively. The utility has
successfully imposed a ten per cent consumption reduction on big
industrials and mines, and they appear to have broadly adapted to
this forced rationing of the biggest customers. Eskom has also
benefited from a mild winter, its normal peak demand season.

--------------------------------
Nuclear Power Expansion on Track
--------------------------------

4. (SBU) In the longer term, Eskom aims to bring on line up to
20,000 MW of nuclear power by 2028. Westinghouse and Areva of
France are bidding on the first tranche of 3,000 MW and the full
fleet. Eskom is expected to make a decision at the end of
September. Embassy is working with FCS and the SAG to organize an
ASME standards conference October 7-8 to facilitate localization and
globalization of the South African nuclear power supplier industry,
Qglobalization of the South African nuclear power supplier industry,
to indirectly support Westinghouse's bid.

--------------------------------------------- -
Johannesburg City Power - Load-Shedding-Proof?
--------------------------------------------- -


5. (SBU) Johannesburg municipal power supplier City Power and a
city councilor assured consumers on July 29 that load shedding was a
thing of the past, because the municipal utility had enough
electricity even if Eskom requested a cut in supply. City Power
asserted that it had at least 500 MW in reserves out of its 3,200 MW
requirement, because of the Kelvin Power Plant, plans to refurbish
inactive gas turbines, new pricing incentives to mitigate demand,
and plans to install smart meters and solar water heaters.


PRETORIA 00001751 002 OF 002


6. (SBU) In an August 7 tour of Johannesburg's Kelvin Power Plant,
General Manager Stephen Meyer told a team from the Embassy economic,
TDA, and FCS sections that Eskom's power and skills situation is
still "extremely tight" and the grid is subject to volatility and
spikes in voltage. He described the lack of load-shedding as
offering the "illusion of okay," noting the system is still based on
wasteful use premised on cheap electricity (even after the
regulator-approved increase of 27 percent, bitterly contested by the
labor federation COSATU in its wide work stoppage on August 6).
Meyer said South Africa still has the second cheapest electricity in
the world, and as a result it remains "extraordinarily wasteful and
inefficient". This has to change.

7. (SBU) Meyer said Kelvin Power Plant provides about 150-300 MW of
cushion to City Power, which compensates the plant's owner based on
capacity to provide electricity, rather than actual electricity
delivered. The twin plants at Kelvin have a theoretical or
historical capacity of 600 MW, but the plant is antiquated and has
experienced under-investment from previous owners, including
American AES, which participated in the 2003 privatization. Meyer
represents UK-based Aldwych International, which led an investor
group which took over Kelvin in 2007, after banks took over the
asset from Globeleq, which followed in the heels of AES. Moreover,
City Power has technical limitations in the capacity of their
distribution systems to off-take from Kelvin. Meyer's staff showed
the Embassy team the 1950's-vintage (1930's technology) Plant A
which combusts coal on "chain grate feeders" and the 1960's-vintage
Plant B which more efficiently combusts pulverized coal.

8. (SBU) COMMENT: The lack of load-shedding and decrease in
jaw-boning to reduce demand give consumers the illusion that the
power crisis is over. Eskom has been lucky with a mild winter and
unplanned maintenance (barely) staying within the thin reserve
margin (also reflecting that last summer's planned maintenance was
productive). When planned maintenance kicks in again later this
calendar year, the system may again be subjected to planned and
unplanned brown-outs. Eskom's financial and credit wherewithal for
expansion is based on gaining electricity rate increases that is
protested vigorously by labor and business.


9. (SBU) COMMENT continued: Kelvin Power Plant in Johannesburg is a
unique example of an independent power producer (IPP), but it is a
"one-off" as an old facility developed by the municipality to
provide a power reserve, then subjected to a series of private
owners with differing approaches to investment and maintenance.
Kelvin is nevertheless the largest non-Eskom power producer in South
Africa, which is emblematic of Eskom's success in resisting IPP's
gaining a foothold in the country.

BOST

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