LIKE many, I am becoming increasingly concerned over the uncertainties surrounding the generation of electricity over the next two decades and, therefore, over the central role played by the state-owned power utility, Eskom.
Horror stories about the problems surrounding the construction of the Medupi power station are on the increase. Some will undoubtedly be apocryphal, but some won’t — and that’s what is worrying.
The first, and not in any order of importance, is that some impromptu strikes have turned violent. The work required on the Hitachi boilers, which my wandering albatross assures me is virtually a world-first in terms of its technical design and performance, is unusually demanding.
That’s why expert welders, and I mean welders possessing very advanced skill levels, were flown in from elsewhere, principally from Thailand. Locally recruited welders looked askance at this. They aren’t being paid the same — they aren’t doing the same level of work, but don’t let that get in the way — and, like everyone involved in construction projects, they know their jobs will come to an end.
Their objections, which transmogrified into impromptu strike action, have occasionally turned violent, which is why the foreign welders are now being given "protection".
The second is that the complexity of the Hitachi boilers — made all the more famous by virtue of the African National Congress’s financial involvement through its investment arm Chancellor House’s 25% shareholding stake in Hitachi Power Africa — is such that making sure all the parts "fit" is turning into quite an exercise.
Oh yes, I’m told, they will fit; there’s nothing that an angle grinder can’t fix on nearly R40bn of carefully crafted steel plate measured in micromillimetres.
Then there’s the much-debated matter of how much Medupi is costing. The original number quoted in Engineering News and supplied by former Eskom CEO Thulani Gcabashe in March 2006 was R17bn-R20bn. It is now at R91bn, according to Eskom’s chief financial officer, Paul O’Flaherty.
But that excludes interest during construction, so the real number is probably more than R130bn and embraces a delay of 48 months.
Xstrata’s Mick Davis, a former Eskom chief financial officer, told a Wits Business School class some years ago that Eskom’s power stations were simply too costly.
Building bespoke, with costs of $3,500 a kilowatt to construct, has long since gone out of fashion in favour of modular units, now down as low as $1,500-$2,000 per kilowatt. According to Davis, the modular route would have saved the country about R100bn on the Medupi and Kusile power stations.
All this is bad, but even worse is the scam being visited upon us by the climate-change scaremongering, which is making the IT scam of 2000 look like a walk in the park.
It’s not just me saying this: Prof Grant Thornton of the Wits School of Geosciences says "climate change is probably the world’s biggest distraction" (March 10 2012).
It isn’t a distraction to the Treasury. It’s a Godsend.
Now it has an excellent excuse to add climate change to the tax bill we all face, just as it did so cynically when it added a carbon emissions tax to new motor vehicle sales, money that has since disappeared down government’s bottomless pit.
Now it can add perhaps an extra R80bn a year. That’s the equivalent of building many more modular power stations predicated on the use of two-thirds of the coal reserves of Africa. The fabulous Waterberg coal seams, says engineer Chris Herold, can actually support 20 new large power stations.
Instead, we are chucking money at so-called renewables, the costs of which will immediately be added to the bills faced by energy users. In November last year an Eskom spokesman waxed enthusiastic about the renewable energy bids and then said the cost of photovoltaic and concentrated solar power is set to fall steeply. If that is so, why are we investing heavily in 1,650MW of obscenely overpriced solar generation that will probably be obsolete before it is commissioned?
Because the problem hasn’t been thought through properly.
ST VALENTINE’S Day is celebrated for its association with romantic love, and John Oliphant, head of investments for the Government Employees Pension Fund (read the Public Investment Corporation) took it seriously. He sent a red rose to South Africa’s private equity and investment community at its annual summit.
There are many cogent reasons for this love affair.
First, the pension fund he looks after has assets worth R1-trillion-plus and is the world’s 10th-largest.
Second, he knows that globally, pension funds are underperforming liabilities by 3%-4% a year. Either members must contribute more (howls of protest), or investment must target higher growth.
And that higher growth is taking place in Africa, where six economies were in the top 10 fastest-growing in the decade ended 2011 (although SA wasn’t anywhere near). Over the next three years, seven African countries will crowd the top 10 (again, SA won’t cut it).
Africa has 13% of the world’s population, but accounts for only 3% of its consumption. Blame crappy education for much of that, drought, pestilence and war too. But lousy infrastructure is the biggest cause. That’s where Oliphant wants to go.
For example, the experts reckon that 21 of the continent’s 55 countries have latent hydropower but only 7% of that potential is currently being exploited. And water and energy rank supreme on the list of must-haves.
Another is transportation. Africa is huge and getting its goods to market means it spends three times more than developed countries. Ports have to be debottlenecked, rail facilities enhanced, air transport vastly improved.
The sub-Saharan middle class has grown from 196-million in 2000 to 316-million in 2011. If African governments play it right, exponential growth is possible.
Oliphant wants private equity managers to step up to the plate. If they have clever investment ideas, his door is open. What a many-splendoured offer.