Chairperson, the history of Eskom can be divided into the pre-1994 and the post-1994 periods as challenges and strategies were very different during these eras. The first part was about Eskom providing energy for South Africa's industrialisation. After 1994, the challenge for Eskom was to expand the supply of electricity to millions of homes in townships and informal settlements. Four years later, in 1998, the Energy Policy White Paper suggested that investment in generating capacity needed to be made by 1999, at the latest. Despite this, the ANC government decided in 2001 to prevent Eskom from building any additional power stations. As a result, South Africa was plunged into darkness in the beginning of 2008 and in response former President Mbeki, in his opening address to Parliament, apologised to South Africa since he could not blame apartheid, as the ANC frequently does when it's looking for excuses.
At that stage, pressure on the government increased due to the escalating energy crisis. The National Energy Regulator of South Africa, Nersa, did not allow for an increase in the price of electricity in early 2000, so Eskom could not invest in new infrastructure. At the same time, the private sector refused to invest, as government proved to be incapable of contracting with private companies to build and run power stations.
The internal resources situation at Eskom was also neglected. In many cases, Eskom appointed personnel who were incapable of performing their duties and directors who were not familiar with managing a company. As a result, poor maintenance and negligence triumphed at Eskom for almost two decades. These circumstances also led to the disastrous explosion at the Duvha Power Station earlier this year. Even the 2006 Koeberg disaster was the result of badly maintained transmission lines that melted down. All of this was part of the "the less we spend on maintenance, the higher the profits and the higher the bonus" approach that Eskom had adopted.
The internal capacity of personnel should be reviewed and seen as a matter of urgency. However, this alone will not solve the energy crisis. Consumers should concentrate on electricity efficiency to improve savings on the demand side of energy consumption and government should also introduce tax relief measures to consumers in this regard. Unfortunately, even this approach cannot resolve the current situation.
There are certain areas where Eskom can play a major role to enhance sustainable energy supply in the short term and to lift the reserve margin of energy supply. I will just mention a few. Firstly, an improvement in management and control can ensure that quality coal be delivered to the boilers by reliable suppliers instead of the hundreds of small BEE contractors that failed to deliver properly.
Secondly, Eskom has already requested government to put more pressure on consumers in former disadvantaged areas who fail to pay for electricity. According to Eskom's financial director, Eskom carries debt of more than R2,4 billion, of which 60% is Soweto's alone.
Thirdly, in July 2010 the Minister responded to a question in Parliament by saying that an amount of R625 million had been lost by Eskom as a result of illegal electricity connections. According to media reports of 21 August 2008, electricity theft in total is equal to the production of two power stations with a joint output of 7 200 megawatt. On 22 May 2011, Eskom announced that farmers steal more than half of the electricity that is stolen from Eskom. The total loss of electricity stolen from Eskom is 7 200 megawatt, as I mentioned. Half of this is 3 600 megawatt, while agriculture only consumes 3% of electricity, which equals 1 200 megawatt. So, how can Eskom say that farmers steal more than 3 600 megawatt, if agriculture as a whole consumes only 1 200 megawatt? That raises questions about Eskom's statistics.
Finally, when South Africa had a surplus of energy in the past, Eskom entered into contracts with smelters that absorbed huge portions of electricity at low cost. Now circumstances have changed and the contracts have adverse effects on Eskom. Government, as a shareholder, should intervene and find a contractual basis to rescind them. The cancellation of the contracts will cost Eskom approximately R6 billion and in the process 2 000 megawatt can be saved, according to Eskom. To generate 2 000 megawatt will cost almost R70 billion. Mothballing these smelters will significantly decrease the demand on the national grid and make up the bulk of the requisite 10% national energy saving.
What matters, though, is looking at the long term and at ensuring a sustainable electricity supply. In this regard I want to concentrate on the planning process of energy supply and the availability of funds needed for infrastructure investment.
The way our government has dealt with the energy crisis is cause for great concern. It appears as if government waits until we are on the brink of blackouts before Cabinet reacts. Only after Eskom warned South Africa, on 1 March 2010, that it would not be able to meet the demand for electricity from 2011 onwards and that blackouts might occur again in 2012, government started to provide guarantees to cover some of the costs. Later in March 2010, Eskom informed Parliament that it could only guarantee electricity supply for South Africa until 2017 in the absence of a clear policy from government combined with a funding solution.
At that stage, Eskom was even on the brink of calling off the building of Kusile Power Station. Then, all of a sudden, government woke up and over and above the R60 billion from Treasury, government submitted guarantees to Eskom to the amount of R350 billion for the building of Medupe and Kusile coal Power Stations, as well as one pumped storage plant, Ingula, and the restart of the previous stations, Grootvlei and Komati. The commissioning of South Africa's new nuclear fleet in the 2012, to add 9 600 megawatt to the grid between 2033 and 2030, is welcomed, although it is still unknown where the funding will come from.
The blackouts of 2008 resulted from government's negligence since 1998, despite warnings from Eskom and others that blackouts were on their way. Now, four years later, it does not seem that government has taken this problem seriously. According to Eskom, South Africa needs to build up to 50 000 megawatt of new generation capacity by 2028 - almost twice the current output. At present, South Africa produces 41 000 megawatt, and we want to increase production to 90 000 megawatt. The budget for this exercise will be more than a trillion rand.
Instead of proper planning to build more new coal power stations and more than the already identified two new nuclear power stations, to which South Africa is accustomed, government decided to reduce coal's share of the electricity supply from 85% of total generation to only 15% for the next 20 years, and for renewable energy generation to increase to 42% - something that we still have to experiment on. So, government foresees that the additional electricity will be made up of only 6 000 megawatt from coal, 9 600 megawatt from nuclear and 18 000 megawatt renewable from so-called green generation, from gas, sun, wind, water, etc.
In March 2011, the Department of Energy again pushed for the implementation of renewable energy generation. It is hard to believe that sun, wind and gas, which at present provides only 7% of electricity, can add another 18 000 megawatt to the grid. Time will not allow more experiments with wind, gas, sun and water. We need electricity power to enhance the economy.
The Integrated Resource Plan, IRP1, declared in the Government Gazette on 31 December 2009, was three worthless pages of paper that did not say anything. In October 2010, IRP2 was tabled by the Department of Energy. Since then, contradictory views were raised by Eskom on IRP2, which calls into question the government's alleged concern with respect to energy generation.
As already mentioned, IRP2 puts the emphasis on renewable energy generation from sun, wind, gas and water. But on the contrary, on 9 November 2010, only two months later, Eskom's executive manager announced that coal and nuclear power generation was the way forward for South Africa, as South Africa did not possess enough gas, sun and water to meet our growing demand. He also stated that the generation of renewable energy would cost almost four times more than coal power generation.
The Minister of Public Enterprises, who is responsible for oversight on Eskom, should provide Parliament with clarity on this confusion among different role-players in respect of what Eskom stands to do. There are even more bureaucratic role-players, making it difficult for Eskom to move rapidly.
On 27 September 2010, the Minister of Public Enterprises responded to a question in Parliament, saying that an Interministerial Committee on Energy was established. There is, however, concern about proper communication among all the role-players who serve on this interministerial committee. These role-players are, firstly, Eskom, as main supplier of electricity in South Africa; secondly, the Department of Energy, who prepared the IRP; thirdly, the Department of Public Enterprises, who provides effective shareholder management of Eskom; fourthly, Treasury, who provides guarantees; fifthly, the Department of Trade and Industry, who facilitates access to sustainable economic activity and employment; sixthly, the National Planning Commission in the Presidency, who is responsible for developing a long-term plan on reaching developmental goals; seventhly, the Department of Economic Development, whose aim is to promote economic development through a participatory economic policy; eighthly, Nersa, who determines energy prices for Eskom to recover costs, and three other departments, namely the Department of Science and Technology, the Department of Environmental and Water Affairs, and the Department of Transport, - that also serve on this interministerial committee.
Eskom cannot afford to be delayed in the implementation of its building programme by possible bureaucratic procedures and red tape. So, Minister, if power supply fails to meet demand from now on, which of these 11 institutions will take responsibility - your department or one of the other 10 institutions? The DA calls for a clear vision on electricity supply, agreed to by all stakeholders, as well as the private sector, since we are reaching a stage where we cannot rely on Eskom, with government as sole shareholder, to be the single source of energy for the country anymore. I thank you. [Applause.]