High-Cost Airline

Business Day February 1, 2007
ONCE again, our national carrier, South African Airways (SAA), finds itself in financial trouble.

And again, the national treasury looks set to wade in and rescue the ailing airline. Just how much longer can this go on?

The answer, quite simply, is for as long as the state continues to own the airline. It was not that long ago that the treasury and Transnet had to bale SAA out after it lost billions due to a disastrous hedging programme which saw it dipping into technical insolvency twice.

Those were exceptional circumstances and it is quite clear that had government and Transnet not stepped in, SAA would have gone bankrupt. Apart from the obvious distress, loss of jobs and loss of past investment, there is actually a case to be made for allowing SAA to go under. With a true open-skies policy, the slack would quickly be taken up by private operators, a scenario that would allow for far greater competition, improved customer service and stable, possibly even lower, prices.

That, quite clearly, is not going to happen. Government is obviously determined to keep SAA afloat whatever the cost to the taxpayer, arguing that it performs a strategic function in establishing business and tourism links. That being so, the challenge is to implement a strategy that will lead to the airline making sustainable profits so that it can ultimately be sold off.

Despite several turnaround strategies, the airline remains in financial trouble. At the interim stage, operating costs were up 7% while the net loss stood at more than R650m and its balance sheet was decidedly shaky. The signals coming from Public Enterprises Minister Alec Erwin are that SAA is heading for a significant loss for the full year. It is unclear how much SAA's low-cost carrier, Mango, has contributed to this, but suspicion remains that Mango is being propped up by its parent despite ongoing insistence that it's a standalone entity.

Erwin's rationale is that SAA's balance sheet needs to be strengthened so the airline can buy more planes to take advantage of growing passenger numbers. To do so, SAA will have to be recapitalised, probably to the tune of R4bn. Last year, SAA CEO Khaya Ngqula indicated the airline would raise this cash on the capital markets. The fact that the treasury is being asked to consider supporting the airline suggests finance from the markets would have come at a punitive cost, given the state of SAA's balance sheet.

So once again we have exceptional circumstances and SAA has to be saved. This time around, however, government needs to set SAA management clear targets that are publicly agreed to and known. There is no need for yet another new strategy aimed at turning the airline around. There have been more than enough of those, and Ngqula's focus on people, patronage and profit is perfectly acceptable. A plan based on raising morale, boosting service, cutting costs and improving efficiencies is the right way to go.

But it needs to be implemented by focused, dedicated managers who understand the business. The problem with the many turnaround strategies adopted by SAA is that none has been given enough time to take hold. Each time a new CEO has been appointed -- and there have been five since 1994 -- a new strategy is adopted. Enough already.

So while we support the plan to ensure that SAA is commercially viable, the end goal must be the sale of the airline. Last year, Ngqula suggested that SAA should be listed by 2010. Erwin has left the door open for a listing, but is vague on the timing. Setting a clear deadline for a listing, subject to market conditions, is the best way to ensure management pulls out all the stops to get the airline back on track.

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The rat inside Koeberg

Moneyweb Thu, 01 Feb 2007
Linda Mti, newly elected head of 2010 World Cup security, is a very jolly fellow. Early in November last year he was caught, allegedly skunk drunk, and arrested for drunken driving. He had rudely reshaped someone’s rear bumper, a modern essential which, sadly, is not nearly as strong as when made, many years ago, from steel burnished with chrome.

Not long after this incident, Mti resigned as commissioner (a.k.a. The Boss) of the Department of Correctional Services (DCS). One privilege of Mti’s seniority is that he was also the DCS chief accounting officer. Last year, under Mti’s watch once again, the DCS was awarded, for the fifth consecutive year, a qualified audit from the auditor-general (AG). This was a hell of a thing.

The auditor general hit on the DCS for on-going problems with collections of debt owed by staff, never-ending issues on control and registration of assets, on-going glitches relating to medical expenditure, headaches over the validity and accuracy of housing loan guarantees, unsatisfactory internal control issues over leave, salaries, performance agreements, suspensions, home owners’ allowances, losses, payments, journals and budgets. It was one hell of a thing.

Mti was too busy keeping unruly inmates at bay, and partying. One little snippet from the auditor-general’s finding was the “standard danger pay” being paid to suspended employees. Staying at home these days is, after all, more dangerous than working in a prison. But nobody took the auditor-general’s report too seriously, because everyone knows that correctional services is simply the best-run government department. The minister of correctional services, Ngconde Balfour, has lots to be jolly about.

Late last year media reports detailed how Sondolo IT (a subsidiary of Bosasa, which is another story) was apparently involved in an underhanded tender arrangement with DCS. It’s said that Sondolo IT was “intimately” involved in drawing up a DCS security tender, worth R237m, which was later awarded to, well, Sondolo IT.

Reports about Sondolo’s alleged shareholders are yet to be denied. The characters involved apparently include Titus Mafolo (a former ANC MP, now president Thabo Mbeki’s political advisor and chairman of something called the Native Club), Ronnie Mamoepa (spokesperson for foreign affairs), Gavin Watson (CEO of Bosasa), and Seth Phalatse, former chairman of the Strategic Fuel Fund. Prison inmates didn’t qualify.

But back to Mti, a jolly fellow and a man of extraordinary talent. Not only is the auditor-general investigating Mti’s financial management of DCS, but Mti is also subject of an investigation by the Public Service Commission. It’s clear, given the country’s uninterrupted power supply, that Mti should moonlight his talent as part-time CEO of Eskom, the smoothest running entity in the public sector. The dough’s good; outgoing Eskom boss, Thulani Gcabashe, was paid R5,2m in the financial year to March 31 2006, following the eye-popping R13,1m he took home in the previous year.

Eskom needs an invincible, Teflon-coated character like Mti. Political mandarins such as Finance Minister Trevor Manuel, who has rubbished private sector estimates of the costs of power cuts to the economy, are abusing Eskom. The minister of public enterprises, Alec Erwin, another mandarin, last year told the world on national television that sabotage was to blame for the shutdown at Koeberg, a nuclear power station.

Erwin dodged parliamentary censure thanks to the antics of ANC chief whip, Mbulelo Goniwe, later defrocked for sexual misconduct. Don’t forget also that the-then minister of minerals and energy, Lindiwe Hendriks, explained the Koeberg accident as “…growing evidence of a linkage of some of these events to resistance to the transformation drive by the government”.

Oh behave! Insiders know that it was an oversexed rat that caused the problem at Koeberg. For some, that may be too much detail, but bear in mind that the new minerals and energy minister Bulelwa Sonjica, who’s really in charge of Eskom, has said little, if anything, specific.

This week she told a seminar that Southern African countries need to fight poverty through the provision of energy. These countries, the minister, explained, “needed to improve and increase energy supply to their citizens as this would contribute to poverty alleviation”. Those who know the inside story about Koeberg know that there’s a rodent in every good story.

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Treasury will fund SAA

SABC January 30, 2007
The national treasury has been asked to pump money into South African Airways to smooth its passage from being under the Transnet umbrella to a stand-alone state enterprise.

Alec Erwin, the public enterprises minister, told Parliament that cost-cutting and retrenchments are also on the cards for SAA. The South African Transport and Allied Workers Union (SATAWU) says it will fight retrenchments. Union leaders are meeting with SAA about possible job losses on Friday.

South African Airways will soon be under the direct control of the department of public enterprises. Legislation moving through Parliament will allow it to sell shares to private interests. But the government will retain overall control. Erwin says the recapitilisation will be accompanied by cost-cutting efforts to improve the airline's profitability. Erwin was speaking during a parliamentary hearing on the law which will take SAA out of the Transnet group.

The law will allow the sale of shares in SAA to private interests. However, Erwin says: "Our experience has shown us that it is naive, it is unrealstic to expect that major multi-nationals, be they airlines, telephone companies, or whatever will automatically have the same strategic objectives in your economy as you have as a State, as a government."

Erwin, says: "We are in discussion with the treasury. We may need some support for the essential capitalisation that has to be put into SAA within the next year. But it will then be under pressure to perform. Ewin says SAA should not expect to be bailed out by government whenever it gets into financial trouble - and costs will have to be sliced.

The minister told reporters: "Across the board in SAA we have to reduce the cost base, and it will include workers. It will have to be negotiated with the unions. It may well be tense but we have no option."

The Satawu says it was warned towards the end of last year that up to 3 000 workers may have to go. But it has rejected this and has called for cost-cutting in other areas. SAA says it will follow due process with labour and is committed to a more streamlined business. Erwin agrees that it has been a very tough year for SAA as operating costs have soared.

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Erwin makes U-turn, will back SAA bailout

Business Report: January 31, 2007
SAA will receive recapitalisation of hundreds of millions of rands from the government in the next few months to enable it to acquire more long-haul aircraft to expand its route network and increase the number of services.

This is a reversal of previously stated policy that followed an earlier recapitalisation when the airline lost R7 billion as a result of a disastrous decision to hedge against a falling rand when in fact the currency rose.

It was stated at the time that this would be the last major recapitalisation SAA would receive.

SAA chief executive Khaya Ngqula said last October that it would need recapitalisation to increase its fleet, but the money would come from investment by financial institutions.

SAA has been in discussions with Airbus and Boeing for up to three new planes, which could cost more than R3 billion. A spokesperson said details of the aircraft SAA would acquire were not available. But both manufacturers have full production lines at present and industry sources said SAA might have to lease planes rather than buy new models.

SAA's newest planes in use on long-haul routes at present are Airbus A340-300s, with a list price of $196 million (R1.4 billion) and A340-600s with a list price of $226 million.

The list price of new Boeing 777s ranges from $178 million for a 777-200 to $264.5 million for a 777-300ER. But prices are normally negotiable according to how many aircraft are ordered.

Discussing the SAA Bill, which makes SAA a stand-alone government-owned entity and makes provision for it to become a public listed firm at some time in the future, Alec Erwin, the minister of public enterprises, said yesterday in parliament that listing SAA would make it easier for it to attract investment.

If it were possible to make an initial public offering for SAA in the next 18 months the government would do it. But a favourable time to do so could be years in the future.

In the meantime, the airline's passenger numbers were rising nicely, he said. It needed to expand its fleet to take advantage of this and it could not be left with a weakened balance sheet, unable to do so.

"We will seek support from the treasury in the next essential capitalisation that has to be put into SAA in the next year. This comes under essential circumstances with exceptional needs," he said.

Discussing the SAA Bill, Erwin said the government would retain a controlling interest in it and in regional airline South African Express, which would also be moved out of Transnet.

SAA, as a national airline separated from Transnet and reporting directly to the government, would provide critical tourism and business links that would assist in creating international hubs in this country.

He stressed that SAA would not be able to "knock on the door" and receive money whenever it needed it.

Big improvements had been made in its finances. But it was not yet out of the woods and steps would have to be taken this year to improve its finances. It would have to reduce its costs across the board. Negotiations were in progress with the trade unions towards achieving this and it must improve its rate of return per passenger kilometre, he said.

But news that the airline would receive help from the government was received with indignation yesterday by representatives of European airlines competing with SAA on international routes, who are forbidden by the EU to receive subsidies from their governments. The representatives asked not to be named.

Gidon Novick, the joint managing director of BA/Comair, said the news came as no surprise since he believed that both SAA and its low-cost airline Mango were "making huge losses".

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Time to Hit the Off-Switch

Business Day: January 31, 2007
IT WAS about 2am on a warm Highveld morning when Eskom transmission MD Jacob Maroga realised a crisis was looming.

One power station after another started to go down and in the next half hour Eskom lost about 1600MW from the system.

Then one of the units at Koeberg, SA's only nuclear power station, went down. Given that several power stations were out for scheduled maintenance, and that the reserve margin, or spare power that Eskom keeps for emergencies, was at a low 8%, Maroga was acutely aware that trouble lay ahead.

How right he was. Maroga swiftly assembled a small but high-ranking team and by 4am they had gathered to decide on how to manage the crisis. Eskom had lost more power than it had available in the system, so the options were limited. Blackouts were inevitable. Every two hours, a different area in the country was cut off and by 11am, Eskom was starting to restore power as stations started to come back on line.

Given that the response time of municipalities, which distribute much of the country's power to homes and businesses, tends to be slower, power was fully restored only towards the end of the day. That day was January 18.

The events of January 18 will serve as an important lesson for Eskom. Critically, the utility must learn that, in its attempts to placate concerned users, it should not promise what it cannot deliver.

When faced with rolling blackouts in Western Cape last year, Eskom promised these would not spread to the rest of SA but if demand continues to grow at its present pace, Eskom simply will not be able to keep that promise this winter. With a reserve margin of 8%, Eskom is stretched.

Another lesson is the importance of communication. Inevitably, there was a hue and cry among residential, business and industrial customers when the power went out on January 18. It is difficult to test the veracity of predictions from business organisations that the cuts cost the economy hundreds of millions of rand, but it is obvious that blackouts affect many businesses. Nevertheless, these predictions irritated Finance Minister Trevor Manuel, who dismissed them as "utter garbage".

Equally, the rather disingenuous comment from Public Enterprises Minister Alec Erwin that he was confident the entire country would not be plunged into darkness did little to help. Of course not. That would require every power station in the system to trip simultaneously, the chances of which are slim.

And while it is worth recording the reasons why we arrived at this situation -- if only to avoid a repeat of it in future -- we need to get past the blame game. It is well documented that government did not allow Eskom to build new power stations in the late 1990s and early 2000s, when the power utility started making noises that it was running out of excess capacity. Government did this because it wanted to liberalise the electricity market, unbundle Eskom and get the private sector to build the next generation of power stations. That strategy, which was in line with global trends and was widely supported, was overturned in 2004 when government decided state-owned entities would drive infrastructure investment.

The point is that SA has an acute problem looming with its electricity supply. Eskom executives admitted as much in a briefing last week. Rather than ignoring the problem, or ridiculing concerns about it, it would be far more helpful if we faced up to the issue and communicated ways of dealing with it. Because, as CEO Thulani Gcabashe says, this is not Eskom's problem alone -- it's everyone's and the only way we are going to minimise the effect of power cuts is if there is a concerted effort to do so.

The next three years will be critical. It will take at least that long before the first unit of projects Alpha and Charlie -- the mega six-pack power station to be built in Limpopo -- comes on stream. Alpha and Charlie will be the first new base load stations to be constructed in SA for 20 years. In the interim, Eskom expects to deliver about 3500MW of power from mothballed plants and other sources, which is far less than is needed in the short term. There are other supply options, such as importing electricity. But, critically, there must be a huge push to get people to use less.

It will be hard to get South Africans to use less power as electricity has always been cheap and plentiful.

No longer. The real need is to reduce usage at peak times -- in the morning and evenings -- and that means residential consumers. Reduced and more efficient use is needed -- such as installing geyser blankets, solar heaters and compact fluorescent heating; turning geysers off when not in use; and limiting the use of underfloor heating.

What Eskom needs to achieve in a short time is a dramatic change in consumer behaviour.

It won't be easy and at the very least will need the buy-in of government and municipalities but in the short term, it's the only way to keep the lights burning.

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Eskom power scramble to keep SA plugged in

Business Day: 29 January 2007
ESKOM has unveiled an emergency plan to avoid rolling black-outs this winter and beyond, with spiralling demand for power and rapidly dwindling excess capacity forcing the utility to admit it is heading for trouble.

The plan comes after countrywide power cuts this month placed Eskom, which supplies 95% of SA’s electricity, under severe pressure from business and consumers. This is particularly so as the utility promised less than a year ago that last year’s power cuts in Western Cape would not spread to the rest of SA.

Eskom freely admits it got its growth estimates wrong, having forecast 3% growth in electricity demand against actual demand of 4,5%.

“Nobody forecast this type of growth. We are seeing capacity problems throughout the economy,” said CEO Thulani Gcabashe.

As a result, Eskom will increase its five-year, R97bn programme by doubling capacity at the planned R26bn coal-fired power station, dubbed Project Alpha, which was originally due to deliver 2250MW. The additional 2250MW, called Project Charlie, could come at a price tag of up to R30bn. Further capacity additions sanctioned by the board are in Western Cape — a 100MW wind farm and an additional 1000MW to Atlantis, an open-cycle gas turbine plant.

The utility is also looking to regional neighbours for help, and is talking to Namibia and Zimbabwe about developing a corridor to bring power to SA. Gcabashe was in Namibia this month for talks with Kudu Gas about bringing the 800MW project on stream as soon as possible.

However, the biggest appeal Eskom will make is to power users, asking consumers to dramatically cut back on power use, particularly at peak times in the mornings and evenings when demand is highest.

Gcabashe said on Friday that Eskom could not solve the looming power crisis alone. “As long as it’s Eskom’s problem, we won’t manage. We can’t meet demand for electricity through building power stations. We need a drastic change in the behaviour of power users,” he said.

Eskom is working with municipalities and the minerals and energy department on the plan to reduce demand at peak periods and ensure electricity is used more efficiently. This is likely to involve encouraging people to use geyser blankets, instal solar heaters and compact fluorescent lighting, and possibly incentives. The aim is to reduce demand by 3000MW over five years.

Eskom has total capacity of 36 400MW, of which about 8% is spare capacity, against an international norm of 15%. A further 2000MW will be added this year by bringing mothballed power sta-tions back on stream as well as the gas turbines.

Consulting group NUS has warned Eskom is cutting it fine. GM Stephan Dolk said Eskom’s spare capacity was not adequate, with projections showing this year’s winter would be the worst ever.

“If there is any weakness in the system, it will show itself this winter,” he said.

Government, however, remains undaunted. Public Enterprises Minister Alec Erwin is confident SA will not be plunged into darkness while Finance Minister Trevor Manuel said estimates by business of lost production were “utter garbage”.

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Erwin, Eskom fail to see the obvious

21 January 2007
Public Enterprises Minister Alec Erwin has set up a team to investigate the cause of the widespread power cuts that hit South Africa this week, and which threaten to continue over the next few days — and beyond.

But they need not look much further than Erwin himself and the management of the state power company, Eskom.

The cause of the power cuts is quite clear: a costly failure by the Department of Public Enterprises and by Eskom to properly manage South Africa’s electricity infrastructure.

It has been known for years that South Africa’s capacity to meet its electricity needs is running out because of its booming economy.

This lesson was rammed home last year, when a turbine at the Koeberg nuclear power station was damaged through carelessness. The Western Cape economy lost untold millions of rands because of widespread and persistent blackouts.

It is impossible to measure accurately the damage that this week’s widespread blackouts inflicted on the economy. Banks, restaurants, retailers and offices were disrupted for hours.

Investor confidence in this country — which sells itself on its sophisticated infrastructure and low power costs, among other factors — will undoubtedly take a knock.

Eskom knows that it must manage South Africa’s electricity resources carefully until the power infrastructure is successfully upgraded. But the utility has managed to put itself in a situation in which, by some reports, eight power stations were hit by problems that forced them to shut down generators.

Sadly, Koeberg, which is supposed to be functioning better than ever after its costly repairs, was on the list of problem power stations.

Eskom officials put some of the blame on an unexpected surge in demand while maintenance work was under way at some power stations. Given that Eskom has virtually no excess capacity, monitoring and managing demand for its limited resources should be a priority.

So, years after Eskom promised to sort out South Africa’s power shortage, and after the state started allocating funds to infrastructure development, the utility still cannot cope with a surge in the demand for energy in the middle of summer.

How then can we have faith that its plans to build power stations and revitalise the electricity transmission infrastructure over the coming years are well under way and will succeed?

So it comes as no surprise that Fifa is increasing the cost of the World Cup stadiums by demanding that they have back-up generators, or that businesses are investing in their own generators.

It is estimated that it will take between five and 10 years to get South Africa’s power generation and transmission capacity up to speed.

In the wake of this week’s blackouts, Erwin announced that he was confident the country would not be plunged into darkness.

Given the falsity of his accusations last year that Koeberg had been deliberately sabotaged, and the way in which he and Eskom have been handling the power crises so far, his remarks come across as somewhat hollow.

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Erwin urged to take backseat in energy crisis

January 22 2007
Public Enterprises Minister Alec Erwin should stop acting as the government's spokesperson on national electricity problems as he had lost credibility, the Democratic Alliance said.

"Public Enterprises Minister Alec Erwin neither bears sole political responsibility nor is he competent to act as government's spokesperson on the national power problems and particularly not on Koeberg," DA minerals and energy spokesperson Hendrik Schmidt said in a statement on Monday.

"Minister Erwin lost all credibility he had on the issue of power outages last year when he notoriously stated on national television... that sabotage was to blame for the shutdown at Koega
when in truth it was... due to Eskom's negligence and poor maintenance of the nuclear power plant," he said.

Schmidt also accused Erwin of having lied about the issue in Parliament.

"He wilfully misled Parliament by denying that he had made the false statement despite having been presented with video evidence to the contrary," he said.

He called on Energy Minister Buyelwa Sonjica to start accounting to the South African public for the electricity crisis.

"While Minister Erwin in his portfolio bears political responsibility for the shutdown as the manager of government's shares in Eskom, Koeberg's operator, Minister Sonjica, as the political head in charge of ensuring energy supply and regulation, has the more pertinent political platform from which to account to the public," he said.

The lack of security concerning South Africa's energy supply and the negative perceptions it can have as a result cannot be afforded in the current climate where the attainment of job creation and
economic growth goals remains a tenuous pursuit, said Schmidt.

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Blackouts: R1m-per-day penalty proposed

January 24 2007
A proposed bill to amend electricity regulation could see distributors like Eskom and municipalities slapped with fines of up to R1-million a day if blackouts occur.

"If you had blackouts, there could be recourse," said Ompi Aphane, chief director of electricity at the department of minerals and energy.

He was addressing the National Council of Provinces' (NCOP) select committee on economic and foreign affairs on Tuesday.

The amendment bill follows on the heels of the Electricity Regulation Act, which was passed last year but left out some key regulatory issues.

The Electricity Regulation Amendment Bill also looks at investing in infrastructure and having a clearly defined regulatory regime.

"This regime provides for penalties of up to R1-million a day," Aphane told reporters outside the committee room where he addressed the NCOP committee on Tuesday.

"It addresses issues like quality of supply and refers to the frequency of disruption and will have an enforcement regime," said Aphane.

He said the enforcement regime would see electricity distributors fined up to R1m a day if their own negligence was the cause of blackouts.

Until now, the National Ernergy Regulator of South Africa (Nersa) could only slap Eskom with a R500 penalty, but this would change if the proposed bill was passed.

Power cuts cost Western Cape businesses up to R5-billion last year.

The bill also seeks to tighten loopholes around the proliferation of different tariffs - approximately 2 000 - that result in the unequal treatment of domestic end-users.

Aphane was quick to warn that the proposed legislation was not to be confused with the structural adjustment process conducted through regional electricity distributors.

He also highlighted that regulators had the power to intervene if distributors - especially municipalities - were not meeting their mandate of providing electricity.

It was also highlighted that all distributors would have to hold a licence issued by the regulator.

Meanwhile committee chairwoman Nosipho Ntwanambi told the Department of Minerals and Energy that it would not be ready to process the bill before the end of March.

"February is not the possible month to finalise the bill," she said.

"We can do so at the end of March."

The key issue in the proposed bill was that if the industry was not managed appropriately, said the department, it would not be sustainable.

The bill was also expected to address the insufficient investment by municipalities in infrastructure and to extend the regulatory powers of Nersa.

On the country's electricity generation capacity, the DA hit back at Finance Minister Trevor Manuel's "arrogant rubbishing of private sector estimates" of the spiralling costs of sporadic power cuts.

"Minister Manuel's assertion that South Africa's electricity generation capacity was sufficient is, in his own words, 'complete and utter garbage'," said the party's minerals and energy spokesperson Hendrik Schmidt.

"Moderate economic growth will see demand increase by 1 500MW annually.

"Currently, South Africa has only 1 000MW spare generating capacity at maximum demand, indicating that demand will soon outstrip supply and that South Africa's electricity generating capacity is woefully insufficient."

The Cape Town Regional Chamber of Commerce and Industry said yesterday that it was disappointed Eskom had not warned it about the increased risk of power cuts.

"From what we now know, it was clear to Eskom that they had very little capacity in reserve and any problems would mean load-shedding," said chamber president Janine Myburgh.

"It would have been a simple matter to alert business to the increased risk and encourage savings."

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Skills audit needed at Eskom

19/01/2007
Solidarity, the second largest trade union in Eskom, on Friday asked Public Enterprises Minister Alec Erwin to instruct a task team to perform a skills audit in the company.

The team is investigating problems in the parastatal.

Solidarity's request comes after that trade union warned Eskom last year already that the group was heading for a crisis, due to the exodus of skilled staff, it said.

According to Solidarity spokesperson Jaco Kleynhans, the country's present electricity supply crisis can be directly attributed to the fact that experienced, well-trained people are leaving Eskom in droves to seek better jobs in the private sector and abroad.

Kleynhans said: "Since 1994, Eskom has lost 15% of its skills. Out of the 60 engineers at the Koeberg Nuclear Power station, 8 resigned in a period of two years and were not immediately replaced.

"A study conducted among our members in Eskom last year showed that as many as 75% of them are thinking of looking for other work."

The skills audit that is being demanded by Solidarity will entail an investigation into the company's current skills levels, compared to 1994.

"We want the skills audit to point out where the Eskom skills shortages are and to estimate potential future skills losses.

"Only when this information is available can steps be taken to halt further skills losses. The trade union hopes that the task team's efforts will lead to proper plans to tackle the skills problem in Eskom."

"Solidarity decided to approach the minister with this proposal because it appears that Eskom, almost a year after the trade union had offered numerous suggestions, has not made any discernable progress. Solidarity also submitted a copy of the report that was sent to Eskom last year, to Minister Erwin."

Eskom answers demanded

January 19 2007
The mayor of Cape Town and the national ANC, in rare agreement, have called on the government to come clean on Eskom's latest blackouts.

Electricity cuts shut down suburbs and towns across the Cape on Thursday as Eskom went into emergency mode to control the effects of a national power shortage.

Mayor Helen Zille said on Friday: "We have the sense that Eskom and the minister (Public Enterprises head Alec Erwin) are not levelling with us. Mayco was assured last year by Eskom chief executive Thulani Gcabashe that the problems were over."

Zille was referring to the rolling blackouts that hit the Cape last year. She said the problems were clearly not over.

Zille said the public had a right to call Erwin to account for whether Eskom was capable of managing such a critical resource.

The ANC, in turn, has demanded that the government investigate circumstances surrounding yesterday's power cuts.

Describing the blackouts as "unfortunate", ANC secretary general Kgalema Motlanthe said the party would call on the government to look into the matter.

"We hope … it will be able to develop contingency plans so that in future it will have back-up systems," he said.

The ID said it was time Eskom was punished for the blackouts.

"Some form of punitive action needs to be meted out in the form of fines, which can be used to compensate small businesses which are often left to bear the brunt of Eskom's incompetence," ID MP Lance Greyling said.

DA MP Hendrik Schmidt said the blackouts had serious economic repercussions. The party would be submitting a parliamentary question demanding an explanation for the shortages and why the public had not been given notice of the shutdowns.

The Freedom Front Plus has called on the National Assembly's Portfolio Committee on Minerals and Energy to get Eskom to account for the electricity crisis.

FF+ MP Willie Spies said Eskom had vowed that last year's power crises in the Western Cape would not be repeated.

"It is clear that either Eskom has seriously mistaken itself or it has misled Parliament about its capacity to fulfil the increasing demands for electricity, and the organisation will have to come and explain," he said.

Friday Eskom's Jacob Maroga clarified what had caused the crisis. South Africa's peak demand was around 36 000 MW. The country had a full capacity of 40 000MW.

However, from about September to May, average usage usually dropped to around 31 000MW.

"(So) we do a lot of planned maintenance at power stations (during this time)," Maroga said.

This had dropped Eskom's capacity by about 4 900MW down to about 35 100MW.

In addition, a number of power stations in Mpumalanga and Limpopo had had technical problems in the last few days.

Then Koeberg's Unit 1 tripped early on Friday morning.

These problems had cost Eskom a further 4 600MW. On top of this, national demand rose by about 1 000MW higher than Eskom had anticipated.

Eskom spokesperson Tony Stott said the Koeberg plant would be back online by later today but warned that load-shedding was still a possibility as Koeberg only supplied 50% of Cape Town's electricity and the rest of the supply came from units in Mpumalanga.

Public Enterprises ministry spokesperson Gaynor Kast said: "The minister is satisfied that a competent team has been assembled to establish the cause of the event and he receives regular up-to-the-minute reports."

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State's broadband plans fall apart

18 January 2007 11:59
The government’s ambitious new broadband company, Infraco, may be still born with internal dissent and regulatory uncertainty currently blocking progress on the deal to create it.

Andrew Mthembu, the lead consultant on the project, appears to be on his way out, after Director General of Public Enterprises, Portia Molefe, declined to renew his contract beyond January.

Meanwhile, tardiness at the department of communications, disagreement with the private shareholder, the Indian conglomerate, Tata, and a lack of clarity over the licensing requirements for the company are making it impossible to finalise the transactions that would create Infraco, according to people familiar with recent discussions about its future.

Mthembu could not be reached for comment, but sources close to the project told the Mail & Guardian that Molefe had decided to terminate his involvement with the company, and suggested that he had clashed with Tata over both pricing -- which the government wants kept to a minimum -- and the details of a proposed undersea cable.

Public Enterprises spokesperson Gaynor Kast flatly denied those claims. “The allegation that Andrew Mthembu’s contract will not be renewed is completely unfounded,” she insisted, saying “everything is on track”.

Mthembu, previously managing director at Vodacom, was hired by Public Enterprises Minister Alec Erwin a year ago, and he has been the key architect of Infraco. He devised the arrangement to transfer Eskom’s extensive fibre-optic network to a new company, in which the government would hold 74%. The remaining 26% was to be held by VSNL, a subsidiary of Tata, which owns a similar stake in the second network operator, Neotel.

Finance Minister Trevor Manuel in his October medium-term budget policy statement announced an initial allocation of R647-million in government funding for the company, which, officials say, was earmarked for the acquisition of Eskom assets by Infraco.

The idea was that Infraco would sell the capacity available on this network to, Neotel, enabling it to bypass Telkom for a substantial portion of its local bandwidth needs without raising fresh capital.

It was originally envisaged that Neotel would buy the Eskom assets outright, but with other Neotel shareholders short of cash, the Infraco plan enables Tata to get same effective share of the Eskom backbone through a separate structure. The government, meanwhile, gets to keep firm control of Infraco’s pricing. That, it seems, created a sharp -- and predictable conflict between Tata and Mthembu’s team, which has not been resolved.

The second -- and more controversial -- element of the plan was for Infraco to lay a new undersea cable, bypassing the SAT 3 cable that is currently controlled by Telkom. The intention was to boost dramatically international bandwidth and bring down the ruinously high access costs that international investors and local businesses have repeatedly complained are a constraint on growth.

The new cable has always been a sticking point with the department of communications, which sees Infraco as a threat to its own plans. For three years communications officials have been punting Sentech, the state owned signal distribution company, as a significant player in the local bandwidth market and they have recently been pinning their hopes on the new East African submarine cable (EASsy) to help break Telkom’s stranglehold on international traffic.

Sources sympathetic to Mthembu say Tata is now trying to frustrate plans for a third cable because it has already cut deals to gain access to the existing connection and Neotel can profitably exploit those deals without interference from a government shareholder, which will insist on low prices and tight margins.

Tata had not responded to requests for comment at press time.

And, despite a fiat from Erwin to “get it done”, the weakness of the regulator, Icasa, and the lack of enthusiasm from the department of communications means neither Tata nor the government knows just what the rules governing the new operator would be.

Persistent complaints about the local bandwidth market were highlighted again this week when Reuters CEO Tom Glocer told Business Day that Telkom’s high prices and “flaky” quality were preventing his company from expanding its local presence.

President Thabo Mbeki has repeatedly voiced similar concerns, and Erwin has staked considerable personal prestige on Infraco as a solution. He seems to have convinced the Cabinet. After he presented his plans to the presidency his critics at communications fell in behind the scheme.

Director General in the department of communications Lyndall Shope Mafole told the M&G through a spokesperson that Infraco was a government project, not a public enterprises project, and there was no dispute over it.

In an interview last November Erwin told the M&G that the Infraco cable would not only open up the market, but would underpin South Africa’s bid for the giant Square Kilometer Array telescope at Sutherland (which needs considerabe dedicated bandwidth) and help to service the demands of the 2010 World Cup.

He said he believes it will play a crucial role in unlocking economic growth.

Erwin is unlikely to change his mind, but the complexity of the unresolved issues will mean he must muster considerably more support to drive the plan through.

The National Treasury has made space in the budget for Infraco, but in the clearest sign that the project is in difficulty, crucial documentation that would unlock its formal approval for the deal, and enable it to release the cash, has yet to leave Molefe’s office.

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Russian warheads to fuel SA

South Africa will use uranium downgraded from old Russian nuclear warheads to fuel its planned pebble bed modular reactors (PBMR), according to public enterprises minister Alec Erwin.

"On the PBMR, that uranium we will bring in from Russia, which is down-blended weapon graded uranium," Erwin told Deutsche Presse-Agentur dpa.

"The target is for 2012 to build the first reactor," he said, adding that the site outside the city of Cape Town that houses Koeberg, the country's - and the continent's - only existing nuclear power plant, had been identified as a location.

"From 2013 onwards, over a period of 15 years, we want to build 24 models at 165 MW," he said, adding that the initial baseload customer would be power utility Eskom.

The PMBR is based on old German technology and has been modified by South African scientists. A pilot fuel plan with an initial annual production of 270 000 tennis ball-sized uranium dioxide spheres or pebbles is being developed at Pelindaba, South Africa's nuclear research facility north of Pretoria.

The PBMR facilities - essentially mini-reactors regarded as extremely safe by their developers - will all use Russian uranium and would be located around the country, including Coega, the new harbour development off the coast of Port Elizabeth in the east of the country, according to Erwin.

He told dpa: "We will build a station at Coega. We've kept space in the industrial development zone for the PBMR.

"In our total energy programme we kept 4 000 megawatt free (for the PBMR). There are 24 models that we would be prepared to purchase. If it is very successful we might purchase more in future."

South Africa is competing with China in the development of the PBMR and hopes to be the first in commercialising it worldwide.

He said: Erwin believes a reactor of this nature is particularly beneficial for Africa. "I have no doubt that it will be an important technology for Africa, even for India, China and Brazil.

"We are probably ahead of China at this point. Their design is slightly different."

Apart from the PBMR South Africa is looking to purchase a more conventional nuclear power, similar to the 1 800 megawatt capacity Koeberg that was built by the French in the 1970s as a pressurised water reactor.

"We'll make a decision early next year for a more conventional third-generation plant. There are three companies that put in bids: Areva, Westinghouse and Candu.

South Africa is the world's fourth-largest uranium producer. The country stopped enriching uranium in 1997 following the dismantling of its apartheid-era nuclear weapons programme.

"We stopped it in 1997. It was very, very expensive for the small amounts we needed in Koeberg," the minister said.

"We are re-evaluating our nuclear programme. We are making further announcements next year. We have the uranium, and we have the technology. But we would not replicate the old technology. We have to give it a second thought," he said.

South Africa, which has been party to the Nuclear Non- Proliferation Treaty since 1991, this week signed a five-year international agreement on the peaceful use of nuclear technology.

A statement by the department of science and technology to mark the signing said it was "resolute that nuclear energy should be applied for peaceful uses to benefit South Africa's health, agriculture, water and other resources and sectors."

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Little resistance to nuclear plans for Cape Town

Despite recent controversies over the Koeberg nuclear power plant near Cape Town, locals in the coastal city have shown little resistance to the government's plan to build another nuclear reactor on their doorstep.

Last year the area was hit by several successive power failures. Indications were that a loose bolt that damaged a non-nuclear gas turbine at Koeberg was one of the causes. Maintenance has also been a problem at the plant.

The National Nuclear Regulator (NNR) has since clashed with power parastatal Eskom, the owner of Koeberg, about human error and negligence at the plant.

Complicating matters further is the choice of Koeberg as the preferred site for the construction of a pebble-bed modular demonstration reactor. This process has also been contentious. (The fuel of the pebble-bed reactor consists of small particles of uranium, each coated with four layers of hard ceramic material, which are embedded in graphite to form a pebble about the size of a billiard ball.)

In 2003, the environmental watchdog organisation Earthlife Africa took the Department of Environmental Affairs and Tourism to court after it had given the green light for the construction of the pebble-bed reactor without proper public consultation.

The environmental impact assessment ( EIA), which forms the basis of the authorisation, was set aside by the Cape High Court because it was "procedurally unfair".

This led to a new EIA process in August 2005. Although Pebble Bed Modular Reactor (PBMR), the company that will construct the reactor, is keen to start building as soon as possible, it first requires a licence from the NNR. It also needs a positive decision from the Department of Environmental Affairs and Tourism, based on the EIA.

Both the NNR's investigation and the EIA process require extensive stakeholder involvement. In addition to public meetings in accordance with the EIA, Eskom and Earthlife Africa held separate information meetings in the communities around the plant.

Public interest
However, Barbara Rass, a member of the community of Atlantis who has attended these meetings, says she is getting more and more confused. Atlantis is a poor community 35km from Cape Town.

"Eskom and Earthlife Africa seem to have their own agendas. I'm getting so many mixed messages. I don't know what to think any more."

She is also concerned about the low level of public interest in the issue in Atlantis. The general lack of knowledge on nuclear and safety issues in her community is preventing people from participating in the public debate.

"People do not pitch up at meetings. Even when the local radio station invites people to call in to express their opinion on the matter, there is little response. People do not care because they do not know," says Rass. "If you do not know what it is about, you can neither criticise nor say it is OK."

Proponents of the pebble-bed reactor argue that such reactors are more cost-efficient, quicker to build and safer than conventional nuclear reactors. They consider pebble-bed reactors to be "inherently safe" because, in case of an accident, they shut down automatically.

However, according to Maya Aberman from the Cape Town branch of Earthlife Africa, there is no such thing as "inherent safety".

"Dr Edward Teller, the father of the H-bomb [hydrogen bomb], said that sooner or later a fool will prove greater than even a foolproof system. People make mistakes and, as a result, accidents happen."

She points out that "many nuclear accidents have happened as a result of human error". She also contends that pebble-bed nuclear technology is largely untested. "To test it 35km north of Cape Town's 3,5-million population is simply too big a risk."

Tested technology
But Tom Ferreira, spokesperson for PBMR, argues that the technology has been tested. "The pebble-bed modular reactor concept is based on experience in the United States and Europe -- specifically Germany, where reactors of this type were successfully operated between the late 1960s and 1980s."

The German reactor, which operated from 1966 to 1988, was decommissioned due to political considerations and because it had fulfilled all planned research experiments. Klaus Töpfer, a former nuclear power and environment minister who was instrumental in shutting down the German pebble-bed reactor programme in the late 1980s, has said he felt he made a mistake in halting the programme.

In another bid to increase the flow of information about the project, Earthlife Africa sued Eskom last year to gain access to minutes of its board meetings.

The estimated costs of the demonstration plant increased fivefold from about R2-billion in 1999 to R9,9-billion in 2004. Currently, the costs are estimated to be in the region of R14-billion, says Aberman.

As Eskom is a public entity using taxpayers' money for the reactor, Earthlife Africa argued that the public had a right to know whether the project was safe and cost-effective. However, the court allowed Eskom to keep the information confidential to protect its business interests.

It is estimated that South Africa needs more than 47 000 megawatts of additional power generation capacity in the next 20 years. Apart from building between 20 and 30 pebble-bed reactors for power generation within South Africa, PBMR also aims to export the reactors.

Pebble-bed reactors have a generation capacity of 165 megawatts each, which is small compared with the existing Koeberg units' capacity of 900 megawatts each. According to Ferreira, the size of pebble-bed reactors enables countries to build capacity in line with demand. It also allows for the reactors to be built closer to points of demand.

At a conference in October this year, Public Enterprises Minister Alec Erwin said the ability to build pebble-bed reactors where they are needed would save developing countries from the need to build costly large power grid systems.

PBMR aims to start construction of the demonstration plant in 2007 and to complete it in 2010, thus allowing the first commercial pebble-bed reactors to be available from 2013.

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South Africa to use old Russian nuclear warheads to fuel reactors

South Africa will use uranium downgraded from old Russian nuclear warheads to fuel its planned Pebble Bed Modular Reactors (PBMR), according to public enterprises minister Alec Erwin.

'On the PBMR, that uranium we will bring in from Russia, which is down blended weapon graded uranium,' Erwin told Deutsche Presse- Agentur dpa.

'The target is for 2012 to build the first reactor,' he said, adding that the site outside the city of Cape Town that houses Koeberg, the country's - and the continent's - only existing nuclear power plant, had been identified as a location.

'From 2013 onwards, over a period of 15 years, we want to build 24 models at 165 MW,' he said, adding that he initial baseload customer would be power utility Eskom.

The PMBR is based on old German technology and has been modified by South African scientists. A pilot fuel plan with an initial annual production of 270,000 tennis ball-sized uranium dioxide spheres or pebbles is being developed at Pelindaba, South Africa's nuclear research facility north of Pretoria.

The PBMR facilities - essentially mini-reactors regarded as extremely safe by their developers - will all use Russian uranium and would be located around the country, including Coega, the new harbour development off the coast of Port Elizabeth in the east of the country, according to Erwin.

'We will build a station at Coega. We've kept space in the industrical development zone for the PBMR,' he told dpa.

'In our total energy programme we kept 4,000 megawatt free (for the PBMR). There are 24 models that we would be prepared to purchase. If it is very successful we might purchase more in future,' Erwin said.

South Africa is competing with China in the development of the PBMR and hopes to be the first in commercialising it worldwide.

Erwin believes a reactor of this nature is particularly beneficial for Africa. 'I have no doubt that it will be an important technology for Africa, even for India, China and Brazil,' he told dpa.

'We are probably ahead of China at this point in time. Their design is slightly different,' he added.

Apart from the PBMR South Africa is looking to purchase a more conventional nuclear power, similar to the 1,800 megawatt capacity Koeberg that was built by the French in the 1970s as a pressurised water reactor.

'We'll make a decision early next year for a more conventional third-generation plant. There are three companies that put in bids: Areva, Westinghouse and Candu.

South Africa is the world's fourth-largest uranium producer. The country stopped enriching uranium in 1997 following the dismantling of its apartheid-era nuclear weapons programme.

'We stopped it in 1997. It was very, very expensive for the small amounts we needed in Koeberg,' the minister said.

'We are re-evaluating our nuclear programme. We are making further announcements next year. We have the uranium, and we have the technology. But we would not replicate the old technology. We have to give it a second thought,' he said.

South Africa, which has been party to the Nuclear Non- Proliferation Treaty since 1991, this week signed a five-year international agreement on the peaceful use of nuclear technology.

A statement by the department of science and technology to mark the signing said it was 'resolute that nuclear energy should be applied for peaceful uses to benefit South Africa's health, agriculture, water and other resources and sectors.'

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SACP outraged by planned SAA retrenchments

The South African Communist Party (SACP) says it is outraged by media reports that South African Airways (SAA), the state airline, is planning to retrench close to 1 000 workers by December 2007.

In a statement on Monday, the SACP -- which is in alliance with the ruling African National Congress -- said it had "a number of concerns about these planned retrenchments".

Spokesperson Malesela Maleka said: "First this ran directly counter to the government's commitment to halve unemployment by 2014.

"Second, we would have expected that all state-owned enterprises would do all to contribute to this achievement. Third, we are concerned about the practice of first announcing plans to retrench workers and only after that seeking to engage unions. This is a bad labour-relations practice and should be strongly condemned.

"It also cannot be that senior management continue to be rewarded millions of rands in bonuses and perks, including travel packages, whilst workers are expected to sacrifice their jobs and livelihoods."

"For a parastatal, the first [thing] that should be explored is how to cut back on these luxurious remuneration packages and perks, even before considering retrenching. This demonstrates the fact that state-owned enterprises are practically no different to private capitalist entities. Of even more serious concern is that workers, especially black workers, are still treated as dispensable entities with no right to quality jobs."

The SACP called on Public Enterprises Minister Alec Erwin -- a member of the party -- "to urgently intervene in this matter and ensure that we save workers' jobs, if this is to be the age of hope not only for the elite but for the workers and the poor as well".

"We will engage the South African Transport and Allied Workers' Union [Satawu] and various other stakeholders, and the SACP pledges its full support to whatever action that Satawu and the Congress of SA Trade Unions might take to fight this issue," said Maleka.

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State fibre v State wireless

GOVERNMENT'S Department of Public Enterprises doesn't believe that its new State-owned telecoms player - InfraCo - will be in conflict with the goals and intentions of fellow department Communications in the latter's plans to use Sentech as South Africa's broadband utility.

Ministerial spokesman Gaynor Kast says the mandates of the two State-owned enterprises (SOEs) were largely "complementary", as InfraCo would comprise a national fibre optic cable network while it was Sentech's intention to provide wireless broadband connectivity in SA's metro areas as well as those areas where it wasn't cost effective to lay fibre.

Finance Minister Trevor Manuel allocated R647m to InfraCo in his October medium-term budget policy statement and there's since been significant speculation concerning what the role and function of the new SOE would be. Kast said the full details with regard to InfracCo's operations would only be released early next year, though it would be operational from January 2007.

Some commentators have questioned whether Government is the most efficient body to provide cheaper broadband for SA rather than leaving it to a more competitive private sector in an increasingly liberalised market.

But Kast says all Government is doing is utilising State-owned assets to force the cost of bandwidth down to a level that would stimulate and sustain economic development. "To date, the private sector has failed to deliver on that objective - hence the intervention by Government." That intervention, she says, wasn't unique to SA, with countries such as India, South Korea and Malaysia going down the same path in the past.

For example, South Korea has long been seen as a good example of the potential to significantly increase broadband penetration and its positive effect on its economy.

Kast says Government didn't consider it a conflict of interest that it owned stakes in major telco operators, including Telkom, Neotel, Sentech and soon InfraCo.

Public Enterprises Minister Alec Erwin said at the time of Manuel's budget allocation to InfraCo that it would speed up the introduction of Neotel's services. It would also enable Government to secure the necessary broadband capacity in the ongoing preparation for bandwidth hungry projects such as the Square Kilometre Array (SKA), the world's most powerful radio telescope (which SA has been short-listed to host), and the development of the SA National Research Network.

Kast says InfraCo would be a utility-type company providing wholesale bandwidth to other operators rather than a fully-fledged telco offering voice and data services to end users. That would initially be on an exclusive basis to second national operator Neotel, as previously negotiated with the SNO.

From the outset InfraCo's only assets would be the fibre optic network backbone built by Transtel and Eskom Enterprises on the back of their existing infrastructure. The backbone was initially built for inclusion into the SNO, once licensed. However, Government decided recently that it would retain that asset and spin it off into a new SOE.

InfraCo wouldn't use Eskom's existing private telecommunications network licence, rather its licence was under consideration, Kast says. If need be it could also apply for spectrum to be able to use wireless technologies as well.

Kast says though this long-distance fibre network would comprise the original asset base of InfraCo, it would make further investments in infrastructure down the line "to complement the laid fibre and to enhance its business".

There's been some speculation that Tata/VSNL will own a stake in InfraCo, but Kast says shareholder matters would be dealt with in the announcement early next year "as they're subject to ongoing consideration".

The announcement would also give clarity on Government's intentions concerning expanding undersea cable capacity, which it's believed InfraCo will invest in. There's been some speculation that InfraCo could compete with SA's west coast SAT-3 cable, in which Telkom owns a big stake, and manages. Kast says the objective of expanding undersea cable capacity would be to provide additional international connectivity to meet SA's future needs (no doubt with projects such as SKA in mind).

Kast says that the R647m allocated by Government to InfraCo would be sufficient to fund the required equity contribution to establish the SOE.

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