Eskom’s big diesel problem – government has a suggestion
The Department of Mineral Resources and Energy (DMRE) says that Eskom has many options open to it to deal with its diesel problems, including applying for exemptions for fuel taxes.
The department responded to News24 report this past week, quoting Eskom chief executive Andre de Ruyter as saying that the DMRE is dragging its feet in giving the embattled power utility a diesel wholesaler licence so that it can save money when making diesel purchases or allowing the group to import diesel directly.
However, the DMRE clarified that, for Eskom to buy directly from diesel importers, the group does not need a wholesale licence from DMRE.
“All oil companies operating in South Africa, as well as other licensed importers, can be approached for the supply of diesel to Eskom at competitive prices,” it said.
The DMRE confirmed that Eskom applied for the wholesale diesel licence; however, it noted that it was not awarded since Eskom did not meet certain requirements, the details of which have been shared with the group.
“To import petroleum products directly, Eskom would need a licence including import infrastructure and adequate storage facilities, which the group currently do not have.”
“As per the legislated application process, Eskom can appeal the decision of the Controller of Petroleum Products to the Minister of Mineral Resources and Energy. That appeal has not been received by the Minister,” the department said.
De Ruyter said that if Eskom were able to get diesel at wholesale prices, the company would be able to save as much as R6 a litre for the fuel, cutting costs significantly.
Again, however, the DMRE said that the wholesale licence isn’t the only avenue open to utility.
“With regards to claims that there is a potential saving of R6 per litre between the Basic Fuel Price and the Wholesale price, the DMRE would like to indicate that the R6 is mainly made up of taxes that the DMRE has no control over,” it said.
“If Eskom wants to be exempted from paying taxes, which includes the Fuel Levy and Road Accident Fund Levy, Eskom should approach the relevant authorities,” it said.
Diesel has become a vital component of Eskom’s battle to keep load shedding under control – or rather, restricted to lower stages. The group has had to lean heavily on its Open Cycle Gas Turbines to bolster energy generation. The OCGTs can produce enough support power to keep two stages of load shedding at bay.
However, the turbines are extremely expensive to operate, especially in the last year when diesel prices rocketed in the wake of the Russian invasion of Ukraine, among other global supply issues.
The local power utility blew its diesel budget by the middle of 2022, and by the end of its financial year, the group more than doubled its spending on diesel, blowing R14.7 billion on fuel, up from R7 billion the year before.
According to the group’s outlook for 2023, it will need to keep unplanned outages (breakdowns) below 13,000MW and use hundreds of millions of rands of diesel each month just to keep load shedding at stage 1.
Realistically, however, the challenge is far greater than this. So far, the group has been unable to keep outages below 16,000MW – its worst scenario – and the spend on diesel in this scenario balloons into the billions of rands each month (R3 billion or more).
Eskom has warned that using diesel to avoid high stages of load shedding is unrealistic.
Not only is this level of fuel spend completely unaffordable, but it is also not logistically or physically possible for the group to transport and use that much diesel. Eskom previously indicated that it can only use R2.4 billion worth of diesel a month at most.
Even if it were able to spend the money to simply burn more diesel – which it stressed it cannot do due to a lack of funds – the logistics around moving diesel around make it an impossible solution.
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