Diesel sharks smell blood at Eskom

 ·2 Feb 2023

While South Africa continues to suffer under extended and high levels of load shedding, government departments are looking for opportunities to sell diesel to Eskom at extortionate rates.

According to findings from energy expert Chris Yellend and consultancy group EE Business Intelligence (EEBI), Eskom’s diesel crisis has forced the power utility to procure diesel at a rate above pump prices from state-owned PetroSA, while politicians and government departments submitted unsolicited suggestions for ‘other’ sources of diesel.

Eskom warned the national government in November 2022 that it had run out of diesel to keep its open-cycle gas turbines (OCGTs) going. While the turbines are only supposed to be used in emergency situations, the power utility has come to rely on them as a primary power source, staving off two stages of load shedding.

The key issue is that the turbines are extremely costly to run, and Eskom has blown its budget for diesel procurement. The group had a budget of R7 billion for diesel in the current financial year (ending March 2023) but is likely to spend R22 billion by then.

Not being able to use the OCGTs, Eskom was forced to escalate load shedding in the last few months of 2022, which led to an urgent procurement of diesel from PetroSA. While the South African public was led to believe that this was inter-SOE assistance, Yelled revealed that Eskom had to pay for the diesel up-front and at “extortionate” prices.

“Eskom paid R1.3 billion for this first tranche of 50 million litres of diesel, which translates to an extortionate R26.00 per litre – about R1.00 per litre above the retail pump price at which members of the public in Cape Town could fill up their car with just 50 litres of diesel,” he said.

“On 6 January 2023, Eskom made a second procurement of 56 million litres of diesel from PetroSA for some R1.265 billion, which translates to a price of about R22.59 per litre — a more realistic 10% bulk discount off the retail diesel pump price in Cape Town.”

Eskom purchased a third tranche of diesel on 23 January for R1.5 billion, which it is currently burning.

According to EEBI, PetroSA is currently the biggest supplier of diesel to Eskom, but the utility also procures smaller quantities from other commercial diesel suppliers, namely Astron, Engen, and Shell.

Eskom’s current normal contact prices for diesel are R23.51 per litre with PetroSA, R20.36 per litre with Engen, R20.28 per litre with Astron, and R20.22 per litre with Shell.

Sources told Yellend that Eskom received several unsolicited suggestions from the DMRE, the Department of Public Enterprises (DPE), and members of the Eskom board proposed the names of other uncontracted sources of diesel supply.

However, Eskom has resisted these suggestions, he said, reasoning that the diesel suppliers were “opportunistic” and all offered prices just slightly below those from PetroSA, indicating possible collusion and anti-competitive behaviour.

“If you cooperate and engage with irregular suppliers for ad hoc procurements suggested by politicians and board members, this will just continue and increase”, one of the sources said.

Responding to the claims, the Department of Public Enterprises confirmed that unsolicited suggestions were made, but only in an attempt to be “helpful”.

The department also conceded that the apparent overcharging by PetroSA above the diesel pump price needed to be thoroughly investigated in the interests of Eskom and South Africa.

Eskom has been trying to attain a wholesaler licence so that it can procure diesel at cheaper rates – however, it applications have been denied by the DMRE.

According to BBEI, there is speculation that the reason the department has been denying the applications is because of the high rates PetroSA – a subsidiary of the Central Energy Fund that reports to the DMRE – is able to charge the embattled utility.

“The suggestions are that if Eskom were to obtain its own diesel trading or wholesale licence, PetroSA would face an unsustainable future and may fold,” BBEI said.

Read: Eskom’s massive diesel conundrum

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