POWER utility Eskom, caught in the pincers of the Russia/Ukraine war, which has led to the whopping rise of oil and coal prices, will have to look closely at how to structures its strained finances to cope.

Eskom has warned that continued steep price rises will be difficult to absorb in light of its financial constraints as it crunches the numbers from a heavier than normal reliance on its Open Cycle Gas Turbines (OCGT) plants, as well as those operated by independent power producers (IPPs), ahead of its most recent decision to implement load-shedding on Monday, which has now been extended to Saturday.

Eskom needs both oil and coal to keep the lights on.

Oil futures rose to near $123 (R1,890) a barrel after settling at the highest level since 2008 on Monday fuelled by the US putting a squeeze on Russian President Vladimir Putin by threatening a ban on Russian crude imports following its invasion of Ukraine.

Coal from the Illinois Basin soared $17 a short ton to $92.50 last week, the highest in records going back to 2005, according to data from S&P Global Market Intelligence released Monday, according to Bloomberg.

However, analysts said yesterday Eskom faced more of a tight grip on spot prices of commodities, rather than long-term contracts, which were buffered by hedges against increases.

Eskom’s chief operations officer, Jan Oberholzer, said by March 7, Eskom was having to produce electricity across all 20 OCGT units after several coal units tripped in quick succession, resulting in the loss of an additional 4,500 MW of capacity.

He said Eskom was still evaluating and quantifying the impact of the Russia and Ukraine war, but that prices of commodities were definitely escalating and there were concerns about the reach of the conflict on Eskom's operations.

Eskom’s chief financial officer (CFO), Calib Cassim, would not directly attribute the risk of load shedding to the surging diesel prices and the risk of load-shedding, but stressed financial resources were stretched to the limit, warning that Eskom would get to a point it did not have sufficient muscle to pay for diesel.

Energy analyst Chris Yelland said yesterday, "There is the restructuring that is taking place. We will have to see how that goes, but Eskom will have to sell off some assets, which is a difficult contested political issue.

“There are other people who think Eskom will have to unbundle and list on the open market to relieve debt. Yes that would not make the debt go away and not really a solution that would change the situation for the country, but these are amongst the options open," he said.

Eskom was granted R1 billion in diesel revenue through the regulated tariff for the current financial year and has spent about R6bn on the fuel to operate its own plants and has purchased about R3bn in electricity from the diesel-fuelled private IPPs, Avon and Dedisa facilities.

The National Energy Regulator of South Africa has granted about R3bn for diesel against a request for R6.5bn

Yelland said, "The government has to look at the issue and take hard decisions, they have been putting off making these decisions and right now there are very few options at Eskom. The biggest issues are not with Eskom, but with the Department of Mineral Resources which is slow and bureaucratic.

Yelland said Eskom needed to unlock the ability for the private sector and customers like municipalities. They need to encourage and incentivise them to play a part in energy production, which would yield results in between a year and three years.

Yelland contended that the cost cuts and de-monopolising Eskom to allow broader participation seemed the most feasible out of the current quagmire.

- BUSINESS REPORT

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