Eskom can save billions with a diesel import license – but progress at DMRE is slow, according to De Ruyter

Eskom’s Ankerlig factory in Atlantis.

  • Eskom has applied for a wholesale license to import its own diesel.
  • If approved, such a license would save the utility billions in fuel costs each year.
  • But Eskom is making no headway to get the government to approve the license.
  • For more financial news go to News24 Business front page.

Eskom has applied for a wholesale license to import its own fuel, which could result in the struggling utility saving billions in diesel and heating oil costs each year.

“If we could get that wholesale license, Eskom could buy directly from importers or import it ourselves,” said outgoing Eskom CEO André de Ruyter. “We could then buy fuel at the base price and that would reduce the cost of buying diesel from around R23-24 per liter to around R16.”

Such a license would have saved Eskom about R3 billion in fuel costs last year – “a very significant saving which we would be very keen to deliver,” said De Ruyter at the utility’s recent presentation of its full-year results, where it reported a loss of 12 .3 trillion rand.

However, the application has been with Minister Gwede Mantashe’s Department of Natural Resources and Energy for some time, De Ruyter said. “Unfortunately, we haven’t made much progress on this… Discussions are ongoing with the government on this for this license to be granted to Eskom,” he said.

Eskom currently relies primarily on PetroSA for diesel to supply its open-cycle gas turbines, which often play a crucial role in protecting South Africa from less favorable periods of load shedding.

“We typically get a significant discount of between 60 and 70 cents per liter off the wholesale price of diesel,” De Ruyter said

Despite this, the utility spent R15 billion on diesel in the year under review – some R9 billion more than South Africa’s National Energy Regulator (Nersa) allowed Eskom to claw back diesel use through electricity tariffs.

For the year ended March 2022, Eskom’s coal costs increased 5% year over year, while nuclear-related costs decreased 5%.

But due to rising oil prices — which peaked at $125 a barrel in March — Eskom’s cost of running its open-cycle gas turbines on diesel has risen 19% per megawatt-hour. The costs associated with turbines owned by independent power producers showed a 28% increase.

The continued use of gas turbines and the associated consumption of diesel are worrying, said De Ruyter. “This is not a sustainable way of generating electricity, particularly as Nersa’s premium for the diesel consumed by our peak power plants is significantly lower [what Eskom spends]which means the remainder will have to be financed through internal savings.”

While diesel production sources account for 11% of the total, they only account for 1.2% of the total GWh produced.

In the current fiscal year, which ends in March, Eskom expects to spend R10 billion on diesel and R9 billion on heating oil, which will contribute significantly to a projected loss of R20 billion for the current fiscal year.

As Eskom announced in November, it has actually run out of money for diesel by the next fiscal year.

At last week’s earnings briefing, Eskom CFO Calib Cassim said the utility and the Department of Public Enterprises are still in talks with the Treasury Department to find a diesel financing mechanism.

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