Is There Finally a Credible Plan to Fix Eskom?

We have all been waiting for Eskom to have a plan and now a solution might be here to aid the old and unreliable coal power stations.

Jan Oberholzer, Eskom chief operating officer said in an interview with Engineering News last week that before the end of the month, the board would be considering a new approach in how to maintain the fleet of coal power stations. 

The thinking is that Eskom would remove a number of units for service for an extended period of time, so that it has the space to do proper maintenance. Oberholzer went on to say that he thinks that Eskom needs to be bold and tell the public that they have 25 000MW 24/7, 365 days a year and to take whatever buffer there is to maintain the units. He also said that units that need any maintenance should be taken off so that they can be maintained properly.

Koeberg is maintained rigorously and Oberholzer said that the same respect needs to be given to the coal units. 

At the moment maintenance of the coal fleet is continuously being deferred which results in poor performance and reliability of the plant. Maintenance is already shifted out as the utility faces extremely high levels of plant breakdowns, which comes less than a month after we reached stage 6

The problems that are currently being faced by Eskom have been years in the making. The scenario of committing to a guaranteed 25 000MW of supply will give the board a sliding scale of options to deliberate and Eskom will have the room to do maintenance on around 18 000MW of plant. The bulk of the 13 000MW to 14 000MW of plant that is experiencing breakdowns will then effectively shift into a planned maintenance mode. The backlog on maintenance is so large that this strategy would need to be followed for about two years. 

So what are the possible scenarios?

Committing to a reduced level of supply will leave the country with two options. 

The first of these options is that we enter a state of almost permanent load shedding where the shortfall is made of power rationing with the level determined by how much power Eskom has committed to supply. 

The second option is to bring a new emergency supply on stream as quickly as possible. The Department of Mineral Resources and Energy has started a process to find a way to look at sorting the short term supply gap by focusing on demand side management and new generation capacity. The request for information on the process to gain between 2 000MW and 3 000MW has been published with a deadline of January 31st. Further rounds of renewable energy procurement have stalled. 

If the maintenance strategy is pursued, then there will most likely be a combination of these. However, Eskom is known for unreliability and it is difficult to see that will be able to constantly supply 25 000MW with plants undergoing long term maintenance that can’t be called upon to plug the supply gap. 

At the moment a process seems to be underway by the presidency to strengthen, replace and overhaul the Eskom board, which could mean that the maintenance strategy might not get discussed this month. 

Eskom is not able to commit to this strategy in isolation and it will require political will from the presidency, the minister accountable for Eskom and cabinet as well as the ruling party. It will also not be easy to sell this plan to South Africa, but the public is frustrated and accept that it’s not just working right now. 

The treasury will also have a say as they will need to sell the idea to the rating agencies and will probably have to provide further financial support to Eskom. Removing a substantial level of supply for a period for two years will have an impact on Eskom’s revenue and its income statement will weaken further. 

When it comes to Eskom there are no easy decisions, but the fact is, time is running out and something has to be done. 

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Cashing Out Your Retirement Savings…Watch Out for Hefty Tax Fees

If you are in the midst of moving company, then you need to be careful with what you have built up, which includes your retirement savings. It can be confusing to know what to do with retirement savings that you have accumulated through your employer when you are moving jobs. 

Some see this a chance to cash out a nice lump sum that they can give themselves as a bonus, that they can use for a holiday or even a down payment on a new car. However, this type of decision will probably be financially destructive in the long run. 

If you choose to cash your pension out when you change jobs, then you will lose your accumulated savings as well as any returns you would have gained on this during the rest of your working life. This shortfall will be extremely difficult to make up later in life and those years of savings will be gone. If you do find that you are in financial difficulty and you have no other choice apart from dipping into your retirement savings, then only cash out a small portion and leave the rest for the long term according to Chris Eddy from 10X Investments 

In South Africa, it is very popular for us to not persevere with 70% to 80% of fund members having cashed in on their savings when changing jobs. However, when you choose to cash your pension out then you may pay hefty tax fees. 

The tax free portion that you can withdraw before retirement date is R25 000 and anything more than this is taxed at 18% or more. Instead of withdrawing the lot rather transfer your accumulated savings into an alternative retirement savings fund like a preservation fund, so it has a chance to grow. You will then be able to benefit from compound interest, which is key. 

It might be tempting to cash out your savings especially as 2019 has been a challenging year and the cost of living is continuously on the rise, but resisting this urge will help to take your savings to the next level. 

When you see that your balance statement is in ten of thousands or even hundreds of thousands then it can be very tempting to take it out when you have bills to pay and debt to pay off, but you should be looking at your retirement savings as precious. It is after all your retirement savings that will help you to preserve your standard of living in retirement.