ESKOM PITCHES ITSELF AND THE MEDUPI POWER PLANT

UNCLAS SECTION 01 OF 02 PRETORIA 000355 SIPDIS SENSITIVE STATE PLEASE PASS USAID STATE PLEASE PASS USGS DEPT FOR AF/S, EEB/ESC, OES/EGC AND CBA DOE FOR SPERL AND PERSON DOC FOR ITA/DIEMOND TREASURY FOR PATRICK STUART E.O. 12958: N/A TAGS: ENRG EMIN EINV EFIN IBRD PGOV SENV SF SUBJECT: ESKOM PITCHES ITSELF AND THE MEDUPI POWER PLANT REF: A) PRETORIA 12 B) 09 PRETORIA 2498 AND PREVIOUS This cable is not for Internet distribution. ¶1. (SBU) Summary: Eskom hosted foreign diplomatic missions, South Africa Government officials, and its own staff on February 9 at Medupi Power Plant. Eskom asserted that its team is dedicated to keeping the lights on and fueling economic growth in South Africa, and that Medupi - as a key part of the strategy - will employ the most advanced technologies to address water, environment, and carbon emission challenges. The South African Department of Public Enterprises and Department of Energy are working closely with Eskom on strategic planning to produce a comprehensive Integrated Resource Plan (IRP),targeted for May-June. This is intended to clarify roles for the private sector, diversification of the energy mix, and how to follow the best Long Term Mitigation Scenarios for carbon emissions. Nuclear energy and renewables will be part of the energy mix. End Summary. ¶2. (SBU) Deputy Chief of Mission and Energy Officer participated in the state power utility Eskom-hosted visit on February 9 to Medupi Power Plant under construction in Lephalale in Limpopo Province. The delegation also toured the 1990-vintage 3800 MW Matumbi coal-fired power plant. Both plants are situated near Exxaro's Grootegeluk coal mine. -------------- Eskom's Commitment to Keeping the Lights On -------------- ¶3. (SBU) Eskom acting Chief Executive Officer Mpho Makwana emphasized that the Eskom team is committed to keeping the lights on in South Africa (for the June-July World Cup and beyond) and fueling the country's economic growth. He identified the following objectives for the parastatal: - Heal and stabilize Eskom after the turbulence of the power crisis starting two years ago; - Recruit new top management including a new CEO and Chairman who can refocus Eskom's strategic vision. He introduced the new Chief Financial Officer and the new Managing Director for Human Resources; - Maximize value for the shareholder, the SAG, reducing operating losses; - Secure funding for the ambitious capital expansion program. Makwana asserted that Eskom is the tenth largest power company in the world, with the fourth largest build program. (Note: Makwana told the DCM that he is looking forward to meeting the Ambassador on February 25. He also mentioned having met several U.S. power utility executives at Copenhagen and Davos. End Note.) -------------- Medupi Superlatives - We Are Still About Coal -------------- ¶4. (SBU) With this visit, Eskom sought to show that its capital expansion program is on track and represents rands well spent. Medupi will be the first new baseload plant in twenty years; next door's Matimba was one of the last big ones to come on line in 1991. Q The first units of Medupi's 4800 MW capacity will come on line in 2012, aimed to alleviate Eskom's vexing capacity shortfalls. Medupi will incorporate state-of-the-art features and meet sustainability objectives: - Use super critical combustion, employing high temperature, high pressure technology to augment efficiency; - Minimize and conserve use of water by employing enhanced dry-cooling features (it will be the largest dry-cooled plant in the world at completion.) PRETORIA 00000355 002 OF 002 - Ensure highest environmental standards, including protecting plants, snakes, and even a large Baobab tree; - Adopt flue-gas desulphurization to reduce harmful SOX and NOX emissions (although thereby increasing water consumption); - Employ other technologies to improve combustion efficiency; and - Assure jobs, skills development, and social programs in the locality. In the local language, Medupi means "the rains that soak the parched lands", (thereby bestowing economic relief). -------------- Commitment to Strategic Planning, Carbon Emissions Mitigation, And Diversification -------------- ¶5. (SBU) SAG Public Enterprises Deputy Minister Enoch Godongwana, Eskom's senior guest, emphasized the importance of the Integrated Resource Plan (IRP) strategic planning, which would support new build, diversification of the energy mix, and integration of long-sought Independent Power Producers (IPPs) in his presentation. He asserted that the IRP would identify a sustainable road map, consistent with Long Term Mitigation Scenarios (LTMS) for carbon emissions, including ramping up renewable energy. The Deputy Minister said the solution cannot be Eskom alone; Eskom is good at big coal and will keep utilizing South Africa's ample coal reserves for the foreseeable future. He stressed that Eskom cannot continue to serve as both referee and player under the new system. Godongwana noted the steady - almost revolutionary - change in the ruling party's thinking that now was committed to procuring private equity (albeit minority) for the next mega coal plant Kusile. "We will consider all options," he said. "We need private equity, expertise, and best practices." (In a separate conversation, DPE Deputy Director General: Energy Chris Forlee told DCM he was optimistic about the IRP process which had support at the highest levels.) ¶6. (SBU) Department of Energy Deputy Director General Ompi Aphane amplified the SAG's commitment to formulating and implementing a robust IRP vision, carrying out an appropriate LTMS, diversifying the energy mix, and introducing alternate players through IPPs. In addition, he voiced the SAG's intent to advance nuclear energy, clean coal technology, renewable energy, and carbon capture readiness. He noted the importance of Eskom's proposed cost-reflective tariff increases to underpin a new market approach. The regulator NERSA recently completed public hearings and will rule in the next month on Eskom's 35 percent per annum for three years rate increase requested. Eskom's new Chief Financial Officer noted the importance of the SAG financial support, as well as a contribution of multilateral banks to the capital expansion program. -------------- COMMENT -------------- ¶7. (SBU) While the Medupi visit was part of an Eskom public relations campaign, the event was useful in illuminating its approach in coordination with the SAG. The pending World Bank loan Qapproach in coordination with the SAG. The pending World Bank loan to complete Medupi was the elephant in the room. Eskom appears to be successfully putting in place clean energy and carbon mitigation offsets consistent with SAG commitments and objectives. Even as it diversifies energy sources and puts in place clean energy and conservation measures, South Africa will continue to depend on coal as a major energy source, including likely additional coal-fired power plants beyond Medupi and Kusile. GIPS