ESKOM PITCHES ITSELF AND THE MEDUPI POWER PLANT

UNCLAS SECTION 01 OF 02 PRETORIA 000355

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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

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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.

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Eskom's Commitment to Keeping the Lights On
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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.)

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Medupi Superlatives - We Are Still About Coal
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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).

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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.

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COMMENT
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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