Eskom’s clock is ticking to fix Medupi or risk early loan repayment

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Resurgent power producer Eskom is risking the ire of the World Bank, which lent it money to build the Medupi power plant on condition it would retrofit the mega coal-fired facility with the technology needed to reduce emissions.The company has conceded the process was proving “complex” after fetching a R41.7bn bill.While Kusile was commissioned with flue gas desulphurisation (FGD) technology, which removes sulphur dioxide (SO₂) from the exhaust gases of already installed fossil-fuel power plants, Medupi is permitted to retrofit FGD technology within six years of the commissioning of each of its six units.The last unit at Medupi, whose construction, like that of Kusile, was marred by cost overruns and huge corruption, was commissioned in 2021. Eskom used its annual report, published alongside its results on Monday, to flag the complexity of Medupi’s retrofit, which is also subject to regulatory processes.The company, which produces 80% of South Africa’s electricity, said in its financial statements for the year ended March there is a risk that delays in completion of the FGD plant at Medupi by June 2027 could require the settlement or prepayment of certain related funding arrangements before their original maturity dates.Outgoing CFO Calib Cassim said the group was in discussions with the World Bank regarding an extension of the existing waivers that Eskom has requested.“The going concern assessment considered potential future obligations and downside scenarios, including a prudent scenario relating to the World Bank-funded Medupi flue gas desulphurisation project, which is scheduled for completion after the deadline contemplated in the loan arrangements,” Cassim said.“We continue to engage constructively with the World Bank, which has indicated that it will undertake a mission review by the third quarter of financial year 2027 to assess progress, mitigation measures and potential next steps,” he said in the report.“Even under a worst-case scenario, assuming early repayment of the relevant facility, the going concern position remained supportable.”The Medupi FGD retrofit programme has moved to the tendering phase. The World Bank in 2010 approved a $3.75bn (R59.5bn at current prices) loan to Eskom, primarily to fund the construction of the 4,800MW Medupi in Lephalale, Limpopo.Built at a cost of more than R140bn, Medupi is one of the newest plants in Eskom’s ageing fleet, with its lifespan running to 2071.Business Day reported earlier this year that Eskom was weighing three options on how to retrofit Medupi: the wet version of FDG, which is more costly, and the cheaper semidry and dry versions, which are less effective.All three require substantial water, electricity and chemical inputs, creating additional challenges in the water-stressed Waterberg region.A report commissioned by Eskom has warned that retrofitting FGD at Medupi would be the first of its kind in South Africa and could lead to delays and require modifications to existing systems.In its annual report Eskom said it had submitted its plans to the department of forestry, fisheries & the environment (DFFE), opting for the wet FGD version.“In compliance with the station’s MES [minimum emission standards] exemption granted by the DFFE, Eskom has submitted an updated cost benefit analysis to DFFE, indicating the high financial cost of FGD (estimated at R41.7bn) compared to the relatively limited health benefits,” it said.“The DFFE has requested further modelling to support their review, with the updated report targeted for completion by February 2027. Any changes in the approach to FGD will be discussed with all relevant stakeholders.”Last year the department granted Eskom limited exemptions from strict air quality regulations at its key power stations — Kendal, Lethabo, Majuba, Medupi, Matimba, and Tutuka — until 2030.Eskom reported 67 environmental legal contraventions recorded during the year, with “three incidents classified as significant failures of business systems”.It said the management’s focus was on drafting detailed operational plans targeting particulate emissions, water use and reining in polluted water discharges, conceding that polluted water discharges continued at “some stations”.The Supreme Court of Appeal last month lambasted Eskom for its failure to rectify severe water pollution from the Kusile power station into neighbouring Mpumalanga farmlands.The court also reserved criticism for the DFFE and the department of water & sanitation (DWS) for failing to enforce environmental compliance with Eskom.In its annual report, the utility said it is balancing competing interests as it moves to decarbonise its operations, which are dominated by coal-fired power stations.“As one of South Africa’s largest single‑source GHG [greenhouse gas] emitters — responsible for around 41% of national emissions — we recognise that climate change is a defining strategic risk and a central consideration in how we create and preserve long‑term value,” it said.“We frame our climate response within the practical realities of energy security, affordability and a just transition by advancing a progressive, holistic decarbonisation pathway that balances climate action with operational resilience, socio‑economic development and the long‑term sustainability of the electricity system.”Business Day