Eskom a significant threat to growth, warns Standard Bank
Chief economist Goolam Ballim estimates growth of 1.3% for 2019, but with persistent electricity shortfalls, that 1.3% ‘faces material downside risks’
Eskom poses a risk to SA’s growth outlook, according to Standard Bank chief economist Goolam Ballim.
Standard Bank estimates growth of 1.3% for 2019, which takes into account the recent electricity shortfall with an assumption that energy available would be below 70%.
“If we have very deep piercing and persistent electricity shortfalls, then our forecast of 1.3% faces material downside risks,” Ballim said at a media briefing on Wednesday. “For every 5% shortfall in electricity supply, we estimate a negative impact on GDP of between 0.3 and 0.5 of a percentage point.”
Neglected maintenance of power plants has led to serial breakdowns. Load-shedding, which is implemented to stabilise the grid when demand exceeds supply, began on Sunday and is expected to last for at least the rest of the week.
Public enterprises minister Pravin Gordhan said the government has asked Italian utility Enel to provide three senior coal-power engineers to help Eskom understand the reason behind the serial breakdowns.
Eskom is in a deep financial crisis, with R419bn debt that it is unable to service from its own revenue. The power utility is acknowledged as the single biggest risk to SA’s economy by the Treasury, credit ratings agencies, and the investment community.
“By continuing to maintain present day, high electricity tariffs and the possibility of up to 15% price increases over a three-year horizon will just stymie SA’s industrial base with job losses in other areas, so a myopic approach to job preservation at Eskom is to the neglect of the wider economy,” Ballim said.
Acting director-general of the department of public enterprises Thuto Shomang told MPs that Eskom’s debt burden represents 15% of the sovereigns debt and that if the power utility defaults on its debt, it will threaten the economy.
“Eskom is a deeply inefficient institution and is mired by a lack of skills,” Ballim said, adding that this has been exacerbated by a lack of investment into mines to supply sufficient coal in perpetuity. “This is a further reason to believe what the minister has acknowledged himself, that the institution is structurally mired.”