Only a national concerted effort can rescue Eskom and the economy
Business, in particular coal-mining companies, must participate in ending the power utility's crisis, and not just be armchair commentators
It is a matter of grave concern for the business sector that Eskom has reported R20.7bn net loss after tax and is struggling to service debt of more than R400bn. This dire situation cannot be solved by the government and Eskom alone. The private sector, particularly coal suppliers, should make a contribution.
As things stand, more bailouts will be required to keep the company running and powering our homes and industry. The concern is three-fold.
First, by diverting money from the fiscus to help Eskom service its debt we are worsening the country’s fiscal and sovereign position at a time when the economy is barely growing.
Second, Eskom’s financial precarious position means it will require more funding in future, and the implications are that we haven’t seen the end of electricity tariff hikes.
Third, the debt risk is unsettling manufacturing and mining investors. This is particularly damaging considering the fact that unemployment has reached a catastrophic 29%, according to the latest Stats SA figures, a point at which every job is precious. The Minerals Council of SA has previously warned that hundreds of thousands of jobs could be lost in the mining sector due to electricity tariff increases combined with interrupted supply or load shedding.
Given our appalling levels of unemployment, we should be concerned not only with jobs that are likely to be lost but also jobs that won’t be created. Losing the potential to retain existing and create new jobs is something we should work hard and fast to avert. Under the circumstances, it is therefore not ideal for business leaders to be armchair critics, obsessed only with analysing problems and complaining while offering no solutions. We can and must contribute to solutions.
The government has proposed to restructure Eskom into three divisions. It is providing the current bailout on condition that progress is realised towards restoring Eskom to a sound financial footing. To see Eskom through the restructuring process, the government has appointed a chief restructuring officer.
All these processes need time to produce results. But we need the results now. Which brings me to the next question: in addition to expressing concerns, as has been done repeatedly, what can business do? One of the most important contributions coal producers can do is to supply good quality coal to Eskom at competitive and reasonable prices that enable them to make a reasonable margin without destroying mining investment appetite and jobs. What’s the point of having a lucrative coal supply contract that doesn’t assist Eskom and the entire economy?
As coal suppliers, we must be realistic and not shoot ourselves in the proverbial foot. It is true that we have to get returns that can make coal-mining operations sustainable. It is also true that Eskom has a lot of internal issues to resolve. So much has been said about Eskom’s internal problems, which its new leadership and the government are attempting to resolve, but very little on what coal suppliers, who have built and grown their operations thanks to Eskom, are prepared to do.
These are the issues that the mining sector should debate. Electricity supply problems and rising tariffs have indirectly tainted the coal-mining sector because citizens associate the sector with greed. As a result, when renewable energy sources began to gain currency, only a few people were prepared to point out their shortcomings. Eskom-coal supplier relationships have suffered reputational harm in the eyes of the public.
While concerns about carbon emissions cannot be overlooked, the reality in SA is that negativity about coal is also fuelled by the way in which the coal supply to Eskom was handled. State capture made things worse. This must be fixed.
Eskom’s coal problems have led to a situation where the shortcomings of wind and solar energy are hardly discussed. The fact that compared to coal, wind and solar have little to contribute towards creating jobs hardly matters. Nor the fact that these energy sources are not reliable and therefore cannot provide baseload.
In the face of Eskom’s financial challenges and occasional threats of load shedding at a time when coal is its dominant energy source (91. 4%, according to the company’s 2019 integrated annual report), people want quick solutions. If they are told renewables are the solution, they have no reason not to believe. To be sure, renewables are necessary as part of an energy mix with significant baseload provided by coal. We must also discuss technologies that can allow us to burn coal in an environmentally friendly and sustainable manner.
However, we must not expect jobs from wind and solar power generation. The truth is that manufacturing of wind turbines and solar panels takes place largely outside SA and only the top manufacturers are able to create jobs from wind and solar products. These are China, Japan, Germany, the US, Denmark and Spain.
In SA, 85% of the 36,500 jobs created by renewable independent power producers by the year 2018 were created only during the construction phase of renewable power stations, according to the International Renewable Energy Agency. This is because renewables, unlike coal, do not need a lot of manpower. Contrast this with the 86,000 permanent and contract employees in the coal-mining sector. In total, coal is responsible for 700,000 direct and indirect jobs in the economy.
This does not mean we should not invest in renewable technologies. We can build competitiveness in the manufacturing of input products for renewable energy generation in the long run.
But we have to do all we can in the meantime to use our coal resources, which provide baseload for Eskom while creating jobs in coal mining and manufacturing as a consequence of reliable and cheap energy supply. We have no option but to keep electricity prices down if we are to retain or attract mining investments and manufacturing — and keep these sectors competitive.
The Eskom board has committed to steering the company in the right direction. The coal-mining industry must meet them halfway in this difficult endeavour by supplying good quality coal at competitive and reasonable prices.
It’s not sustainable to adopt an “us and them” scenario. We either sink together or we all participate in a mission to get Eskom — and by extension our economy — out of its woes.
• Bayoglu is executive chairman of Canyon Coal