Jeff Radebe. Picture: GCIS
Jeff Radebe. Picture: GCIS

On the day Business Day broke the news that energy minister Jeff Radebe paved the way for businesses to generate their own electricity and supply the national grid, Bloomberg also had some sobering news on the state of Eskom’s finances.

While, based on the company’s latest available financial results, the debt load is around R420bn, the wire agency reported that its own analysis of data including outstanding bonds and loans indicated that the figure has now risen to around R500bn. That’s an increase of about 20%.

If the same happens over the next 12 months, we will be looking at a figure in the region of R600bn. Then look at the total GDP of just below R5-trillion and assume the economy will barely grow. That means Eskom’s debt will be equivalent to around 12% of GDP.

In its report released late on Wednesday, Moody’s Investors Service said failure to tackle reforms, including reining in Eskom’s debt, could push the debt-to-GDP ratio well above 70%. And we already thought the Treasury’s forecast of gross debt rising to 60.2% of GDP by the 2023/24 fiscal year was grim.

It becomes easy to see why Eskom is the biggest single risk for the economy. And why Cyril Ramaphosa has no time to lose. Perhaps Moody’s timing could have been better, coming just as the president was glowing in his endorsement from Goldman Sachs.

In reality, the country has already paid a heavy price with tariff increases that have crippled jobs in sectors such as mining and retail, and bouts of power cuts that have had a massive impact on the country’s psyche that cannot be easily measured in rands and cents alone.

The employment statistics this week serve to highlight how bad things are. The power situation, of course, isn’t the only problem, but is arguably the most critical, and will provide a test of whether analysts’ optimism about the implications of the ANC’s victory in last week’s elections for Ramaphosa’s relative power in the party and his ability to push on reforms is justified.

Radebe’s decision to allow the energy regulator to license applications for small-scale embedded generation from businesses to generate their own electricity and feed into the grid is a blast of fresh air into this environment. It is the first real sign of post-election economic reform and it will reinforce reasons for optimism. 

Of course, there will be debate about what this means for Eskom’s future in the long term. Will it accelerate the spiral it finds itself in? Well, the horse has probably bolted with increasing numbers of paying customers, fed up with spiralling tariffs and unreliable supply, deserting the grid, leaving Eskom to service those who can’t or won’t pay. There will also be debate about the implication for municipalities which stand to lose a key source of income through a declining number of customers.

What’s not in doubt is that the country is in crisis and things need to change. What’s also not in doubt is that a key constituency of Ramaphosa, the trade unions, will attempt to stand in the way of the necessary steps. While workers stand to be adversely affected by these developments, the government needs to provide the necessary assurance of a fair transition. It will not help if unions refuse to think beyond their immediate interest and ideological blinkers.

So, on the proposed step to open up the energy market, expect noises about privatisation and threats of blood on the floor.

But if Ramaphosa blinks, we are doomed. What is at stake is more than just giving private players access to the grid but our future energy security.