EDITORIAL: Why load-shedding is an avoidable debacle
Just as the economy jumps out of a self-inflicted recession, Eskom intervenes with power rationing, which can only propel it one way: back into recession
One step forward, three steps back. That seems to be SA’s genetic predisposition. Just as the economy jumps out of a self-inflicted recession, Eskom intervenes with power rationing, which can only propel it one way: back into recession.
A modern economy relies on electricity to thrive, so unless Eskom can meet demand, confidence will sag and investment dry up. But as with the recession, this bout of load-shedding, like those in the past, was entirely avoidable. The utility’s previous and current leadership, as well as the government, have to accept the blame. It is trite to say that Eskom was deeply harmed by Jacob Zuma and his lackeys Lynne Brown and Malusi Gigaba. But let’s look at the present.
The FM has argued for some time that Eskom will need another bailout of at least R50bn. It is now starting to look more like R100bn is needed. Realistically, Eskom must buy back about R200bn of its debt (now a breathtaking R419bn) just to return to a financially viable position.
On the ground, CEO Phakamani Hadebe’s new management is inexperienced and lacks the technical capacity to deal with such a complex engineering beast. But, as public enterprises minister Pravin Gordhan said last week: "We have to work with what we have."
Hadebe’s team has repeated the mistake of eight years ago, when Eskom deferred routine maintenance to save cash that it could use to service its debt. Back then, it was the government (and Gigaba as the minister) who insisted Eskom defer maintenance to keep the lights on.
That time, politics triumphed over engineering sense; this time, the bankers and accountants prevailed over the engineers. So the available capital was allocated to service debt, which is now costing north of R45bn a year. Yet Eskom only generates R52bn cash from operations.
The problem is there are not enough technically experienced or qualified people on the board to foresee the danger this choice would present. And the fact that Eskom has recently brought new generating capacity onto the grid would have lulled many into a false sense of security. After all, since 2015 more than 4,000MW of generating capacity has been added thanks to the Ingula pumped storage scheme in the Drakensberg and the Medupi and Kusile coal-fired stations.
So far this year, Eskom has generated 193,333 gigawatt hours (GWh) of power, which is slightly ahead of last year’s figure at the same stage. For the whole of last year, Eskom produced 229,342GWh — the same as in 2009.
In a nutshell, the utility is producing the same amount of electricity it produced a decade ago. Back then, its installed generation capacity was 40,000MW. While that capacity has grown to 47,000MW, Eskom is only able to supply 29,000MW, because its power plants are often broken or in need of maintenance.
The good news is that this can be changed with a relentless focus on maintenance, particularly during the low-demand season to March.
But if this is not attended to urgently, Eskom will take the economy down with it.
The utility needs a viable long-term plan to stop its habit of lurching from crisis to crisis.
But more has to be done. The board needs to be strengthened by the appointment of two electricity production experts, preferably from the developed world. The inclusion in the board of electricity experts from Europe, North America and Asia was halted in 2009.
Eskom’s governance has largely been fixed with the new board. Now we need financial stability — and the stakes have never been higher.