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Inside the Eskom crisis – a critical analysis

The cost and impact of load shedding on South Africa.

Load shedding costs the South African economy at least R2.1 billion per day.

The actual amount is probably much higher as this figure was calculated back in 2007/8 when load shedding was rolled out for 23 days. At the time, energy regulator Nersa determined the cost of not supplying electricity in South Africa to be R75 per kilowatt hour (kWh).

Economists estimate that the South African economy could have been 10% larger by the end of 2014 if it had not been for crippling power shortages. That 10% translated to more than R300 billion ‒ or more than one million job opportunities ‒ lost. 

The Star carries a headline about Eskom in load shedding blackouts in Johannesburg, November, 2014. Picture: Dean Hutton/Bloomberg

And it could all have been avoided. In 1996 Eskom warned the South African government for the first time that the country was running out of electricity. It laid out predictions for future energy demand and explained that new power stations were needed. It then asked for approval for a new build programme. The request was turned down. In 1998 the government was warned again that the country was running out of electricity. This warning too led to nothing and in November 2007, as predicted, South Africa ran out of electricity and load shedding struck for the first time.

Turmoil

The period from 2007/8 to 2015 was chaotic for Eskom due in large part to turmoil in the leadership structures at the utility. Over the last 10 years Eskom has had 10 different CEOs and six different boards. Never mind the multitude of energy ministers and ministers of public enterprises, critical in determining policy.

The Eskom leadership rollercoaster ride under the Zuma presidency caused three gigantic problems, contributing massively to the chaos we are in today.

These were: Eskom’s financial challenges, Eskom’s new build programme (years behind schedule and over budget) and the shocking deterioration of Eskom’s existing power plants, mainly due to a lack of proper maintenance.

In 2015, Brian Molefe was appointed as CEO of Eskom, which was initially welcomed by everyone including this writer. Finally there would be stability and progress. Instead, Molefe proved to be a big disappointment to put it mildly, and the result is that today, three years later, load shedding makes a return with vengeance.

Money troubles and a debt crisis

There can be no doubt that Eskom today is probably in the worst position it has ever been, and the potential repercussions are dire.

Here’s a stat: In 2008 Eskom held an A1 investment grade credit rating. Last week, ratings agency Standard & Poor’s maintained Eskom’s rating at CCC+, several levels deep into junk territory (and with a negative outlook). This is a company that is making record multi-billion rand losses every year and is expecting its debt to increase from R387 billion to R600 billion within the next four years (as per its results presentation for the year to March 31, 2018).

In 2014 the total debt was R255 billion.

At the moment Eskom must borrow money to repay its debt obligations.

How does this affect regular South Africans?

In 2009 Eskom was selling one kilowatt hour of electricity for 24c. Next year it is projected to be 97c. That is a fourfold increase and excludes the added costs that municipalities levy.

These tariffs are set to increase exponentially over the next few years as this is the most viable way for Eskom to get out of its hole.

Municipalities – especially in rural areas – already and increasingly cannot afford to settle their accounts with Eskom.

At the end of March 2014, total municipal debt to Eskom was R2.6 billion.

Fast-forward to March 31, 2018 and total municipal arrear debt had increased to R13.6 billion. The top 20 defaulting municipalities constituted 82% of total municipal arrear debt, almost 48% of which is owed by Free State municipalities (the province whose ex-premier became ANC secretary-general in December 2017). In total, 23 municipalities of 257 in the country today have a total arrear debt of more than R100 million each.

These numbers exclude the total arrears debt of Soweto.

Soweto debt

Soweto’s debt is notable because of the size and the difference in response compared to poor, rural municipalities. (It is important to note that Soweto is not a municipality and is provided with power directly by Eskom.) The total Soweto debt, including interest, was R8.6 billion at March 31, 2015. Total invoiced Soweto debt at March 31 this year was R12 billion, of which arrear debt constituted about 98%.

In addition, Soweto’s debt was written off in 2003. So this is new debt.

While poor councils in rural areas are being cut off regularly, this is not the case for Soweto and the only explanation can be political. Sowetan votes are presumably more valuable than the votes of rural South Africans.

How bad can things get?

The very worst thing that could happen to South Africa in terms of electricity is a blackout or total grid collapse. There is no worse scenario. Consider the fact that in the event of a blackout there will be no power in the country for weeks, if not months. The impact of that could be catastrophic, and this is the real reason behind load shedding.

Eskom uses load shedding to reduce the burden on the power system to prevent a total shutdown of the entire grid. A shutdown that would take a long time to get back up again. It should, of course, never have gotten this far.

In 2015 I published a book called Blackout: The Eskom Crisis, in which I wrote the following:

Load shedding, although annoying, is one of the most important measures to prevent a grid collapse. It is possible to prevent a blackout from happening simply by increasing the levels of load shedding. While I do not expect a huge blackout, it would not be surprising if load shedding stages 1-4 were to be expanded significantly over the months and years to come. South Africans may yet experience load shedding as severe as eight to 12 hours per day.’

For a while it seemed like Eskom was getting things right and I was happy to be proven wrong.

In May 2016 former President Jacob Zuma even promised the country that SA will ‘never, ever, ever again’ have load shedding. In August 2016 Molefe told parliament that “it would be very hard to go into load shedding”.

At the time I was quoted as saying “it would be foolish to rule out any future load shedding”, some slammed me for being alarmist and pessimistic. Today the facts tell another story. Not only has load shedding returned, Eskom is now considering expanding load shedding from Stage 4 to a never-before-seen Stage 8 scenario where up to eight gigawatts of electricity could be cut off from the supply system. At that level of load shedding, power cuts could last up to 12 hours per day. Bear in mind, this is still preferable to a blackout.

What can be done?

The major things that need to happen – things that Eskom and the government were aware of five years ago and earlier – are all medium to long term and won’t alleviate the short-term crisis. These include creating an independent electricity grid and breaking up Eskom as a company into generation and transmission. This will simply better enable the private sector to get more involved.

The same for coal mining. In 2009 Eskom said that South Africa would need 40 new coal mines by 2020. Those were not forthcoming at all and now Eskom is running out of coal.

There are other things that need to happen, yet none of these will stop the current short-term problems.

Some immediate actions that should be considered:

  1. An immediate audit of every one of Eskom’s 130-odd power generating units. Their ability to keep operating must be determined ‒ and if there are problems, thorough maintenance must be prioritised even if it comes at the cost of even more immediate load shedding and short term pain.
  2. An immediate assessment must be done on the current ongoing build programme. I would suggest considering stopping the Medupi and Kusile power station build programme entirely. The remaining units to be completed are going to come at too great a cost for a company that is essentially bankrupting itself and the country. The remaining units could be completed in future.
  3. Look at coal exports. Could this be reprioritised to ensure that Eskom gets better grade coal instead of coal miners exporting product that is sorely needed at home – perhaps via a tax break to the companies involved?
  4. Finally, a simple one – cut out the ‘middlemen’ (or women), regardless of BEE points. A deal must be negotiated directly with Chevron or Engen for diesel to run turbines. It is unfathomable that Eskom doesn’t procure diesel directly from the suppliers at what would surely be a much cheaper rate.

James-Brent Styan is the author of Blackout: The Eskom Crisis (Jonathan Ball Publishers SA, 2015). He writes in his personal capacity.

COMMENTS   47

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ANC excellence. There is a lot of it around.

You are wrong. This is a “victory for transformation” and we should all “celebrate our diversity”…… or whatever…

Everybody is missing the point here.

“At the moment Eskom must borrow money to repay its debt obligations” – there is a technical term for that: BANKRUPTCY…

Soweto’s power is not cut (despite 98% arrears) “and the only explanation can be political” – well the solution is simple: IF THE ANC DOES NOT WANT TO CUT THE POWER TO SOWETO – THEN WE MUST. This can be done in a morning…

In 25 years before 1994 Eskom built and commissioned ELEVEN power stations (at times doing commissioning at three power stations in parallel). Collectively these powerstations could generate 35,000MW.

In 25 years since 1994 – one guess how many power stations has Eskom built? Roughly as many as the quantity of cognitive capacity now running the said freak show.

Though what did happen in the 25 years since 1994 – Eskom went from one of the most efficient power utilities in the world to one of the worst.

The critical point that the ‘analysis’ misses – what went wrong at Eskom is missed by a million volts. Instead,

WHAT WENT WRONG WITH ESKOM IS 1994.

In fact, what went wrong with SA as a whole, is 1994…

Time for some moron shedding. We need to shed around 40 million plus morons (stage 8). The incredibly bad financial management, criminal activities and the Gupta’s are not even mentioned in this article.

100%, your last 2 sentences tell the whole story. Robben Island Old Boy’s Club were not ready and capable to take over the running of a country, and in fact are still not!!! But the challenge is to get them to see that before we’re passed tipping point!!!

boomgloom, your likes were expropriated without compensation because your comment refers to the ANC. You had more than 40 votes earlier, now you have only 2. But the truth is the truth, no matter how many votes they steal from you. 😉

Interesting. Even MW is captured ha ha ha.

If Eskom gets the increase requested the unions will demand an other salary increase. Remember that this year Gordhan intervened during the illegal Eskom strike and gave in to their demands. Despite this the media makes out that he is some kind of hero.

The media narrative is more subtle, yet patronising: everyone must feel sorry for the “good guys in the ANC” because they have to deal with the mess.

Accordingly, the ANC must get everyone’s sympathy vote.

The reason these bloodsucking state enterprises are not sold or shut down is the government guarantees that would come into effect should even one debt repayment default come into effect.
Is it not time to admit failure and ask the IMF / World Bank for a loan to cover these guarantees and have a mass sale / close down of the dead weight holding us down?
We should have proper competition and if one power supplier cannot supply we should be free to find one that can. At the sorts of prices we are used to paying for our power there should be plenty of alternatives.

Well said Lynne!

Based on your comment, LET ME GUESS…your surname is definitely NOT BROWN? 😉

Rename the power stations after struggle stalwarts. That will solve everything.

Cut Eskom’s staff by half.

Cutbacks are clearly necessary but will not solve the problem. Eskom has not invested in the necessary infrastructure since the mid-90s! Do you think all that time can me made up by cutting back on staff? This problem is very deep-rooted and we better pray the renewables programme is rolled out with all due haste. Otherwise I would advise every South African who has the means to put solar arrays on their roofs. Forget about generators. This requires long-term thinking because this problem is not going away any time soon.

Yes….incompetency and the absolute lack to acknowledge this is the real problem.

Great article by James , any forward thinker not living here would think it’s so improbable that it must be fake news.
Often wondered re Soweto as I remember the initial debt wipe out , but to say I’m shocked that in fact they are directly supplied and thus not effected by load shedding and yet on figures alone no doubt if the breaker that supplied Soweto was opened , the grid would be relieved( no or little country wide load shedding required= little commercial impact& reduced bad picture of RSA to investors) – Eskom cost would be significantly dwindle !! ……. thus allowing sales ( paid for electricity) to reduce debt ………. I say this as Soweto is the single most culprit – due to “ Electricity is free entitlement”…. Electrity is essential to business / commerce , but is a luxury for the man in the street)… I grew up on a farm in the 60’s without electricity and we did well ) so only solution is the user must pay a reasonable rate or go without…
James other point is that there must be competion- imagine wind generation “ corporation “ & solar corporation being allowed to sell to municipalities alongside Eskom..
If there is a party leader / minister reading these comments who wants to go down in the history books as having done something positive for his/ her country – please place a private bill that calls to allow private electrical producers to enter the market…. before it’s to late

Best comment. Adopt an emergency bill. This is an ideal concept for complexes in SA to become mirco-grids. Take the example from Switzerland where this is possible since 1st January 2018. Our SME back home in Switzerland has just done that with a 330kwP power plant and now supplies energy for our own SME consumption and to an adjacent multi-apartment building.

No real solutions without paibn. #2 is not really feasible as the costs to stop and wait with the builds are astronomical too. You have to pay for commitments made so it is better to keep going.

Eskom also loses revenue as they loadshed as well as alternatives so their revenue forecasts are optimistic if they dont include reduced revenue fron loadshedding.

The real failure here is cadre deployment – when a political party makes decisions to shoehorn political persons into critical business operations (SoE’s) who have neither the knowledge, intelligence or experience to run these operation and surround themselves with incompetents then a disaster is imminent.

ANC Cadres with EFF on the Ground : Trained in National destruction : utterly Clueless .

Reduce Soweto’s debt by reducing the number of hours per day it gets power. Start at 3 hours per day and incr3ese it steadily as the debt reduces.

Is it safe to say then, that it is impossible for ESKOM to trade its way out of debt?
If so then what now?
It’s easy (but not without significant cost) for the wealthy to purchase generators or install Solar systems but if the rest of the country is without power then SA simply cannot function.

Solid article by a chap who clearly understand the game!

Most relevant line-“It could have been avoided”. Is it possible that Eskom ever has a really global quality CEO? An Adrian Gore/Raymond Ackerman/Brain Joffe level person? No-and why-the ANC gang will never allow this!

Scandalous! Cape town was without power in high tourist season yesterday-what do the visitors say when they return? That they were stuck in the lift of a 5 star hotel, that their computers went off and the traffic lights failed? Banana republic!

There most probably aren’t any black “global CEOs” in your books.

Oh yes there are. But the probability of them also being ANC gangsters(a key requirement) as well is low. Think of Tidjane Thiam of Credit Suisse… a classy brilliant business leader.

The Eskom issue is that a criminal organizations members are appointed to executive roles and they lack integrity as well as capability. Look at SAPS-every Commissioner left under a cloud after General Fivaz retired!

Selebi-convicted criminal-died on parole

Cele-fired for stinky lease deals

Phiyaga-slated by the Farlam commission as inept and dishonest

The common denominator…………

….to a point when even the Banana crop failed.

Out of all these comments Stanvan made the most important proposition ‘allowing private energy producers to supply electricity’ to the municipalities and utilities. Being Swiss I would like to add the recent change in the Swiss energy legislation which can be applied to South Africa. From the 1st of Jan 2018 private energy producers are allowed to sell energy to adjacent properties to the property where energy is produces. I would like to give an example. We run a medium sized company with lots of roof space which we converted into a 330kwP solar plant. We have now connected a multi-apartment building to the solar plant directly, cutting the connection to the utility. Any energy shortfall during the night is covered by the utility. Any excess energy after own consumption and supply to the multi-apartment building is sold back to the utility. We have essentially become a micro-grid. The application to become a micro-grid and the implementation was done within 2 months.
This simple concept can be realised by adopting an ’emergency bill’ through parliament. Such a bill will unlock massive private investment. Ideal example are residential complexes in SA where only a few roofs need to be used for small solar plants to supply the rest of the complex.
Our complex of 60 units would implement this concept tomorrow if allowed.

SOLUTION:
Government take R100 billion – Short ZAR/$
Take profit at R20
Write off all debt, hire international energy experts, slice Eskom to the bone, rid dead wood(80% of current staff)
Abolish BEE
Rebuild with 2GW Nuclear and 10GW renewable in next 20 years

Apparently, according to The Witness 5 December

There is no shortage of coal, as Eskom claims. Instead, the coal is piling up, uncollected by the utility, Anna Marth Ott, CEO of Middelburg Chamber of Commerce and Industry, said yesterday.

Middelburg is positioned between three large Eskom power stations, and there are 170 coal mines within a 200 km radius of the town.

Speaking to The Witness yesterday, she said that Eskom had ceased taking delivery of the coal for reasons unknown to her, for the past month, and that its “wording” to the public about the coal shortage was incorrect.

“How can Eskom tell us there is no coal?” she asked. Spokespeople for Eskom did not respond to questions form The Witness about the coal supplies by the time of going to print.

Is Eskom using a fake coal shortage to elicit a raise in tariffs that they don’t need or deserve????? They need to be exposed for the lying manipulators they are!!!!

Heard the same thing… I wouldn’t put anything past them. It’s weird that as soon as they need another huge cash injection, suddenly load shedding is back.

I get the same feeling that Escom is lying to get better tariff’s and ANC silently condoning it to deflect public attention.

It’s simple – Govt to make James-Brent Styan CEO of Eskom and also put him in charge of ‘Eskom unbundling’ into generation and distribution. Allow him to also appoint the Board.

Politicians / Govt stuff ups are a global problem. One just has to look at the power crisis that Australia faces (as bad / worse than in SA) to realise that as Joe Public we repeatedly elect folk that are not the brightest.

The fact is that 90% of Joe Public are not the brightest given their voting choices

It seems to me that Eskom’s power shedding regularly coincides with representations to NERSA for tariff increases.

The comments on this article are really disappointing. It is for every South African to do something about the country. As JFK said “Ask not what your country can do for you, ask what you can do for your country”. ANC this, ANC that and blaming someone else will not solve anything. Eskom is in dire need of saving as of many other SOEs. Of course I don’t condone the cadre deployment that the ANC government does but in having a new leader in Cyril Ramaphosa who sees things from a business/economic perspective I am very sure he will open to the ideas mentioned here and delegate the right people to do the job. There will always be tough economic times but in order to rise above them we all need to do something about it. An influence from within is better than nothing.

I would be happy to hear some suggestions of what exactly we can do about it. I know what I will be doing — voting DA!

You say so, but without proof. We’ve given up hope, with a million good reasons.

I think this energy disaster needs a totally independent investigation by the SA Citizens. Maybe Sakeliga/Afriforum/OUTA/investigative journalists/scientists/etc. should form an investigation group and gather the facts, write a report and make recommendations to government. We need a non-political view of this lot. This whole disaster can make or break SA, so additional intervention can only help.

Here’s food for thought – recently the twitters went bananas about WMC and Johann Rupert who has taken his father companies and made them into world class organization and who frequently make humanitarian offerings. On the other side of the coin you have government SoE’s all run by or are Black Monopoly Capital entities and yet not one of them can actually class themselves as a successful flagship or possesses a successful chairman/CEO that the nation can look up to. very sad indeed

The solution is really simple. Get rid of the fools running the place. Install a group of minorities to take over. Neutralize the unions. Within one year the power situation will be stabilized. After two the improvements will start. 20 years later give it back to the comrades and watch them destroy it all over again.

Great article and good comments but many assume the ANC Big Men actually WANT to fix Eskom. I’m not sure they do. Fixing it would probably mean no more tenderpreneuring, jobs for incompetent and crooked pals, free power to Soweto etc (loss of votes), skim off to the ANC and a loss of face. Then add, Can they fix it? My guess is the ANC cannot, they simply do not have the honest, hard working, well qualified and experienced people (with a chubby pharmacist, corner shop chemist in charge; yeah right). It ain’t going to happen.

Yes, every time the ruling party know-it-alls stand at the podium they talk a really good game. But after 24 years we can safely say they have no game at all. South Africa, a tragedy that keeps giving.

An example of how a first world engineering enterprise cannot be run by the third world.

This writer to make good of his/her error must investigate a viral making its round about Chinese ships been loaded with coal destined for China.If there’s any facts to it, expose it, let the public know, without fear or favour

The question is why export coal when we need it most and still demand a 15% increase. What tonnage is being exported to countries on a monthly basis…Taxpayers are heavily burdened by these careless in charge of this system

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