Teneo logo

September 3, 2020


SOUTH AFRICA: Eskom – the high price of inaction

BY Anne Frühauf

Share on twitter
Share on whatsapp
Share on facebook
Share on linkedin
Share on email
Share on reddit

Listen to our reports with a personalized podcasts through your Amazon Alexa or Apple devices audio translated into several languages

( 3 mins)

Power utility Eskom’s “level 4” load-shedding on 2-3 September confirms pervious warnings about the record level of load-shedding that is threatening South Africa’s post-Covid-19 recovery. At the same time, ballooning debt problems will intensify pressure on the government to find a financial solution for bailout-guzzling Eskom, but it is still doubtful whether the government can achieve any significant progress by the time of the Medium-Term Budget Policy Statement (MTBPS) in October.

Unplanned outages

Highlighting just how precarious South Africa’s economic recovery prospects are, Eskom resorted to “level 4” load-shedding on 2 and 3 September, following unplanned outages worth 11,300 MW (about a third of Eskom’s available dispatchable generation). Although reduced demand over five months of Covid-19 lockdown had provided slight operational reprieve, the energy situation is once again coming under severe strain as the pandemic lockdown is easing.

Eskom’s fresh recourse to “level 4” load-shedding also raises questions over whether CEO Andre de Ruyter’s strategy of more maintenance – combined with more frequent but more predictable and lower-level power cuts – is already failing. In parliament on 2 September, Eskom indicated that power cuts would continue until March 2022, but this may well be the best-case scenario. Given Eskom’s ageing fleet of power plants, even Eskom itself may increasingly struggle to make reliable predictions about when and how much load-shedding becomes necessary. As already highlighted, power outages this year are already surpassing the record outages of 1,352 GWh in 2019, including unprecedented “stage 6” power cuts.

New power needed

Beyond maintenance, there is consensus around the need for new power generation procurement. On 23 August, the Department of Mineral Resources and Energy (DMRE) launched its request for proposals (RFP) for 2,000MW of emergency power from independent power producers (IPPs). However, the quickest way to bolster generation capacity would be to scrap licensing regulations for self-generation projects of up to 10MW – an opportunity that the DMRE missed earlier this year, which means that any projects above 1MW still face cumbersome permitting requirements.

Ballooning debt

Eskom’s debt quagmire is also deepening by the day. According pre-audit figures disclosed in parliament on 2 September, Eskom debt reached ZAR 488bn as of March 2020, highlighting the extremely high cost of the government’s inaction. With every day that reform decisions are delayed, Eskom’s burden becomes more crippling and the long-promised debt solution more difficult to achieve. It is still uncertain whether the government will provide any meaningful progress in the looming MTBPS.

At the same time, Eskom has failed to meet some of the conditions attached to the Treasury’s ZAR 59bn bailout in 2019. According to the National Treasury’s chief director of state-owned enterprises oversight, Ravesh Rajlal, Eskom has postponed the deadline to dispose of the Eskom Finance Company by one year, from the end of March 2020 to March 2021. The utility has also failed to comply with the implementation of “remuneration standards,” which is reportedly awaiting approval from the Department of Public Enterprises (DPE). Finally, compliance has also been “partial” regarding conditions around cost containment, and construction completion plans for Medupi and Kusile. This redoubles the pressure on the Treasury to talk tough regarding Eskom, but it will struggle to enforce conditionalities given that the utility remains South Africa’s “too big to fail” conundrum.

More by

ETHIOPIA: Piling on sanctions pressure

( 3 mins) US President Joe Biden today, 17 September, signed an executive order authorizing sanctions on Ethiopia. In the first instance, the order is an attempt to force ceasefire negotiations in the 10-month-old Tigray conflict. US Secretary

Read More »

Zambia: Hichilema’s honeymoon

( 5 mins) Freshly inaugurated President Hakainde Hichilema is riding a wave of goodwill. Yet the reform process ahead will undoubtedly be politically painful and administratively challenging; it will be measured by the next budget, IMF talks and

Read More »

ZAMBIA: Opposition landslide, daunting legacy

( 4 mins) Opposition leader Hakainde Hichilema has won the 12 August presidential election by a landslide, trouncing incumbent President Edgar Lungu by close to 1mn votes. Despite three days of tensions and suggestions that Lungu’s side might

Read More »

ETHIOPIA: Towards total war?

( 4 mins) Following a brief interlude in late June, the Tigray conflict has escalated and broadened, spilling across domestic borders and sucking in combatants from other Ethiopian regions. This intensifies the risk of worst-case scenarios – a

Read More »

ZAMBIA: High-stakes elections on 12 August

( 3 mins) General elections will take place on Thursday, 12 August. The recent deployment of the military highlights the risk of electoral violence around the high-stakes polls. As explained previously, the presidential election should be opposition leader

Read More »

SOUTH AFRICA: Spending for social peace

( 4 mins) To keep the peace, the government has announced fiscal support for the poor and business in the wake of recent unrest; it has also averted a potentially disruptive public-sector strike by finalizing a wage deal.

Read More »

ZAMBIA: High-stakes elections

( 7 mins) The main concern about the 12 August general elections is to what extent they will be free and fair, increasing the risk of electoral violence and disputes. Although the presidential poll should be opposition leader

Read More »

SOUTH AFRICA: Ripple effects of unrest

( 5 mins) President Cyril Ramaphosa is under massive pressure to tackle the fallout from nine days of unprecedented unrest and looting by cleaning up the party and cabinet. Although the government’s initial security response to the mayhem

Read More »