Utility giant Eskom's woes pulling down South African economy

The modern world runs on electricity, and there is an enormous disparity between those who have it and those who don’t. The lack of infrastructure-heavy electrical power production is particularly stark in Sub-Saharan Africa.

A country’s ability to produce electricity adequate for its needs and to do so reliably are considered the cornerstones of development and economic growth.

By this measure, South Africa should be the richest African country by far, and an 'engine of growth' in the region.

Instead, the country's energy-producing behemoth, Eskom, once a 'giant of Africa' supplying not just in South Africa but to much of seven neighbouring countries, is a crippled, as is the country’s economy as a whole.

Eskom has become one of the continent's most unstable power producers, imposing costly rounds of outages and preventing economic recovery from Covid-19 lockdowns and a decade of wildly incompetent and corrupt governance. 

Rather than spurring recovery, Eskom is effectively stifling and stunting growth. Having endured yet another punishing round of outages in the past fortnight, and after a reprieve of just days, South Africa is again back into severe blackouts costing around $500 million a week in lost production, sales and other economic activities. 

Neglect, poor governance

But it did not have to be this way – the power utility itself was saying as far back as the mid-1990sthat it would early in the 21st century be hitting a ceiling of production capacity. 

Subsequently, two and a half decades of neglect, poor governance, little attention to critical maintenance and significant corruption have brought this vast entity to its knees, rendering it barely able to keep the lights on consistently, even for short periods. 

The state-owned power-generating, distribution and supply company is one of the largest in the world – 11thoverall by installed capacity – and by far Africa's largest power producer. 

But its fleet of 13 operational power stations contains ageing units, some of which were pulled out of mothballs and returned to production. Most outages are caused by breakdowns in old and over-utilised units, though some have been ascribed to" possible sabotage" by disgruntled employees. 

With each round of outages being met with increasing anger and outrage among citizens and businesses, every operational unit is pushed to maximum capacity – until it breaks down.  

Over the next 18 months, Eskom expects unplanned breakdowns to average around 12,000 megawatts (MW), with the country consequently running on an average daily shortfall of 4,000 to 6,000MW currently. 

According to the ministry of mineral resources and energy, SA's total domestic electricity generation capacity from all sources is 58,095MW. 

With properly planned maintenance for the mainly coal-fired stations that produce most of this electricity (95 percent), SA should have a large surplus, sufficient to supply itself and several of its neighbours with their full needs. 

But due to the historical loss of highly experienced and skilled personnel, along with their institutional memory and knowledge, and decades of basic maintenance being neglected, Eskom has been rendered a lumbering giant, teetering on the edge of disaster and threatening to take the whole SA economy down with it. 

Heavy debt 

It owes around $26 billion – despite many billions of dollars in government bailouts – fully a third of the country's short to medium-term total debt liability.

As such, Eskom is not only too important to fail but also any default on its debt repayments would trigger a disastrous cascade effect on the rest of the country's total sovereign debt of $317.5 billion. 

And yet, even with a new board – including an Afrikaner CEO, appointed amid some controversy but who is widely seen as doing the best job possible under difficult circumstances –Eskom's woes are so severe that SA is staggering from one electricity supply crisis to the next. 

The utility’s recent history is telling: it has built supposedly two of the most modern, efficient coal-fired power plants in the world, each with six 1,000MW units. 

But these two plants, Kusile and Medupi, are respectively also the first and second most expensive, in cost per unit of power (kWh) produced, ever built in the world. 

Not only were installation costs in both cases vastly higher than planned, due to incompetence and corruption, but neither are producing power at the full planned output and neither ever will. 

Adding to problems is that the minerals and energy minister, Gwede Mantashe, a former union leader, is dedicated to coal as the main means of new power production, along with unaffordable nuclear power. 

That line is not only highly cost-ineffective, it is also against SA's international commitments to reduce global-warming CO2 outputs. 

Eskom is rated the "worst polluter" in Africa, not surprising for a mainly coal-burning utility producing more than 60 percent of all the electricity generated on the continent. 

In terms of meeting current and future requirements, coal and nuclear builds are slow and extremely capital-intensive – and Eskom simply cannot afford to borrow any more, nor can SA afford the added drag this would have on all government debt, already very costly at three steps below 'investment grade'.

But South Africa recently obtained an historically large $8.5 billion partnership with the US, Britain, France, Germany and the European Union to help the country transition to renewable energy sources and move away from coal. 

That announcement, made at the COP26 climate gathering in Glasgow, Scotland, may offer South Africa a way out of its current electricity supply crisis. 

But even with fast-build, modular solar PV and concentrated solar trough arrays – considered the most suitable solutions for this country's vast swathe of high-sun zones – South Africans, whether on remote farms or in city centres, face at least two more years of "rolling blackouts" until current power production problems are resolved. 

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Possible 'pull-out quote' for story:  "The day when we know exactly what electricity is will chronical an event probably greater, more important than any other in the recorded history of the human race. The time will come when the comfort, the very existence, perhaps, of man will depend upon that wonderful agent." Nikola Tesla