South Africa’s national utility Eskom was forced to implement “stage 2 rotational load shedding” over the last few weekends to augment its lack of diesel fuel for reserve power. In fact, November was a rough month for South Africa’s traditional power industry trying to keep the lights on amidst announcements of more power outages eminent through 2015.
“Eskom is clearly in crisis. We are facing constant threats of load shedding and collapsing infrastructure at Eskom,” noted the Cape Town-based Democratic Alliance in a Nov. 25 press release. “Simultaneously, Eskom’s credit rating has been downgraded to junk status, making its debt servicing costs increasingly unaffordable and unsustainable.”
Eskom’s rolling blackouts, as well as struggles with unpaid power bills, has added to the renewed call for privatization of the national utility.
“That is very long standing. Africans for privatization of Eskom were even around when I was serving there from 1993 to 1996, and it was a lively issue,” John Campbell, a Senior Fellow for Africa Policy Studies at the New York-based Council on Foreign Relations told AFKInsider.
Campbell, who served as political counselor at the embassy in South Africa during the transition, was also U.S. ambassador to Nigeria from 2004 to 2007.
The latest up-rising against Eskom is coming at a time when major renewable energy players continue to flock to South Africa sector, establishing the country as an African hub for solar panel and wind turbine blade manufacturing as those same companies building up the region’s clean energy capacity.
Mounting Technical Issues
During the ongoing power shortages South Africa has been experiencing since 2008, Eskom continues to call on consumers to switch off air conditioners, pool pumps and other non-essential appliances throughout the day to limit the impact of load shedding, which are usually scheduled from 6 a.m. to 10 p.m.
And there are more to come.
At a Dec. 8 media briefing, Eskom CEO Tshediso Matona chances are good load shedding will take place on Dec. 11 and 12 due to an incident at the Majuba coal-fired power plant in Mpumalanga. Last month, many in the region were thrown into darkness after a coal silo at the 13 year-old plant collapsed Nov. 1.
Matona said the prognosis for January is the same as December, while February and March 2015 “are pretty concerning.” But the Minister of Public Enterprises, Lynne Brown, recently suggested ongoing load-shedding will likely happen through 2018, the estimated date the new Medupi and Kusile coal power plants will become fully operational – two years behind schedule.
About 92 percent of Eskom’s power is generated by coal-fired power stations, with the rest from nuclear and renewable energy.
Normally diesel power plants kick in for a few hours during peak electric demand times, but Eskom has been extending their hours, requiring using more diesel. The problem is Eskom failed to order extra diesel fuel.
For Eskom to maintain its aging power plants requires taking them off the grid for a time, resulting in more energy shortages and load shedding, while continuing to simply neglect them can lead to longer-term breakdowns and rolling blackouts. Of Eskom’s 27 power plants – which average over 30 years old, nearly a quarter are currently down for either planned and unplanned repairs.
Financial Woes
Eskom also continues to struggle with unpaid customer electric bills. In Soweto alone, the national utility is owed $327 million, with the rest of the country owing around $236 million. The utility also has an estimated $21-billion funding shortfall through March 2018.
When Eskom was incorporated in 2001, its current power plants were mostly paid for and Eskom had little debt. Since then Eskom’s current debt has skyrocketed. In late November amidst the start of the latest round of load shedding, Eskom released its interim financial report for the period ending Sept. 30 showing municipal debt had risen to about $350 million.
“In South Africa, there are a number of these parastatals that are kind of foundering – transportation, the South Africa Airways and Eskom as well,” Jennifer Cooke, director of the Center for Strategic and International Studies’ Africa program told AFKInsider, noting there’s also “a lot of leadership turnover.”
Though electricity prices are set by the National Energy Regulator of South Africa (Nersa), Eskom has been pushing for increased electric rates to help meet its financial woes, claiming it costs more to generate the energy than what it currently charges customers.
Energy regulator Nersa approved tariff hikes for the financial year 2015/2016, though granting only an 8 percent tariff hike while Eskon had requested 16 percent. The government has also pledged a cash injection of at least $1.7 billion.
“The bottom line is that the state cannot afford to fix Eskom, and Eskom cannot afford to fix itself. The only rational, affordable and sustainable response is to investigate the role private actors could play in stabilizing South Africa’s energy supply crisis,” the Democratic Alliance notes.
The Economic Freedom Fighters a leftist, “economic emancipation” group, released there own statement Dec 8, noting the “ANC government’s incompetence, lack of foresight and planning, its corruption and disrespect of accountability is the reason we are in this energy crisis.”
“The core belief of the ANC is that there is no crisis. It does not matter how many times power cuts are initiated and that they are to go on till 2016 or how much money Eskom requires, which the state does not have or that Medupi is in perpetual delay, for the ANC there is no crisis, only a good story to tell,” the group continues.
“And on top of that, unfortunately, there’s a fair amount of cronyism that goes on in the appointment of heads of those parastatals,” Cooke told AFKInsider. “So you don’t always get the best and the brightest and the most technocratic leading them.”
A Sept. 29 report from Frost & Sullivan outlines how Eskom’s constant tariff hikes is hurting South Africa’s poor the hardest: “Despite the ostensibly legitimate reasoning behind the Eskom tariff increases, these raised costs will undoubtedly hurt those in the lower portion of South Africa’s income distribution.”
“The tariff increases have grown from a modest rate of 5.1 percent in 2006/2007 to a peak of 31.3 percent in 2009/2010. These tariff increases were generally at rates above the Consumer Price Index (CPI) and as such, elicited harsh backlash from the general public,” states the report, which notes South African tariffs remain low compared to the rest of the world.
“With the country’s real Growth Domestic Product (GDP) coming in at a meager 1.4, South Africa can ill-afford a power system that continues to be significantly constrained. The partial privatization of Eskom and the involvement of other independent power producers is now a mathematical inevitability. The status quo is simply no longer affordable,” argues the statement from the Democratic Alliance.
Despite an attempt to introduce independent power producers into South Africa, Eskom still dominates electricity generation in South Africa, as well the transmission and most of the distribution grid.
According to the Aug. 2014 Frost & Sullivan report, The South African Electricity Industry–ISMO and the Road to Reform, the first step towards the end of Eskom’s monopoly is “Opening up the power generation sector to independent power producers is imperative as Eskom has shown some of its limits, such as severe funding shortfall, an extremely tight power system, and new-build projects being continuously delayed while power demand shoots. The dominant position of Eskom in power generation, transmission, and distribution prevents third parties from having an open and equal access to the transmission grid.”
According to the report, the South Africa Department of Energy introduced the Independent System and Market Operator (ISMO) Bill aimed at transferring some functions from Eskom to another independent state-owned entity, with the primary objective to “encourage independent power producer participation in power generation in order to alleviate the electricity supply crisis.”
The draft bill was first published for public comments in 2011, with an amended version released in 2012. But despite being close to adoption by Parliament in 2013, the bill was withdrawn pending further amendments.
“This resulted in the despair of many interested (private) parties. Certain stakeholders believe it to be an outcome of political interests in protecting Eskom’s control over the country’s electricity transmission grid,” according to Frost & Sullivan.
“The thing is, the ruling party – the ANC – is very divided on these kind of things; on kind of a more liberal, privatization free-market versus stronger state control,” Cooke told AFKInsider. “So, I think South Africa has a double challenge, which is getting the most able and competent to lead those parastatals, and/or privatizing them.”