Will Private Investors Save South Africa From Power Blackouts?

Will Private Investors Save South Africa From Power Blackouts?

South Africa’s business competitiveness came under pressure in the third quarter of 2014 as the country’s state owned electricity company Eskom announced that it will initiate a rolling blackout program dubbed ‘load shedding’

The country, which was toppled from the top position by Nigeria last April as Africa’s largest economy, is renovating its ageing power plants, but experts say, citizens and businesses should brace to blackouts for a couple of years to come until Eskom bring new plants to the grid.

An AFP report said that the beleaguered state power utility Eskom, which generates around 95 percent of the country’s electricity, was unable to meet local demand for electricity due to overreliance on old coal stations.

South Africa’s economy suffered immensely as companies lost billions of rands on the fourth quarter of the last year, pushing its annual economic growth forecasts to 1.4 percent.

Eskom is also facing a financial crisis due to the use of expensive diesel power generators to provide electricity. The company recently asked for 50 billion rands ($4.3 billion) handout from the government to enable it meet the country’s demand through mid-February.

The government is now considering inviting private investors to help in sealing the demand gap by creating more independent power station and generators. This is at the risk of awakening the wrath of the powerful labour unions.

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A report by Forbes said that pending legislation will allow independent energy companies – which currently supply approximately five percent of South African power – to sell into the national grid.

With South Africa’s reputation as a place to do business in Africa at stake, the Jacob Zuma led government might overlook reactions from the labor unions and move on to bring in independent electricity producers.

Analysts who talked to Forbes however are skeptical that allowing private operators to supply the national grid will be a quick fix to the load shedding problem  even if parliament fast tracked legislation to allow independent power producers.

Eskom isn’t the only state-run company to hit the skids. The government has recently announced that it will take direct control of two other ailing state entities, South African Airways and the postal service.

Business confidence slumped to its lowest level in six months in December, a development that the South African Chamber of Commerce called “a matter of grave concern.”