SA faces years of gloom as Eskom trips
Dodgy Gupta coal deals and inadequate upkeep take utility to ‘the cliff’
Stock up on candles and torches — SA could be in the dark for several years, say experts, who warn that Eskom’s load-shedding and its severe financial woes could drag the country into a “death spiral”.
Eskom said it will spend billions of rands on maintenance over the next year, and load-shedding should slow by March, but energy analyst Ted Blom predicted that coal shortages — and therefore load-shedding — will continue until 2025. About 80% of Eskom power generation relies on coal.
Experts also warned that continued power outages will chase investment away and push all the ratings agencies to finally downgrade SA to junk status.
“We can’t escape from state capture and the Zuma era — we are only now starting to realise what the longer-term implications are, and they are not favourable,” said Econometrix chief economist Azar Jammine.
“The growth forecasts for SA now are the secondworst among the G20 countries. It’s only Argentina that is forecast to have a lower growth rate than SA.”
Analysts said the immediate future would see retailers facing a gloomy festive season — especially smaller businesses, with load-shedding set to hit township businesses and the informal economy the hardest, driving many small businesses to the wall.
“Over the Christmas season, if stores run out of electricity, the bigger ones will get their generators to kick in, but there is a bit of a cost involved in that. It’s the smaller ones, especially your restaurants, that will feel the pinch,” said Jammine.
With Eskom debt likely to increase to R600bn in the next three years, economist Mike Schussler called the situation “a nightmare for SA”.
“We have to do something drastic. There is no more hiding away from the problem that is Eskom. We are at the edge of a cliff.”
Schussler said the utility needed a bailout and ultimately it would paid for by the taxpayer.
Business Unity SA head Tanya Cohen said loadshedding “damages potential foreign investment” and could push ratings agency Moody’s to downgrade SA to junk status. She said Eskom was in a catch-22 and if it kept raising prices to cover debt it would enter a “death spiral”, an actuarial term for increasing prices resulting in fewer customers, leading to even higher prices and even fewer consumers.
“We are not going to get Eskom digging itself out of this hole,” Cohen said. “Eskom needs higher prices to cover debt. This just exacerbates the death spiral with more consumers going off the grid, which reduces demand, which leads to increasing prices, which exacerbates the financial problems even further.”
Tsakani Mthombeni, chair of the Energy Intensive Users Group, which represents industries that buy 40% of Eskom’s power supply, said load-shedding “did not send a good signal to investors”.
He said many smelters had already gone offshore to Malaysia because of the reliability of its power supply and predictable electricity price increases, needed when planning a new investment.
Energy analyst Blom said the problems leading to load-shedding were long term.
“I predicted in 2007 that from 2015 there would be a shortage of coal as mines shut. The coal lasted three years longer than I predicted due to a slower economy,” he said.
New coal mines take years to develop, which is why load-shedding will continue until 2025.
XMP Consulting senior coal analyst Xavier Prevost concurred. “The coal industry has a short supply of coal. No new mines have come on stream. There is less and less coal. Next year will be much worse.”
Economist Xhanti Payi said load-shedding hit township businesses and the informal economy the hardest.
“There were horrific stories from the last round of load-shedding. Butcheries and many small businesses are forced to close down when they lose stock. They run on small margins and can’t afford alternative energy supplies,” he said.
Standard Bank chief economist Goolam Ballim said fluctuation in electricity supply would dent economic growth.
“Eskom has approached a coal cliff,” he said. However, “an encouraging development out of the trauma may be that the state more aggressively reviews Eskom’s business model … with the possibility of greater private-sector participation”.
Eskom CEO Phakamani Hadebe told the Sunday Times the utility had been in financial trouble for almost 10 years, and “when you are looking to save, maintenance struggles”.
When Hadebe and the new Eskom board started in January, they committed to spending R19bn on maintenance, the same as the previous year. But that is not enough. “Over the next year, there’s a planned additional spend of R5bn on maintenance,” said Hadebe.
On the coal stockpile issue, Hadebe said that until October last year Eskom had a stockpile of 40 days. This had dropped after the Gupta-owned coal mine Tegeta did not deliver on its promised 400,000t of coal a month, but could provide only 200,000t by November last year.
“Subsequently, Tegeta fell into business rescue and their promised 8.5Mt of coal that was expected to feed three power stations has not been met,” said Hadebe.
You can’t drive a car at
120km/h or 140km/h without taking the car in for a service for some time. When you press for further acceleration, instead of 120km/h, it will give you 80km/h. When you cut corners, you are bound to get to what’s happening now.
Phakamani Hadebe, right CEO of Eskom