Poll politics leaves Eskom flickering
Eskom is on the brink. Its finances and operations are in utter disarray and “load-shedding” is again commonplace in the SA vocabulary.
Now a sustainability task team has been urgently brought in by President Cyril Ramaphosa to tackle the deepening crisis at the power utility. SA has long been warned that fixing Eskom will be a painful process. Costs have to be cut, and jobs too. A restructuring and privatisation of some kind must be considered if it is to stay afloat.
This is an election year, and one in which the ANC is concerned about losing votes. If reforming Eskom appeared politically impossible before, just try it now.
“It’s technically feasible to announce a perfect plan from the task team before the elections,” Peter Attard Montalto, head of capital markets research at Intellidex, says. “But the reality of course is that this is politically impossible,” he adds.
Darias Jonker, political analyst at political risk consultancy Eurasia Group, agrees.
“There are political leaders who can fathom the complexity, but to make the decision that is politically possible is much more tough.”
Despite the utility’s worsening situation and the major risk its failure poses to the economy, Eskom management and the government have stopped short of taking the drastic steps that are needed to turn it around.
Eskom has many woes. Its costs are rising but it is also selling less and less power every year. It faces immense resistance to every tariff increase application and is never granted the increases it claims are needed to cover costs. Income from operations falls short of the cost just to service debt.
Fixing Eskom would involve asset restructuring, spinning bits off, and 16,000 job losses with a “massive union backlash”, says Attard Montalto.
Jonker notes the unions are “disproportionately influential”.
The influence of the unions came into sharp focus in mid2018 when Eskom management opened wage talks with a 0% offer, only for public enterprises minister Pravin Gordhan to step in. The utility ultimately settled on a 7.5% wage increase for the year but admitted it has no idea how it will fund this.
In December, Eskom announced it had completed a retrenchment process among the highest level of executives. But according to a Bloomberg report, plans are in place to extend this to lower-ranking managers and then the general workforce, although the utility has not confirmed the reports.
Labour has said workers are unwilling to pay the price for widespread mismanagement and corruption at the utility. It is also quick to remind the ANC of the leverage it wields.
“Our members have made it clear if Eskom continues to retrench workers, they are not going to vote for the ANC,” says Livhuwani Mammburu, spokesperson for the National Union of Mineworkers (NUM). “There is no question about it, they still love the ANC. But if Eskom retrenches, they will mobilise the whole of Mpumalanga, including their families, not to vote for them.” Mpumalanga is where the majority of affected power stations are located.
NUM also remains vehemently opposed to privatisation of any kind, Mammburu says, adding the union hopes the new task team will seek its inputs.
Attard Montalto and Jonker think it is possible to kick the Eskom can still further down the road. Jonker says that reform can be delayed for even another year or two, as long as the government can conjure up financial solutions to cover Eskom’s revenue shortfalls on a year-toyear basis.
Attard Montalto agrees that tiding the crisis over is “just a funding issue”. But there will be load-shedding.
Although power cuts will be unpopular in the lead-up to the elections, weaknesses in the opposition and a softer petrol price mean the ANC has some margin for risk, Jonker says.
Attard Montalto says evidence of the past five years shows clearly a preference for load-shedding rather than taking the necessary action.
“But if even the correct steps were taken tomorrow, the low energy availability factor problems [a result of poor power plant performance] would still take some time to turn around,” he says.
“So why have the additional headache before an election?”
LABOUR HAS SAID WORKERS ARE UNWILLING TO PAY THE PRICE FOR MISMANAGEMENT
Structural adjustment: Eskom’s national grid of pylons carrying the country’s electricity hum at sunset near Melkbosstrand, 35km from Cape Town.