Eskom woe could cost R2bn a day
Unexpected lurch into load-shedding a sign all problems are unresolved
After 206 days without power cuts, SA was again plunged into darkness on Wednesday when Eskom implemented rolling blackouts in a bid to protect the system from total collapse.
It was a wake-up call for the markets. The rand weakened past R15/$ for the first time this week. The government’s cost of borrowing also increased as the benchmark 10-year bond yield rose from 8.225% to 8.445%.
Eskom has warned that stage 2 load-shedding will likely continue for a week. Stage 2 requires that 2,000MW of demand is shed from the national power grid with use of rotational power cuts.
The return of load-shedding comes as President Cyril Ramaphosa is at pains to reassure potential investors of SA’s growth prospects. Prolonged load-shedding may also concern Moody’s Investors Service, the only major credit rating agency to still rate SA debt as investment grade. Moody’s is due to review SA’s rating on November 1.
It also coincided with a cabinet meeting on Wednesday that was expected to deliberate on the Integrated Resource Plan (IRP) – the government’s longterm planning strategy to meet electricity demand. Among items on the cabinet’s agenda may be a paper detailing the state’s approach to turning Eskom around and appointing a new CEO for it.
Peter Attard Montalto, head of capital markets research at Intellidex, said although there had been some stabilisation of Eskom, markets and business had overestimated the turnaround in operations as the system continues to run with effectively no safety margin and with regular use of diesel-powered peaking plants.
According to Mike Rossouw, a former Eskom adviser, resumption of load-shedding is a sign that Eskom managers are not in control of the plants to the extent they think they are.
Energy analyst Chris Yelland said Eskom power stations continue to face an increased probability of unplanned breakdowns, having been pushed hard yet poorly maintained for many years. “People don’t realise how close we are to that edge,” he said.
According to varying expert estimates, stage 2 load-shedding could cost the economy R2bn a day. In three months of 2019, frequent and severe loadshedding caused economic growth to contract by 3.1%.
Mike Schüssler of economists.co.za has warned that if load-shedding persists for more than a week, it will begin to drag SA towards 0% growth for the year. The power crunch has bolstered criticism of the state’s slow progress in resolving Eskom’s issues and reforming SA’s energy sector.
Herman Pretorius, chair of the Energy Intensive Users Group, said large industry is disappointed at the lack of progress in restoring plant performance to acceptable levels.
“It’s been a couple of years now, yet the much talked about Eskom nine-point plan has not delivered any visible improvements, except that coal stocks have been restored.”
Head of emerging-market strategy at TD Securities Cristian Maggio said the load-shedding shows Eskom’s problems are mostly unresolved. “The market will continue to watch with apprehension as any problems at Eskom level are likely to translate into additional fiscal support from the government, which may add more pressure on Moody's to take some negative rating action of sorts.”
Increased odds of unplanned breakdowns, having been pushed hard yet poorly maintained