Eskom is beyond repair
It’s time to dump it, says Rudy Oosterwyk
● The president’s bogus claim that Eskom is being sabotaged is as rusted as the bolt Alec Erwin left in one of the turbines at the Koeberg power station back in 2006. Wet coal, broken conveyer belts, sabotage and bolts in the turbines are the lies of a failed business and a distraction from the real question: what is the socioeconomic impact on the 30-millionplus South Africans living in poverty if we lose an estimated R5bn a day every time the lights go off?
SA’s GDP growth rate for 2019 has already been downgraded by most agencies and banks and is now projected at between 0.6% and 0.8% per annum, a far cry from the stimulus required for a job- and wealthcreating economy “for all”. What this all means is higher consumer prices, increased job losses and fewer jobs available in the market, even lower levels of savings and investment, lower tax revenue, lower to almost zero levels of economic growth over the next decade and significant increases in our social grant budgets.
The unprecedented stage 6 load-shedding seen this week was not sabotage, but rather the climactic and accumulated effect of systemic incompetence, political ineptitude and corruption. Eskom is broken beyond repair and Andre de Ruyter, its new CEO, will be unable to fix it. Diminishing economic growth as a result of the structural, operational and financial fault lines that run deep across the many dimensions of this failed business will simply be too much to turn around.
Eskom’s proposed unbundling into three separate state-owned entities, namely generation, transmission and distribution, will not turn the tide for this failed company. Unbundling such a massive failure will create strategic and operational challenges that allow leadership to escape accountability. That is the real sabotage. The current vision under a “single” Eskom reads: “To provide electricity in an efficient and sustainable manner, including generation, transmission and distribution and retail’’. It cannot do this now and it will not be able to do this across three separate operations.
Unbundling is the last nail in the corporate coffin of this entity and De Ruyter will be its undertaker and the fall guy. By the winter of 2025, with De Ruyter firmly at the helm, technical mumbo-jumbo and race politics (De Ruyter is white) will be the absurdity of our national dialogue in keeping the state constitutionally culpable for single-handedly increasing the burden of poverty on the most vulnerable, through its continued support of Eskom.
Eskom’s debt stands at R450bn. Its 2019 revenue was R179.8bn, with a recorded loss of R20.7bn. The company will seek a further R340bn in loans by 2022, raising its stake in the GDP to 8%. R218bn of the debt is covered by guarantees by the government, compliments of the taxpayer. The government has committed an additional R59bn in a bailout package so that Eskom could cover its debt over the next three years. This is in addition to the R122bn Eskom will cost taxpayers over the next three years.
Failures at Medupi and Kusile at a cost of R300bn, (with an estimated R36bn in overruns) with poor construction, will severely compromise our generating capacity by 2025. We will see sustained blackouts now leading up to 2020 with a near collapse of the system by 2023 as it would be too expensive to fix the infrastructure mess at Medupi, never mind the maintenance of the full national grid. This, together with the theft of approximately R129bn in these two projects and the stalling of power purchase agreements over the past 10 years, will be central flashpoints in the demise of Eskom. Our economy will be sent into a nosedive by 2024 as Eskom haemorrhages onto our national balance sheet, bringing it further and further into the red.
There is no proposed financial plan on the table for Eskom to generate its own revenue other than its dependence on the taxpayer and cosmetic unbundling. Its balance sheet is an affront to our constitutional democracy. It is not developmental, and it is unsustainable. Eskom needs to generate electricity for a growing economy at about 6% by 2030 as per the National Development Plan. This is a fiction as we continue to hover at 0.8% while we wrestle with: 1) still servicing the cost of the arms deal at R70bn; 2) the estimated loss of R500bn through state capture on the president’s estimation; 3) the R27.4bn revenue shortfall in 2019 due to sluggish economic growth; 4) increased bailouts for SAA amounting to R5bn in October with an additional ask of R3.5bn in December, bringing the total over 10 years to just under R40bn; 5) our youth unemployment rate of just above 50% — with jobless economic growth as the norm, this figure will increase over the next decade and provide fertile ground for a change in government by 2030-2033.
We remain the most unequal society in the world, and dumping Eskom once and for all is now a social justice imperative. We must build an entirely new energy architecture that will result in job creation and economic development for decades to come.
Bolder plans are now required and must include the following on the cabinet’s priority list:
Phasing out coal and diesel as primary sources by 2030; increasing renewable energy to a 70% contributor to the grid by 2028; repatriating Eskom revenue to independent power producers, with provincial electricity authorities regulating the pricing structures by 2027; communities retaining 49% equity ownership in the IPPs with specific emphasis on women ownership; profits on the sale of electricity capped at 14% of the unit cost; subsidising all households to generate a percentage of their own electricity and buy back additional electricity available to the national grid; identifying failed agricultural farms in provinces with high wind and sun exposure and turning them into electricity co-ops to service local communities; renting out all other SOEs and asking for a 35% annual return with zero tax revenue input into the SOE sector by 2030.
The political mantra that Eskom is too big to fail is rubbish. The political call should be; “Eskom is too big a mistake to save.” Sadly, Eskom’s failures mean that we will be unable to turn the tide on the multidimensional layers of poverty that characterise the existence of black South Africans.