Power cuts raise Cyril’s reform risk

South Africa faces more power cuts, Eskom warned yesterday, as it sought to prevent the collapse of its power grid in a test for President Cyril Ramaphosa’s reforms.

Eskom implemented a fifth day of controlled power cuts yesterday, putting more strain on an economy already mired in recession only months before a national election.

“The week could be severely constrained if we are unable to replenish the diesel and water reserves, and reduce the high unplanned outages,” Eskom spokesperson Khulu Phasiwe said.

Eskom, which is battling a severe financial crisis, coal shortages and breakdowns of its power plants, said it would cut up to 2 000 megawatts of power from the grid yesterday.

The power utility, which last week called for a bailout or debt relief, began the controlled cuts, known as load shedding, on Thursday, as demand for power outstripped available capacity.

“Eskom teams are working hard to salvage the situation but the process is going to be hard, long and costly,” Phasiwe said.

Ramaphosa has made reforming Eskom a priority, but he has been hampered by fiscal constraints in a blow to his plan to woo investors who can help grow the economy ahead of an election likely to be held in May 2019.

“Eskom’s ability to provide stable power supply is the single biggest risk to Ramaphosa’s investment drive and the SA fiscus,” Isaah Mhlanga, executive chief economist at Alexander Forbes Investments said on Twitter.

BNP Paribas SA economist Jeff Schultz said prolonged power cuts would likely hurt economic growth in the first quarter of 2019, although a slowdown in manufacturing over the Christmas period will buy Eskom some time.

“But come mid-January, if we are still facing load shedding, that is when it is going to be a much more pressing issue for the economy,” Schultz said.

South Africa entered recession in the second quarter for the first time since 2009. Third quarter gross domestic product (GDP) numbers are due today, with analysts predicting quarter-on-quarter GDP growth of 1.6%. – Reuters

Moneyweb

Delivering the monetary policy committee speech last week, SA Reserve Bank (Sarb) governor Lesetja Kganyago announced that the central bank would raise the repo rate by 25 basis points to 6.75%.

The decision was informed by the fact that inflation has been edging towards the upper 6% level. The market saw the decision as hawkish, but with the consumer price index (CPI) for October registering at 5.1% year-on-year, Sarb was bound to act at some point.

A more chilling prospect is presented by the widening differential between the CPI and the repo rate, which is bound to complicate

Ramaphosa has made reforming Eskom a priority, but he has been hampered by fiscal constraints in a blow to his plan to woo investors.

– this coming barely two months after he said interest rates were “a long way from neutral”.

His tone sent the Dow Jones Industrial Average up over 600 points as equity markets took the comment as the Fed being aware of the risks of tightening too soon.