Eskom: inside the power crisis
It’s seems like all gloom and doom at Eskom right now, but experts reckon there’s light at the end of the tunnel for the embattled power utility – if the rights moves are made
IT WAS – quite literally – one of the darkest weeks in recent memory and it took everyone by surprise. Even the president. Not even in 2008, when rolling blackouts became the depressing order of the day, did we get to stage 4 – the most severe stage there is. “This has come as quite a shock,” President Cyril Ramaphosa said. “It’s most worrying, most disturbing.”
He can say that again. Eskom’s inability to keep the lights on has brought the country to the brink of ruin. We’re staring recession in the face, investors will be even harder to woo now and the rand wobbled so hard after the stage 4 fiasco it was back on its perch as the most volatile global currency.
Talk about gloom and doom.
THE WARNING SIGNS
Load-shedding over the festive season was the first hint of impending disaster, energy analyst Chris Yelland says. “Electricity demand was very low over Christmas and load-shedding should’ve been highly unlikely.”
When demand rose again after the holiday season it exceeded Eskom’s supply capabilities. “Stage 4 load-shedding on Monday 11 February came as a deep shock,” Yelland says.
Eskom said the trouble was caused by its seven power units unexpectedly “tripping out” – but Yelland reckons not even Eskom knows for sure what happened.
There have been rumours the outages were the result of sabotage by members of the National Union of Mineworkers (NUM) and the National Union of Metalworkers of South Africa (Numsa), who are angry about Ramaphosa’s plan to unbundle Eskom (see “The Unbundling Plan”).
But Eskom has denied this. “Load-shedding was because of plant breakdowns, not sabotage,” spokesperson Khulu Phasiwe said.
However, the Sunday Times reports that police and intelligence officers are being sent to keep an eye on the power plants.
After being briefed on the crisis, the ANC believes we’re faced with “a threat to national security”, acting ANC spokesperson Zizi Kodwa told the newspaper.
‘This has come as quite a shock. It’s most worrying, most disturbing’ – PRESIDENT CYRIL RAMAPHOSA
DARK HOLE OF DEBT
Eskom can’t survive beyond April unless something is done to address the crisis, experts say. At the time of going to print, finance minister Tito Mboweni was expected to address a bailout for the embattled utility in his budget speech.
The way things are now can’t be sustained. “Its current debt of R420 billion will rise to about R500 billion in a few short years,” Yelland predicts.
“Eskom is borrowing money to pay off its debt. It’s like using your credit card to pay the bond on your house.”
The utility is predicting a loss of R20 billion for the financial year ending in March and another R20 billion loss in the next financial year – resulting in investors turning away in droves. “Eskom either tells companies wanting to invest in SA that there’s no power or gives them a quote for connections for billions of rand, which makes it unaffordable.”
‘Load-shedding was because of plant breakdowns, not sabotage’ – KHULU PHASIWE
Then there’s the unnecessary costs. A World Bank research report published in 2016 said two-thirds of Eskom’s staff weren’t needed – and energy expert Ted Blom agree.
Its workforce of 48 000 costs the utility R31 billion a year, and thousands of jobs could “easily” be shed. “I believe at least 5 000 of those are ghost workers. Eskom needs a total clean-up and someone who has the balls to do it.”
Economist Azar Jammine says Eskom’s debt is so huge the interest on it alone is about R45 billion a year.
“Yet it generates only R27 billion in cash,” he says. “That’s why people are saying privatise – it’s one way of eliminating that debt.”
At the current level of load-shedding, SA is losing 20% of production, which translates to R2 billion a day, Jammine says.
“If this carries on until April, the country will go into recession. We need to get out of this mess. Taxes are going to increase and the more you tax the rich, the more likely it is they’ll leave the country, which leaves us with fewer skills and sets us on a downward spiral.”
IS THERE LIGHT AT THE END OF THE TUNNEL?
Blom predicts we’ll have to live with load-shedding for at least the next five years. “Until Eskom sorts out a long-term coal supply agreement, we’re going to stay in the dark.”
In addition, Eskom’s power stations are performing badly, Yelland points out.
“Although they have enough generation capacity, many of them are broken down or undergoing maintenance, therefore the capacity they have isn’t all available.”
He believes we can expect more loadshedding when one or more generators unexpectedly fail. “It’s a random process and breakdowns can never be predicted.”
THE MEDUPI AND KUSILE DISASTER
‘We’re employing Italian experts at a premium to sort out the problem’ – AZAR JAMMINE
Construction began on the massive coalfired power plants – touted as being the end of SA’s crisis – in 2008 and they should’ve been providing electricity to the grid by the end of 2014.
“Instead, they’re probably the single largest disaster in South Africa’s economic history,” says Rod Crompton, director of the African Energy Leadership Centre at Wits Business School and a nonexecutive director of Eskom.
“State capture, corruption and poor management have led to overstaffing and neglected maintenance, resulting in constant breakdowns,” he writes on news and opinion website The Conversation.
“Electricity theft, a culture of nonpayment and defaulting municipalities have deepened the crisis.”
The plants were expected to boost our electricity-generation capacity by about 25% but both are still under construction and increasing damage control on poorquality workmanship is needed.
Limited skills, poor planning, inadequate quality control and labour strikes were listed as the main reasons for delays at the plants by global law firm Dentons, which investigated the disaster.
As things stand, Medupi and Kusile are likely to come on stream fully only in 2020 or 2021 – six or seven years late, Yelland says.
“Had there been no interruptions, SA wouldn’t be experiencing power cuts because we’d have 10 000 extra megawatts of good performing plants,” Yelland adds.
Blom is blunt in his assessment of the power plants. “Medupi and Kusile are total disasters. Eskom has been lying to the public and hiding those disasters.”
The utility has been blaming the old power stations but the new stations aren’t functioning as they’re supposed to.
“Eskom hasn’t done proper maintenance since 2010.”
A LITANY OF INCOMPETENCE
In December minister of public enterprises Pravin Gordhan said forensic investigations showed manufacturers of the original equipment at Medupi had done a substandard job.
He mentioned Japanese company Mitsubishi Hitachi Power Systems Africa (MHPSA) three times in the course of his briefing. MHPSA has as its BEE partner the ANC’s investment vehicle, Chancellor House Holdings. MHPSA was the main contractor for the boilers at Medupi and Kusile, and there’s plenty of suspicion of collusion.
Yelland says Eskom is responsible for managing contractors such as MHPSA that are working on its plants and doing quality assurance. But the utility is tangled in financial, operational and environmental problems going back years.
“It starts with government policies and extends to cabinets, departments, the regulator and Eskom itself – and to municipalities and customers who don’t pay
for their electricity,” Yelland says.
Meanwhile, Jammine says transformation was implemented at Eskom without any consideration for skills and competence. “There was a perfectly capable CEO candidate a few years ago who wasn’t appointed for one reason – because he was white. People are reluctant to speak about this issue because they’ll be labelled racists,” he says. “Now we’re employing Italian experts at a premium to try to come and sort out the problem.”
Gordhan told parliament’s public enterprises committee that top engineers from Italian energy company Enel were on their way to SA to tackle Eskom’s maintenance issues.
THE SCOURGE OF CORRUPTION
Graft and state capture have been serious underlying factors in the delay and cost overruns at Medupi and Kusile, says energy expert Hilton Trollip of the University of Cape Town’s Energy Research Centre.
He says we’d have to be punch-drunk not to be suspicious of the ANC’s role and benefits in Hitachi Africa, Chancellor House and the Medupi contracts.
“Once the conditions for both corruption and impunity had been established at the levels they were in Eskom, and as it became clearer that this impunity persisted, it became increasingly likely that things would develop along the path they have,” Trollip says.
“By now there are so many beneficiaries, large and small, throughout the Eskom ecology. The culture is so entrenched that rooting them out within the existing institutional structure isn’t credible.”
Eskom has acknowledged this too. Andrew Etzinger, a senior manager in demand management at Eskom, said in an interview with radio station CapeTalk that corruption and state capture had wreaked havoc on the utility.
“It’s also been massively damaging in diverting attention away from critical technical issues in Eskom,” Etzinger adds.
WHAT CAN BE DONE?
In the short term, Eskom needs to get its generating plants performing. It can do this by improving maintenance and spending more effort and time on its people, skills and development, Yelland says.
In the medium term, we need more generating capacity. “The quickest way to do this is to allow the customer to become part of the solution,” he says.
This can be done through customers installing their own rooftop solar systems and battery storage in domestic and commercial settings.
In the longer term, renewable energy production needs to be accelerated.
“We need to look at gas power and other options, including coal and nuclear, but those are very long-term interventions,” Yelland says.
There can’t be any more shortcuts, Blom adds. “Eskom needs to develop a proper maintenance regime.”
It would be best if Eskom continues load-shedding until it’s completed corrective maintenance.
Eskom also needs to be run by competent people and not by a novice board, Blom says. “Cutting maintenance is the last thing you do because that’s crucial to keeping the business going.”
He says Eskom needs to sort out its payroll, maintenance, its board and its coal procurement process.
THE UNBUNDLING PLAN
Splitting Eskom into three state-owned units is in the best interests of the utility and the country, Ramaphosa told parliament. “It’s not a path to privatisation – I repeat, it’s not a path to privatisation.”
Restructuring Eskom would scale it down, isolate costs and give responsibility to each of the three entities – generation, transmission and distribution – to be established under Eskom Holdings.
Unions such as the NUM and Numsa see this plan as government’s intention to privatise state-owned enterprises and shed jobs – and unions have declared war.
But Yelland agrees it’s the best way forward. “If things stay the same at Eskom, it will fail within a year and all those workers will be out of jobs.”
Blom isn’t a big fan of the unbundling plan, however. “It’s a cosmetic gesture,” he says. “Unless Ramaphosa restructures the supply industry, it’s a waste of time. The plan isn’t going to put money on the table or solve Eskom’s problems. It’s treating the symptom rather than the cause.”
Unbundling will just increase costs, he adds. “It will mean you have three boards, three auditors, three secretariats, three HR departments, and so on.”
Jammine says unbundling makes sense, but the problems at Eskom are deep-rooted and splitting the company into three won’t make them go away. “Corruption and overstaffing are key issues which must be addressed,” he says.
‘We owe the public an explanation for what went wrong’ – PRAVIN GORDHAN
SCALING DOWN
When it comes to job losses, it’s a case of when, not if, analysts say.
Eskom has trimmed its executive management from 21 people to nine by combining roles. Executives have told investors they hope gradually to reduce staff numbers by a third, Reuters reported.
Ramaphosa has said there’s “no one silver bullet” to Eskom’s problems.
“Neither will restructuring, nor refinancing, nor cost-cutting, nor tariff increasing, nor better plant maintenance have a necessary effect [on their own].
“We need to pursue all these measures and more simultaneously in a coordinated fashion and with purpose turn the utility around. And we’ll turn it around,” the president said.
The citizens of SA can only hope it’s true.
‘[Corruption] is diverting attention away from critical technical issues’ – ANDREW ETZINGER