Eskom’s biggest mistake

On Monday (11 February), Eskom announced that it would be introducing stage 4 load shedding following the loss of seven additional power generating units.

As large parts of the country were plunged into darkness, questions have been raised as to how the power utility has once again run into trouble.

In an analysis of the ongoing crisis, Rod Crompton, adjunct professor at the African Energy Leadership Centre at Wits Business School, said that Eskom has two major problems – its operating costs are too high, and it can’t pay its debt.

“It owes over R400 billion and does not generate enough cash to pay even the interest on its debt. It’s reached the end of the road.

“Eskom has been getting steep tariff increases in recent years but these have driven some customers off-grid and shut others down. Eskom’s sales have been declining by about 1% per annum. The less it sells, the higher the tariff it wants, and the less it sells – the utility death spiral,” he said.

Commenting on how the power utility reached this stage, Crompton said that the main cause of its troubles is its decision to build two of the biggest coal-fired generating plants in the world – Medupi and Kusile.

“These plants are running way behind schedule, they’re over budget and the bits that are complete don’t work properly,” he said.

“They are probably the single largest disaster in South Africa’s economic history.”

Crompton added that state capture, corruption and poor management have led to overstaffing and neglected maintenance, resulting in constant breakdowns.

Electricity theft, a culture of non-payment and defaulting municipalities have also deepened the crisis, he said.

“Eskom needs to simultaneously reduce operating costs, increase tariffs and shed a big chunk of its debt.

“There is no painless way for South Africans to deal with their Eskom crisis. And it can’t wait until the national elections on 8 May 2019,” he said.

Read: How much it costs to get off Eskom’s grid in 2019

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Eskom’s biggest mistake