President Cyril Ramaphosa described Eskom’s latest round of load shedding as quite a “shock”. He was speaking to journalists following the African Union heads of state summit on Monday, in Addis Ababa, Ethiopia.
The president said that the fact that six power generating units went down on Monday, leading to stage 4 load shedding, was “most worrying, most disturbing”.
“It shocked me and made me quite angry that we’ve reached this stage of dysfunctionality,” he said.
The president said that Eskom is a risk, and needs to be addressed.
“We have got all our energy eggs in one basket. When the generator of energy in our country reports that there are six units (down), it means that all six eggs are broken.”
South Africans endured the most intense supply cuts in four years on Monday, while Moody’s Investors Service warned that worse could be yet to come, Bloomberg reported.
Moody’s said that the state energy firm is a significant risk to South Africa’s finances and president Ramaphosa’s strategy to split the company into three does little to address its problems.
The rand also suffered, and was the worst-performing major currency against the dollar Monday.
“No modern economy can operate without power,” said Mike Schussler, an economist at economists.co.za.
“If we had stage 4 load shedding every day, it would take away 10% of the power of the South African economy.” Eskom has about 40,000 megawatts of installed generating capacity.
The president said that Eskom requires a new business model, to “minimise the risk, minimise our risk as a nation”.
Providing Eskom, which has R419 billion ($30 billion) of debt, financial support before taking measures to generate savings at the utility would be credit-negative for the country, Moody’s said. The remedies would entail “unpopular decisions” on electricity tariffs, it said.
Power cuts may cost the country as much as R5 billion a day, according to the Organisation Undoing Tax Abuse, a civil-society group.
Regular supply interruptions are creating uncertainty that endangers businesses that are highly dependent on the utility, said Shaun Nel, a spokesman for the Energy Intensive Users Group of South Africa, whose members consume more than 40% of the nation’s power and include Anglo American Plc.
“We’re going to see companies close in the smelting industry,” Nel said. Between already-high tariffs and the spectre of more supply cuts, the victims will be “small foundries and smelters that shut down and never come back,” he said.
The country is Africa’s biggest steel producer, and Eskom first throttles supply to industrial customers before cutting retail consumers.
Moody’s comments are a reminder that major structural issues such as power insufficiency are serious constraints on the real economy and put pressure on public finances, said Piotr Matys, London-based emerging markets currency strategist at Rabobank.
“Those issues pose a major challenge for president Ramaphosa’s administration,” he said.
Eskom board ‘uncomfortable’
Eskom’s Board on Monday convened an urgent meeting with the company’s executive management and the Minister of Public Enterprises, Pravin Gordhan.
The company said that the escalation from stage 2 to stage 4 load shedding was caused by a further seven generating units that tripped within a period of five hours.
“This report on the causes, including all the challenges of the new and old power stations, was much of the deliberations between the Board, management and the Department of Public Enterprises in today’s meeting that lasted for over to six hours.”
It said that by Monday evening, four units had returned to service and it is expected that the remaining three will be back to service by Tuesday morning. “We will have a systems- and operations update within the next 24 hours,” it said.
“The Board was provided with a detailed analysis about breakdowns in Eskom’s new build programme and at its fleet of older power stations. The Medupi and Kusile power stations – the core of the new build programme – are continuing to show a lack of reliability to contribute meaningfully to Eskom’s generating capacity, which is a serious concern.
“The Board has resolved to institute an urgent review to establish when, realistically, these projects will be completed, the extent of design- and other operational faults, what steps can be implemented to minimise the ever-escalating costs and what can be done to increase output,” Eskom’s statement said.
Eskom chairman, Jabu Mabuza, said: “We remain uncomfortable about the stability of the generating system but will keep the country informed of our progress over the next few days in providing better assurance about electricity supply.”