South Africans face a return of traffic gridlock and spoiled food as the struggling state power utility cuts supply for a third day to homes and businesses as it scrambles to prevent a total collapse of the grid.
The latest blackouts compound worries about Eskom Holdings SOC Ltd’s precarious position and the threat it poses to the economy. They’re also an embarrassment for the ruling African National Congress just three months ahead of national elections.
The rand tumbled Monday and government bond yields surged after Eskom suddenly announced sharply widened cuts.
The utility, which blamed poor maintenance for blackouts late last year, said it’s increasingly concerned about ongoing problems at two new coal-fired power stations. The huge Medupi and Kusile plants – already over-budget and years delayed – are also responsible for a debt crisis that has hamstrung the company.
President Cyril Ramaphosa said last week that Eskom would be split into three as part of plans to rescue the company. He also pledged financial support for the utility but didn’t specify an amount. The restructuring plans outlined by the president do little to address Eskom’s problems, Moody’s Investors Service said Monday.
The government should set up structures that can act swiftly to resolve Eskom’s crisis, said Iraj Abedian, the head of Pan-African Investments and Research Services, who has advised the government on economic policy.
“It’s time to treat it like a wartime emergency,” he said.
Eskom’s board gathered Monday for a six-hour emergency meeting with Public Enterprises Minister Pravin Gordhan and will commission an urgent review of the new plants, the company said. It’s demanding detail on when the projects will be completed and the extent of design and other operational faults.
The two plants “are continuing to show a lack of reliability to contribute meaningfully to Eskom’s generating capacity, which is a serious concern,” Eskom said.
The rand weakened 0.2% against the dollar by 11:35 a.m. in Johannesburg, after dropping 1.4% Monday. Yields on benchmark government rand bonds rose 3 basis points to 8.82%.
South Africans are already familiar with the day-to-day implications of rolling blackouts, after Eskom implemented cuts in 2008, and again in 2015. Load shedding, as the outages are known locally, mean stocking up on candles, wifi disruptions and lengthy commutes on gridlocked roads through blank traffic lights. Many businesses already own costly-to-run diesel generators from the last round of cuts.
The blackouts Monday, when Eskom took 4,000 megawatts of demand off the system, were announced after seven generating units tripped within five hours, the company said. While some were back online by Tuesday, the utility announced another 3,000 megawatts of cuts that will last until 11 p.m.
Two of the generating units that failed on Monday were at Medupi, the Johannesburg-based Business Day newspaper reported, without saying where it got the information. Gordhan said in December that South Africa plans to take action over “sub-standard” work by contractors at Medupi and Kusile, including Hitachi Power Africa Ltd., that were contributing to scheduled blackouts.
The two plants are already years behind schedule and expected to cost more than R292 billion ($22 billion), roughly double initial estimates. That has contributed to the majority of Eskom’s R419 billion of debt.
Eskom chief executive officer Phakamani Hadebe in November said defects at the new plants would cost R1.5 billion. The utility increased that amount to R2 billion a couple months later in a response to questions.
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