Eskom’s problems are far worse than we thought: analysts

It’s no secret that state-owned enterprise (SOE) Eskom is facing a number of challenges.

However, it seems that these woes are far greater than initially thought, and as South Africa approaches winter, the threat of cold, dark days are becoming all too real, say analysts at wealth management firm Citadel Investment Services.

“The question of electricity has become one of the most pressing issues facing the South African economy and its recovery,” the group said.

“South Africans have become accustomed to power outages, but it is important as a nation not to ignore or become desensitised to the mounting economic toll of load shedding. Our local economic recovery and growth prospects depend on sustainable electricity being placed at the top of the agenda.”

Citadel noted that Eskom has featured as a key agenda point for a number of years, particularly with reference to the transmission development plan.

“But even as it literally struggles to keep the lights on, its financial results revealed that it suffered a net loss of over R20 billion in the year to the end of March 2020,” it said.

“Eskom chief executive Andre de Ruyter this week then warned South Africans yet again that while load shedding will eventually lessen, it will not disappear entirely.”

Speaking at a ‘state of the system’ briefing, De Ruyter painted a rather sombre picture of the state of Eskom, with financial issues just one of many challenges plaguing the beleaguered SOE. Other notable battles include:

  • The state capture scandal: Eskom is right in the middle of the state capture inquiry, as millions of taxpayer rands have ended up in “below the table” transactions. It has now come to light that seemingly ignoring the opinion of a legal review conducted by law firm Cliffe Dekker Hofmeyr (CDH), the Eskom board authorised a further payment of R176 million to Trillian and R348 million to McKinsey;
  • A lack of foresight: It seems that while power generation plants have been slowly crumbling away, few initiatives have been implemented to ensure sustainable supply by means of upgrades or new (effective) power station developments. Eskom now faces the burden of power stations that are reaching the end of their lifespan, making them at best unreliable and unpredictable;
  • Defective new plants: What was meant to be the saving grace for the electricity supply in SA has now become yet another expensive lesson. The defects detected at both Medupi and Kusile require in the realm of R7 billion to correct;
  • Debt, debt and debt: Eskom, in keeping with the South African fiscus and other SOEs, is facing a tremendous amount of debt, with really no way to eliminate its debt bill. The electricity supplier’s debt has ballooned to a jaw-dropping R464 billion, and the interest on its debt alone equated to a jaw-dropping R39.1 billion in the previous financial year. Government stepped in, providing a bailout of R56 billion in 2020/21 and R31.7 billion for 2021/22, but South Africans continue to find themselves sitting in the dark.

“And unfortunately, Eskom has warned that it expects load shedding to increase towards the end of the year, as the SOE is facing a 4,000MW shortfall that is expected to continue for at least another five years,” Citadel said.

Load shedding

Eskom has announced that load shedding will be suspended from 12h00 on Friday, after some generating units were returned to power, and the long weekend ahead would give it opportunity to do maintenance while power demand is lower.

Generating units were restored at the Duvha, Medupi, Kendal, Kriel and Kusile power stations. Units are expected to return at Camden and Majuba power stations during the course of the day.

“Although we have also lost other units at Tutuka, Camden and Hendrina, we have managed to adequately replenish emergency generation reserves. Eskom will also be taking the opportunity over the long weekend, due to the lower demand, to conduct short-term maintenance and further replenish emergency reserves for the week ahead.”

The power utility implored South Africans to use electricity sparingly, as the national grid remains under severe strain. Any breakdowns could lead to load shedding being reinstated at any given time.


Read: South Africa includes ‘power ships’ as part of its energy plans

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Eskom’s problems are far worse than we thought: analysts