South Africa is facing a severe electricity crisis and Eskom has warned that it can only provide electricity for half of the day during what will be a cold winter. The loadshedding crisis has had significant repercussions, including a negative impact on the economy, water services, food safety, and healthcare. Eskom’s troubles stem from a history of financial losses, poor planning, mismanagement, corruption, political interference and insufficient pricing mechanisms. In response, the South African government plans to increase power purchases from private producers and has allocated a substantial debt relief package to Eskom. Efforts to fix the situation, however, face challenges such as corruption, bureaucracy, and a shortage of skilled personnel. The reliance on coal for the majority of South Africa’s power generation poses additional concerns as it contributes to carbon emissions and hampers global efforts to combat climate change. Despite international funding offers to support the country’s transition to cleaner energy sources, South Africa has contemplated operating coal plants beyond their planned retirement dates to address the energy shortages.
How South Africa’s Blackouts Went From Bad to Worse
By Mike Cohen and Paul Burkhardt
Even for a nation hit by rolling blackouts since 2008, the more prolonged power cuts that have dogged South Africa for months on end have been hard to endure. The problem: the country’s poorly-maintained power stations simply can’t keep up with demand. Debt-stricken state utility Eskom Holdings SOC Ltd. is now warning it will only be able to supply electricity for half of the day over the winter. With the governing party in danger of losing its majority in 2024 elections, President Cyril Ramaphosa has appointed an electricity minister to spearhead the response to the crisis and the government plans to ramp up purchases of power from private producers. But corruption, red tape and an ongoing exodus of skilled personnel are hobbling efforts to turn Eskom around.
Read more: SA braces for record winter blackouts as Eskom struggles
1. What’s gone wrong for Eskom?
A history of deep financial losses and poor planning, plus allegations of mismanagement and corruption, have plagued the utility. It ran into financial trouble in the early 1980s after committing to build plants that weren’t needed. Then, when White minority rule of South Africa ended in 1994, the company wasn’t prepared for the sharp increase in demand as previously neglected areas were connected to the grid. Over the following two decades, Eskom suffered from erratic government decision-making and political interference. The company has had 14 leaders since 2007, much of that turnover coming during the nine-year tenure of South African President Jacob Zuma. A judicial commission found the upheaval at Eskom was an orchestrated attempt by Zuma’s allies to raid its coffers with his tacit consent. Zuma denies the charge. Eskom’s leaders have said the company hasn’t been permitted to charge adequate prices to meet its costs. A book written by Andre de Ruyter, who exited as CEO in February, describes how politicians and Eskom’s new board have continued to undermine its management and hamper efforts to end the crisis. Public Enterprises Minister Pravin Gordhan, who oversees Eskom, denies the allegations.
2. What’s been the fallout?
The International Monetary Fund predicts that the economy will barely grow this year. Intentional outages imposed by Eskom to reduce demand, often lasting many hours, have affected water services (since pumps can’t run without power), food safety (since refrigerators can’t stay cold) and the ability of hospitals to provide care. These blackouts — the result of a process known as loadshedding — are sapping business confidence in a country whose biggest industries, such as mining, depend on reliable access to cheap electricity. The central bank estimates that the outages will shave 2 percentage points off South Africa’s economic growth rate this year.
Read more: Eskom in Pictures: No denying ANC’s blame. Corruption or incompetence?
3. What’s the plan to fix Eskom?
The National Treasury is giving Eskom 254 billion rand ($13.1 billion) in debt relief over three years, which will free up funds for repairs and improving the transmission and distribution system. The bailout unveiled in February was conditional on the utility turning to private partners to help operate its plants and transmission network. The government has also made it easier for companies to build their own power stations by scrapping licensing requirements. They’ll be allowed to sell their surplus output to the grid, while households and business that install their own solar panels will get tax breaks. One challenge: The governing party, the African National Congress, is wary of disrupting the coal industry, not least because mineworkers are a key voting constituency.
4. Is this just a problem for South Africa?
No. South Africa’s dependence on coal, the dirtiest fossil fuel, for four-fifths of its power has implications beyond its borders. When burned, coal emits almost twice as much carbon dioxide as natural gas. Getting countries to shift away from coal is part of the global effort to limit climate change. At the COP26 climate conference in Glasgow in 2021, the US, the UK, the European Union, Germany and France offered South Africa $8.5 billion in funding to assist in its transition to more climate-friendly sources of energy. Electricity Minister Kgosientsho Ramokgopa has however suggested that coal plants could be operated beyond their planned retirement dates because of the dire energy shortages.
Read more: Prepaid electricity crisis looms for South Africa
5. Why is coal still king in South Africa?
South Africa has an abundance of coal and 90,000 people are employed at mines that feed Eskom power stations via conveyor belts. After its founding in 1923, Eskom rapidly built coal-fired plants, spurred by the needs of its gold mining industry, the world’s largest. In the 1970s, it began building a new fleet of power stations that operate to this day, along with the only nuclear plant on the African continent. Plans were announced in 2007 to build two giant new coal-fired plants — Medupi and Kusile — that were scheduled to be completed within eight years at a total cost of 163 billion rand. However, the construction process has been plagued by labor unrest, mismanagement and equipment defects, and the likely final price tag has since ballooned to more than 460 billion rand. Production from half of Kusile’s six units was disrupted when a duct collapsed and repairs are only scheduled to be completed at the end of 2023.
Read also:
- Eskom seeks to increase pollution – could kill hundreds
- Eskom’s ‘big lie’ about power station breakdowns – age is not the culprit
- Eskom has received nearly half a trillion rand in bailouts since loadshedding began
© 2023 Bloomberg L.P.
