WORLDVIEW: Moment of truth as Eskom approaches total collapse

After years of waffling, kicking the can down the road, hedging, and equivocating, South Africa is facing a harsh and uncompromising reality: Eskom is on the point of total collapse..In a media statement, the struggling utility said on Wednesday that " As a result of the loss of additional generation, delays in the return to service of units that are on planned maintenance and limited diesel supply, it has become necessary to implement stage 2 rotational loadshedding… in order to protect the power system from a total collapse." (emphasis added)..Load shedding is likely to cost the economy R1bn to R5bn a day, according to Bloomberg, equal to about 0.1% of GDP. That might not sound like much, but the impact of the cascading failures at Eskom is broader than just the cost of lost production. There is also the opportunity cost – what manufacturer would want to set up operations in a country that can't keep the lights on? It would mean building an in-house generator, sending costs through the roof..___STEADY_PAYWALL___.In addition, of course, there is the looming threat of a rating downgrade. Moody's – the last holdout on the downgrade bandwagon – is surely going to chop SA down to junk sometime soon. And that will mean international funds dumping SA bonds, which would translate into higher borrowing costs for the government. And that, in a bitter irony, would make it harder for Eskom to get the capital it needs to fix itself. A truly vicious circle..At this point, there's really not much to say. Eskom has been in crisis for years but there has been no apparent sense of urgency at the leadership level when it comes to addressing the problems..There's no big, complicated, secret issue – the problem is Eskom's costs are higher than its earnings. It needs to cut costs – which probably means getting rid of a chunk of its unnecessarily large workforce and getting out of supply contracts signed by bad actors lining their own pockets with bribes. And it needs to boost revenues, which means getting paid for its services and, in the absence of payment, cutting off the power supply to indebted municipalities..There are also capacity constraints. Eskom is in no position to invest in new capacity, so private capital will be needed – Eskom can buy and distribute the power produced by independent (and hopefully green) power producers..Read also: Eskom is an almost impossible problem.There's no way around any of this. If Eskom continues to run at a loss, the government will have to pour more and more money into it by borrowing more and more. Eventually, SA will not be able to borrow any additional funds, because bond buyers will start to doubt the country's ability to repay the loans. At that point, we're looking at an IMF bailout which would, doubtless, impose a structural adjustment programme (SAP) featuring reform at Eskom and opening up power markets..In other words, all roads lead to the same place. It's only a question of how damaging and painful we choose to make the journey. If SA has any sense, it will choose to take its medicine on Eskom now and avoid catastrophe..Here's the problem. SA's current leadership favours incremental reform and consensus-based policymaking. In other words, the people in charge – including president Cyril Ramaphosa – are coalition builders who strongly prefer to create win-win situations through slow, careful negotiation. In 99% of cases, this is the optimal approach to intractable political problems. Indeed, it's the only way we were able to make a negotiated transition to democracy nearly 30 years ago..But the Eskom crisis is the 1% of cases. There's no path to win-win. Either the whole system collapses and everyone loses, or certain powerful groups of vested interests – including labour unions and Eskom suppliers – have to take it on the chin. What we're looking at here is a lose-lose situation, unless radical action is taken..The political calculus around Eskom is hugely complex, especially for a leadership group that is facing a persistent, low-grade revolt from elements of its own party. Internal ANC conflicts mean that no one can afford to burn bridges with trade unions..But if those bridges aren't burned down, and soon, there's a real possibility of disaster. Slow, incremental change and reform works well when you have time, resources, and space to experiment. What's happening at Eskom does not fall into this category..One can be optimistic about the broad direction of travel in SA and pessimistic about Eskom because when it comes to the high-level stuff, win-win solutions are possible and everyone can benefit from the process of changing. When it comes to Eskom, someone is going to have to accept a loss. And unless SA's leaders take urgent, decisive, and fearless action, the losers will be all South Africans. And that includes Eskom's workers. If the power grid collapses, their jobs will go with it.

WORLDVIEW: Moment of truth as Eskom approaches total collapse

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