Eskom is the largest state owned company in South Africa. It is also one of the biggest power companies in the world. Since it’s establishment in 1923, for the longest, it was South Africa’s pride and joy, winning a couple of accolades at prestigious award ceremonies.
The cracks in the power utility started showing in 2007 when “load shedding” was implemented. According to a political trend analyst JP Landman, the problems of this power utility date way back, Eskom started showing some strain as early as in the 1970’s. He reckons that even if a single cent was not stolen from Eskom it was still going to be in trouble due to its structural problems. In the 1970’s and 1980’s, the monopoly model was questioned due to high tariff increases, yet no structural changes were made.
The biggest irony of them all is that Eskom still continues to win prestigious awards, amidst being dubbed as a sinking ship. At the announcement of South Africa’s Most Attractive Employer in 2018, Eskom took first place in the category of South Africa’s Most Attractive Employer for Engineering and Technology students and third place for Most Attractive Employer for Engineering and Technology professionals.
Eskom continued to function for so long, oblivious to its muddle, until it just couldn’t function properly anymore. It’s battling to keep afloat yet the oblivion still lingers.
Is Eskom in trouble?
An Eskom problem is an SA economy problem. Eskom is over R440-billion in debt. Why don’t they just pay off their debt over time? The operating costs are too high, the power utility isn’t generating enough money to pay off it’s debt. The consumers are not happy with having to bare the grunt of increased tariffs, they are not convinced that the issue of mismanagement of funds is being dealt with adequately. They are also not convinced that giving more money to a company that has some structural issues solves anything. Ironically, the consumers also form part of a chunk of Eskom’s woes. Municipalities owe Eskom billions in unpaid bills.
According to The Citizen, “world bank companies show that Eskom is over-staffed by 66% with an average salary of more than R700 000 a year. Productivity is terrible, with the equivalent utility in India producing 40 times as much electricity per employee as Eskom does”. This means that one employee at a utility in India can solely do the work of 40 employees at Eskom.
As announced by the National Energy Regulator of South Africa (NERSA), Eskom’s tariff will increase by 8.1% in 2020. The tariff increases between 2019 and 2021 are all above the current inflation rate. The increase directly impacts the economy of South Africa in various ways. In terms of small businesses, the growth of small businesses will decline feeling the pressure of the high costs of electricity, not to mention the high costs of petrol. These businesses also lose money when there are power outages. This contributes to the poor performance of the economy.
Is it too late?
The president of South Africa Cyril Ramaphosa has previously announced that the government will be providing Eskom with R23-billion each year for three years or for up to 10 years to ensure that Eskom continues to function. The maximum amount of years (10 years) equate to a total of R230-billion assistance from the state. However, the power utility was battling to keep afloat until after the elections. Questions were raised about whether there was sufficient communication between the treasury and Eskom before this announcement was made.
During the presidents third state of the nation address he advised that the state will table the bill to allocate much of the R230-billion in the early years, opposed to providing R23-billion each year for 3-10 years. This decision could have been influenced by the fact that new discoveries are being made about how deep the Eskom problem is.
In the SONA in February, the president announced the planned splitting of Eskom’s business into three separate institutions – transmission, generation (power stations) and distribution (local supply through sub-stations). According to the Mail & Guardian, this proposal has been met with resistance by labour. It has also been met with some concern by bond holders. Most of the debt is in the generation part of the company. They don’t want to end up holding bonds in the parts of Eskom with the most debt.
According to JP Landman it’s not too late for Eskom. Splitting the power utility into three companies is the only way to save Eskom. The government has to find a way to ease the concerns of the labour and other parties, without compromising on the task at hand – saving Eskom.