How Eskom fell from grace - and kept falling

18 December 2019 - 15:47 By Penwell Dlamini
Angelina Makhanya of Dobsonville, Soweto, during load-shedding. In 2001 Eskom was named the Financial Times Power Company of the Year at the Global Energy Awards in New York.
Angelina Makhanya of Dobsonville, Soweto, during load-shedding. In 2001 Eskom was named the Financial Times Power Company of the Year at the Global Energy Awards in New York.
Image: Thulani Mbele

Of all the ailing state-owned enterprises in SA, none has rattled the lives of citizens quite like Eskom.

The past decade has seen the power utility deteriorate to a point that rating agencies have identified it as the biggest threat to the country's economy.

But Eskom has not always been in such a mess. In 2001 it was named the Financial Times Power Company of the Year at the Global Energy Awards in New York. Four years later, then Eskom board chairperson Reuel Khoza said one of the many factors that made the company successful was its commitment to good corporate governance.

Over the years since then, Eskom had deteriorated almost beyond recognition.

The most prominent indicator that showed that the company was falling apart was the introduction of load-shedding in 2007. In December that year, former president Thabo Mbeki was brave enough to admit that the government did not listen to the warnings from Eskom that electricity supply would not meet the demands of the economy, which was growing at that time.

"We were wrong; Eskom was right," said Mbeki.

Just last week, Eskom implemented unprecedented stage 6 load-shedding as several of its power stations were flooded.

Back when load-shedding was first introduced, the government responded by building two new power stations: Kusile in Mpumalanga and Medupi in Lephalale, Limpopo. The two mega-projects were expected to solve the country's power crisis as the rest of Eskom's power stations were old and not performing at their best.

Medupi was expected to provide 4,764MW, and Kusile 4,800MW.

Construction at Medupi began in 2007, while at Kusile it started in 2008. Fast-forward 10 years later, and the two projects are still under construction.

Instead of providing relief to demand pressures, the department of public enterprises admitted that they were badly designed, hence they failed to deliver power on schedule.

Medupi is now projected to be completed next year. Its costs have escalated from R79bn to about R146bn.

Kusile, meanwhile, is projected to be completed in 2023. Its costs have surged from R81bn to R161bn.

The delays in commissioning units have forced Eskom to find other means of keeping the lights on, like the use of open-cycle gas turbines (OCGTs). Last year Eskom's expenditure on diesel for OCGTs rose from R4.67m in January to R43.62m in February, and then a whopping R140.67m in March.

Eskom paid R47.4bn to 48 suppliers for diesel between 2009 and this year - just to keep the lights on.

While generation capacity has long been a serious threat to the economy, Eskom is also facing rising debt. This year the utility's debt stood at over R400bn. Eskom's wage bill rose from R9.5bn in 2007 to R29.5bn last year.

Debt owed by municipalities has also been on the rise. As of June 30, municipalities and individual users owed Eskom more than R36.5bn. Soweto alone owes about R19bn.

To keep the lights on and meet operational costs, Eskom has increased electricity prices way above inflation. Between 2007 and 2017, Eskom prices increased by over 300%.

Changes in management have also destabilised Eskom over the past decade. The announcement of Jabu Mabuza as acting CEO in August made him the power utility's 10th CEO in 10 years.

Eskom was also the main target of state capture during former president Jacob Zuma's time.

However, the government has lately taken some bold steps to turn the utility around.

President Cyril Ramaphosa announced the unbundling of Eskom into three entities - generation, transmission and distribution. He said the unbundling would create greater efficiency at the utility.

Parliament recently approved a R59bn bailout for Eskom over two years.

Last month Andre de Ruyter was named its new CEO.


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