The moment Nersa announced it was granting Eskom an 18.65% tariff increase for the 2023/24 period, and a further 12.5% for 2024/25, the country had a convulsion. What sent so many over the edge was that the increase coincided with the most severe load-shedding since the power blackouts began in 2007, ostensibly caused by “wet coal” and “a bolt substance”, among other excuses.
I also sense that many still cannot believe where we are, unable to keep the lights on, let alone connect new industrial installations and neighbourhoods. Some have approached the courts, while many more are taking to the streets. I have immense sympathy for why South Africans are moved to such actions — the impact of load-shedding and tariff increase amid high unemployment and rising costs is devastating.
But I have bad news. The scale of the problem is far deeper than many of us realise. It is what happens when a problem is ignored and trivialised by so many for so long — in the hope that those causing it will miraculously fix it.
Let me begin.
Eskom is a financially unviable company. The full 2021 financial year results paint a truly depressing picture. A net loss of R12.3bn and overall debt of just under R400bn. Eskom spent R32.5bn that year paying interest on its debt. That is about R2.7bn per month. They paid another R39bn trying to reduce the capital debt.
Municipalities were in arrears of R45bn, up 27% from just more than R35bn in 2020. If municipal arrears grow at the same rate, then at the end of 2022 they were between R55bn and R57bn in arrears. Meanwhile, last year Eskom expected its net loss to widen to R20bn for the year 2022.
Operationally, things are even more dire.
At the moment Eskom is producing about 26,000MW of electricity, and it’s not enough because demand is just more than 27,000MW. To put things in perspective, in 2008 demand was about 41,000MW, which Eskom could not produce then. So despite falling demand, Eskom is still unable to meet it.
The scale of the problem is far deeper than many realise. It is what happens when a problem is ignored and trivialised by so many for so long — in the hope that those who are causing it will miraculously fix it.
In 2019 Eskom told government the country needed between 4,000MW and 6,000MW of new generation to sustainably put an end to load-shedding. As usual, the government dithered, made promises and seemed to forget how urgent all of this was. At the time, Eskom had also indicated, in a moment of candour, that it did not have the ability to build that new generation. They had their hands full with the existing mess as it is.
Now, one may ask what happened to all that extra capacity that was there in 2008? Stay with me.
At the moment, 6,000MW is on planned maintenance. We can permanently discount this amount because there must always be planned maintenance of about 5,000MW anyway. That takes us to 32,000MW.
Then there is a whopping 16,000MW that is either on long-term breakdown or so old that it should be converted to museum pieces. Remember those explosions and other incidents we heard about in the news? Those are still off. Boiler units are complex, sensitive and incredibly slow to maintain, let alone repair when a huge explosion occurs.
The other problem? Eskom’s power stations are old. Excluding the expensive Medupi and Kusile disasters, Eskom’s power stations collectively are an average age of about 42 years. That is why three of them are due to be shut down in 2025 as per their licence conditions. In effect, the SA economy and homes are being powered by the equivalent of a Peugeot 403.
Old machinery basically behaves the same. The older it gets, the more sub-optimal its performance becomes, and less durable. There is a reason no-one commutes between Johannesburg and Pretoria in their classic car, no matter how immaculately maintained it is.
This is not to say Eskom has no management and people problems. It has far too many to mention — including a toxic work culture, permeated by many pockets of laziness and political factionalism.
In effect, the SA economy and homes are being powered by the equivalent of a Peugeot 403.
In October last year, the minister of finance said government would take over some of Eskom’s debt. This was inevitable because any financial institution that lends a cent to Eskom would be lending recklessly. So this is the equivalent of a parent finally deciding to rescue their child.
But there is a small problem. The parent is also swimming in debt. In this year’s budget, before the government takes over Eskom’s debt, the country will pay an estimated R332bn on debt service costs. Debt service costs are now the second biggest expenditure item on our budget, after education. Clearly, this R332bn is likely to become R365bn, if we use Eskom’s debt service cost number from 2021 as a benchmark.
So what is to be done? The first is to be bold and make decisions about what is most important. In my mind, energy is now our foremost crisis, so we cannot be talking about silly experiments like another state bank that needs to be capitalised with billions of borrowed money.
We also need to decide what to do about other cash-draining state-owned enterprises, such as the Post Office. It’s now in palliative care. SAA is already in the grave, but the torso is still visible above ground, albeit emaciated. I will not publish a full list here for practical reasons, but you get the picture regarding state-owned enterprises. Owning and operating companies costs money, but money is not infinite. It runs out, and we are running out of it and options for getting more, fast.
Since most municipalities are not up to scratch, I think we can confidently assume they will not be able to pay Eskom any time soon, even as the debt accumulates. I think it is time the government consulted the state law adviser on whether it cannot deduct that money from the national budget allocations and give it directly to Eskom.
But that’s a hard decision, and President Ramaphosa doesn’t like hard decisions. Therefore, let’s say national government will borrow that too and use it to write the municipal debt, too, a privilege Soweto and Panyaza Lesufi believe is an entitlement.
I can also say without fear of contradiction that this financial quagmire enveloping the country will continue untreated because no-one, not even the pundits and purveyors of political theatrics, wants to acknowledge it is there.
Ignorance is bliss, until we finally sink into the abyss then wonder how we got there. The first test of character will be in early February when Ramaphosa delivers his state of the nation address after that offensive spectacle MPs put up every year.
But I’m not holding my breath.
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