Eskom is on the brink. Its finances and operations are in utter disrepair and load shedding is once again commonplace in the South African vocabulary.
Now a sustainability task team has been urgently brought in by President Cyril Ramaphosa to tackle the deepening crisis at the utility.
It has long been warned that fixing Eskom will be a painful process. Costs have to be cut, and jobs too. A restructuring and privatisation of some kind must be considered if it is to stay afloat.
This is an election year and one in which with the ANC is concerned about losing votes. If reforming Eskom appeared politically impossible before, just try it now.
“It’s technically feasible to announce a perfect plan from the task team before the elections,” says Peter Attard Montalto, head of capital markets research at Intellidex. “But the reality of course is that this is politically impossible.”
Darias Jonker, political analyst at political risk consultancy Eurasia group agrees.
“It’s a very complex situation,” he says. “In my view there are political leaders who can fathom the complexity, but to make the decision that is politically possible is much more tough.”
Despite the utility’s worsening situation, and the major risk its failure poses to the SA economy, Eskom management and ultimately the government have so far stopped short of taking the drastic steps needed to turn it around.
Eskom has many woes. Its costs are rising but it is also selling less and less power every year. Meanwhile, it faces immense resistance to every tariff application it submits and is never granted the increases it claims is needed to cover costs. Its books show that income from operations falls short of the cost to just service its debt.
Fixing Eskom would involve asset restructuring, spinning bits off, and 16,000 job losses with a a “massive union backlash”, says Attard Montalto.
Jonker notes the unions are “disproportionately influential”.
The influence of the unions came into sharp focus in mid-2018 when Eskom management opened wage talks with a 0% offer, only for public enterprises minister Pravin Gordhan to step in. The utility ultimately settled on a 7.5% wage increase for the year, but admitted at the time it had no idea how it would fund this.
In December, Eskom announced it had completed a retrenchment process among its highest level of executives. But according to a Bloomberg report, plans are in place to extend this to lower-ranking managers and then the general workforce, although the utility has not confirmed the reports.
Labour has made it clear workers are not willing to pay the price for widespread mismanagement and corruption at the utility. It is also quick to remind the ANC of the leverage it wields.
“Our members have made it clear if Eskom continues to retrench workers, they are not going to vote for the ANC,” says Livhuwani Mammburu, spokesperson for the National Union of Mineworkers (NUM).
“There is no question about it, they still love the ANC, but if Eskom retrenches, they will mobilise the whole of Mpumalanga [where the majority of affected power stations are located], including their families, not to vote for them.”
NUM also remains vehemently opposed to privatisation of any kind, Mammburu says, adding that the union hopes the new task team will seek out its inputs.
Attard Montalto and Jonker think it is possible to kick the Eskom can down the road further still.
Jonker says reform can be delayed for even another year or two, as long as government can conjure up financial solutions to cover Eskom’s revenue shortfalls on a year-to-year basis.
Attard Montalto agrees tiding the crisis over is “just a funding issue”.
But there will be load shedding.
Although power cuts will be unpopular in the lead-up to the elections, weaknesses in the opposition and a softer petrol price means the ANC has some margin for risk, Jonker says. Attard Montalto says evidence of the past five years shows clearly a preference for load shedding rather than taking the necessary action.
“But if even the correct steps were taken tomorrow, the low energy availability factor problems [a result of poor power plant performance] would still take some time to turn around,” he says. “So why have the additional headache before an election?”
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