If the banking system is what “lubricates” an economy, then the power generation, transmission and distribution network is the engine room.
SA’s banking system, though expensive, remains exceptionally well run and provides first-world service to its clients. If only the same could be said for Eskom.
According to some observers, the utility is now in terminal decline, an observation endorsed by CEO André de Ruyter’s recent remarks that Eskom is a “dead horse”, and like an old car that needs to be replaced, not fixed. These remarks were in response to suggestions from some quarters that he should stand down, but he quite rightly countered these suggestions by warning that changing jockeys on a dead horse won’t solve the problem.
De Ruyter has a steely resolve and it is important that he be allowed to stay the course with Eskom. He appears to have the determination to continue with his so-called “philosophy maintenance” whereby power stations are taken down and maintained for longer than has been the case in the past. This will probably make rotational power cuts even worse in the short term but in the medium to long terms there should be a noticeable improvement. Before De Ruyter’s arrival at Eskom, the utility had 10 CEOs in 10 years and that lack of continuity and discipline is evident in the utility’s parlous position.
Eskom’s position within the SA economy is so pivotal that it cannot be allowed to collapse, as the consequences would be too ghastly to contemplate. In the event of total grid collapse, it could take days but more likely weeks to restore it, during which time something approaching anarchy is likely to prevail.
A number of scenarios exist for SA’s energy future. The first one assumes little or no change and Eskom is allowed to carry on in its current hobbled form, lurching from one crisis to another and being allowed extremely high tariff increases by the National Energy Regulator of SA (Nersa). Rotational power cuts, known colloquially as “load-shedding”, have been occurring for 14 years.
The last scenario is one in which Eskom cleans out the Augean stables within the organisation and removes every last vestige of patronage networks
Considering that the utility is in far worse operational and financial shape than it was in 2007, one can reasonably expect many more years of power cuts, probably increasing in intensity and frequency as more power plants collapse.
Under this scenario, wealthier individuals abandon Eskom altogether and install solar panels on their roofs with battery storage and backup generators. Industry and the mines progressively abandon Eskom, whose energy availability ratio falls every year as neglect and lack of funding further erode its ability to provide power.
The second scenario is more hopeful and allows the private sector to participate to a far greater extent than now envisaged. De Ruyter is allowed to get on with his philosophy maintenance plan. The Renewable Independent Power Producer Programme (REIPPP) is resuscitated, with solar and wind providing an ever-increasing share of total power requirements.
De Ruyter believes that 4,000MW-6.000MW of new capacity is required to fill the current energy gap. That capacity could be achieved quickly and would remove much strain on Eskom’s fleet, allowing for greater preventive maintenance to be undertaken. All capital expenditure would come from the private sector. However, greater baseload power would not necessarily be provided by these renewables, due to the intermittent nature of this source.
The last scenario is one in which Eskom cleans out the Augean stables within the organisation and removes every last vestige of patronage networks. This is the most difficult to achieve, especially when one hears about the flagrant abuse that is occurring within Eskom, such as the criminal syndicate at Tutuka power station responsible for the theft of about R100m worth of fuel oil per month, as well as hundreds of millions of rand worth of spares.
The most likely outcomes probably lie somewhere between the three scenarios: Eskom keeps plodding along but genuine new renewable capacity is brought on stream relatively quickly and troublemakers are gradually rooted out. But it won’t happen rapidly.
• Gilmour is an independent investment analyst with Salmour Research.
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