Tag: power utility

Eskom forced to go into debt to pay interest

By Jan Cronje for Fin24

Cash-strapped power utility Eskom is needing to borrow money in order to pay interest on debt, its chairperson and interim CEO Jabu Mabuza told MPs.

Eskom leadership, together with Minister of Public Enterprises Pravin Gordhan, were briefing a joint sitting of three oversight committees on the utility’s finances on Tuesday.

Mabuza, who took over the role of interim CEO after Phakamani Hadebe resigned at the end of July, said the utility found itself in an unsustainable position. Its total debt was nearing R450bn, and it was not earning sufficient revenues from its businesses to service the interest on what it had borrowed.

“We find ourselves having to borrow to pay debt,” he said.

Electricity revenues over the past 5 years had been flat, he said, while operating costs had increased. Annual tariff increases, meanwhile, were less than what it had hoped for. He said Eskom was also owed some R38bn that it has not been able to collect.

Mabuza told committee members that the energy availability factor of its power plants had dropped to below 70%, which in turn had contributed to load shedding.

Gordhan told committee members Eskom would have run out of money by October without government support.

The utility has been granted two lifelines by the state. The first is a financial lifeline of R23bn per year (for three years) announced by Finance Minister Tito Mboweni in his February Budget. The second is a Special Appropriations Bill which allocates the utility R26bn for the 2019/20, and R33bn for the 2020/21.

How Eskom maimed SA’s economy

By Michael Cohen and Paul Vecchiatto for Bloomberg 

It isn’t difficult to find the main culprit behind South Africa’s biggest economic contraction in a decade: Eskom Holdings SOC Ltd., the state-monopoly power provider.

Gross domestic product slumped an annualized 3.2% in the first quarter, after expanding 1.4% in the prior three months, as a series of power cuts — courtesy of Eskom — hammered manufacturing, mining and agricultural output. The utility provides about 95% of the electricity used in Africa’s most industrialized economy.

”Eskom has a grip on the South African economy that is unlikely to be seen anywhere else in the world,” Kevin Lings, chief economist at Stanlib Asset Management Ltd. in Johannesburg, said by phone. “Eskom powers all tiers of the economy right down to the households, and so when it cannot supply electricity all sectors suffer. It is unlikely to change because there is currently no well-articulated plan to cure its problems.”

Driving downward
Eskom, which is buckling under the weight of more than $30 billion in debt, staged days of rolling blackouts, mostly in March, to prevent a collapse of the national grid as its fleet of poorly maintained power plants struggled to keep pace with demand. The outlook looks more promising for the second quarter: The power cuts have abated and the authorities have given assurances that there will be sufficient supply for the winter.

Even so, the economy’s shock performance, which far exceeded the 1.6% median contraction forecast of 16 economists, illustrates the urgency of the need for the government to diversify the power supply. The International Monetary Fund Monday said Eskom was a “major downside risk” to South African economic growth.

A program to purchase green energy from independent producers is in limbo. And little visible progress has been made in implementing President Cyril Ramaphosa’s plan to split Eskom into generation, distribution and transmission units. The proposal, designed to make it easier for other producers to supply the grid, is opposed by labor unions.

The bleak prospects of a speedy resolution to South Africa’s energy crisis are reflected in GDP forecasts for the rest of the year: The central bank anticipates an expansion of just 1% in 2019, the government 1.5% and Bloomberg Economics less than 1%. That’s well below the 3% Ramaphosa was targeting before he took power in February last year, and is a huge obstacle in way of his drive to attract $100 billion in new investment and tackle a 27.6% unemployment rate.

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