According to recent reports, Eskom’s debt sits at a whopping R500 billion. Along with the unbundling of the parastatal, what are the other solutions that need to be considered to make sure South Africans don’t sit in the dark?
Prof Anton Eberhard, Director of Power Futures Lab at the UCT Graduate School of Business, recently gave a talk, at the UCT Graduate School of Business, titled South Africa’s energy crisis: the way forward. He was appointed by President Cyril Ramaphosa to chair a task team. The mandate of the team was to figure out the key issues faced by Eskom, making proposals regarding the sustainability of Eskom, restricting of the sector and identifying where that needed to occur.
The focus of Eberhard’s discussion was centred on the unbundling of Eskom which was mentioned by Ramaphosa during the State of the Nation Address (SONA) earlier this year. The president highlighted how the most serious issue with Eskom at the moment is regarding its finances and how the parastatal needs to be separated into three entities: generation, transmission and distribution.
“Eskom needs to unbundle…There are sound, valid and compelling reasons to effect this change we are talking about. It is about looking at the business model of Eskom and see what will work best. It is not a path to privatisation,” Ramaphosa said during SONA.
Eberhard and his team received all their data and information from Eskom management and they’ve seen first-hand just how bad things are for Eskom. Two of the biggest problems, and the cause of the outages we experienced earlier this year are due to the poor performance of Eskom’s two new power stations, Medupi and Kusile. In February, the Mail and Guardian reported that Medupi and Kusile were supposed to provide additional capacity and provide a buffer for Eskom’s existing coal fleet, which is aging, requires extensive maintenance and is prone to unplanned outages. At the time, Public Enterprises Minister Pravin Gordhan, told parliamentarians that Medupi and Kusile were supposed to provide “extra energy space” to allow old units to be taken down for repairs.
According to Eberhard, there are many structural flaws within the design of the Medupi and Kusile power stations and the damage that these power stations are facing would take years to correct, never mind the associated costs to the already squeezed taxpayers. These two power stations together were supposed to produce and add an additional 9000 MWs, which would have brought us right out of load shedding. However, Eberhard says these power stations have not been performing and none of these units are generating any electricity sustainably.
Eskoms’ debt has also ballooned over the years. Business Tech recently reported that the parastatals debt sits at almost R500 billion. According to data compiled by Bloomberg from public records, including bonds and loans, this amount is up from about R370 billion last year. Last month Eskom CEO Phakamani Hadebe put the total debt at about R450 billion.
Eberhard says that Eskom is not collecting enough cash to cover their operating costs or to pay back their debt. They are borrowing more money to pay their existing debt which is an unsustainable way to tackle debt. What’s more, international institutions and private institutions are no longer willing to help Eskom with loans due to their inability to service their debt and this is a growing concern as defaulting on their repayment has broader implications for our economy.
“We have to generate more net cash…we have to restructure the debt. There needs to be a tariff increase. There has to be some sort of debt relief put into play by government. The government needs to intervene and start a carbonisation programme or even a debt bailout,” says Eberhard.
“In the latest budget [Finance Minister Tito Mboweni] stated that they will give Eskom an addition twenty-three billion over the next three years. You have to shift the debt or to do more sophisticated financial restructuring. Another solution is swapping out our debt for cheaper debt,” says Eberhard.
He also stresses that there needs to be a larger investment in renewable energy, such as wind and solar energy, this may not help the immense burden of debt, but it is one of the solutions we need to look towards.
“A wave of new innovations globally is beginning. The sector will be different over the future and there will be a transition within the energy sector. Eskom will most importantly have to change its business model if it wants to survive,” he says.