Eskom’s slide from first-in-class to murderous dysf unct ion

SouthAfricanstate-ownedutilityEskom,onceapowerhouseofthecountry,isnowits albatross,plaguedwithdebtandcorruption.Howdiditgetthisbad,andcantheruling ANCgetthelightsbackonforSouthAfricansbeforethe2024elections?

By JONMARKS

Only four yearsafterapartheid’s whiteminorityrule fell,South Africain1998 produceda new White Paper on Energy Policy that was settoendow its power industry with a state-of-the-artcommercial and governancestructure. It would unbundle the giantstate utility Eskom, whosesize andtechnical capacity, and abilityto deliver infrastructure, meantthe national champion was rated amongthe world’s top fourpower companies.

Fast-forward 25 years, andEskom has declined from continentalpowerhouse to flounderinginan ever more severe crisis SouthAfrican consumershave beencondemned to rollingblackoutsandonerous debts; allofwhichhave shaved percentage pointsoff the country’s gross domestic product (GDP).

Statebailout

Sograve are Eskom’s financial problemsthat finance minister Enoch Godongwana – backed by mineral resources andenergy ministerGwede Mantashe,a key power broker – has committed the cash-strapped governmenttotake onuptotwo-thirds ofthe ailing utility’s debt, whichtheNational Treasurylast Octoberput ataround R400bn($23.5bn).In February, heannounced that thestate would cover R184bn of debtpaymentsas they falldueandtake over R70bn of the debtatthe endofthree years

The extenttowhichEskom has becomeprey tothe worst aspectsof SouthAfrican factionalpolitics and crony capitalism was underlined in enquiries into ‘statecapture’ during JacobZuma’s graft-ridden presidency. Zuma's allies the Guptasand othersmanipulated the coal supply and other Eskomcontractswith hugelydamagingconsequences.

Theabuses have continued into Cyril Ramaphosa’s presidency. In Januarytherewere chilling reports thatEskomCEO André de Ruyter hadsurvived anattemptto kill him with cyanide-laced coffee on 12 December. Two days after the alleged assassinationattempt, DeRuyter resigned – as demanded by Mantashe among others, who favourstrongstatecontrol ofthe economy andpreferto find scapegoatsbeyondthe AfricanNational Congress (ANC) establishment.

Sixthingstofix

Mantashehadcomplained that DeRuyter was too focused on anti-corruption campaigns, at the expenseof restoringthe power supply. Oneofthe ANC’s more internationally respected figures (andnow responsible for Eskom),public enterprises minister Pravin Gordhan,said theattemptonDeRuyter’s life would bethoroughlyinvestigated andthose responsible “must be charged”. Anotherday, another Eskominvestigation.

Ramaphosahasmobiliseda National EnergyCrisis Committee, amongother things, toturn round thesector. For SouthAfricato emerge fromthis crisis, sixissues need tobetackled: incomplete reforms,politicalinterference, bad planning, financialand strategic miscalculations, managementand governance failure, and a culture that permits corruption.

Unbundlingandothersector reformshave beenenvisaged since at least the 1998 White Paper, but theelectricity supplyindustry(ESI) remains‘verticallyintegrated’, withEskom retainingthecentral role in generation, transmission anddistribution.

Amidstthe rolling blackouts, the ESI has become a political football. Some arguethat greater independence for commercial companies would allow thesector to overcomeitsproblems, while thoseonthe leftwing of the ANC coalitionbelieve more statecontrol isneeded. As a result, Eskom willbeamajorissueinthe2024 elections–potentially definingjust how farbelow 50%ofthenational votetheANC descends.

Projectslike thegiant 4.8GW Kusile and 4.2GW Medupi coalfired plantsoffered a big capacity increase as a key part ofEskom’s New Build Programme, butthey have suffered huge cost overruns and delays. Underconstruction for somany yearsthatthey were able to secure finance fromthe World Bank Group(WBG)andothersbefore donorscametoshun bigcarbon projects, the two power stations have hugelyadded toSouthAfrica’s external debt Meanwhile, developingcriticalareas like transmission have been overlooked toooften for thesector’s comfort

Windandsolar

TheSouthAfricanenergyscene hasnotbeenunremittinglybleak: the RenewableEnergyIndependent Power Producer Procurement Programme(REIPPP)hasinstalled large amountsofsolarandwind capacity.ButREIPPP–nowinits sixth roundofbidding– wasdriven by theNational Treasury ’s IPP Officein Pretoria, ratherthan by offtakerEskom.

There are realconcernsthat thesupposedlyground-breaking $8.5bn JustEnergy Transition

Partnershipcommitment to sustainableinvestmentinSouth Africa will founder. Thepact, made withmajor western donors at COP26in November2021, could failamid concernsthefunds would merelybeused for yet another Eskom refinancing.

DeRuyter lefthisjobon

22 February, afterhis notice period was curtailed, but theappointment ofEskom’s latestCEO could take several months more asbigpolitical playerspromote‘their’ own candidates. There has beenmuchdiscussionofsacking theboard. Gordhan believes filling “vacantpositionsat board level isanurgentmatter”.

Downthroughthe ranks, Eskom’s managementhas beenhollowed out, with many techniciansand otherspecialists emigratingto work abroad. One recent government plan isto recruitor rehire experienced formerEskomstaff.

In2021, News24 exposed internal documentsshowingan estimated R178bnhadbeen losttoEskom tenderfraudduring Zuma’s decade inpower. The cases continueto ramp up:in October, former CEO Matshela Koko and 16 senior

$256bn officials were arrested on charges relatingtoallegedlyfraudulent contracts worth R2bn.In December, WestminsterMagistrates Court in Londonapproveda National Prosecuting Authority request to extradite formerEskom contractor Michael Lomastostand trial in a R745mfraudcase.

Rottentothecore

Many believe DeRuyter was fighting suchabuses. He “had soughtto turn roundEskom by takingonalleged criminal syndicates thathave beendraining thestate utilitythrough corruptcoal andothercontracts,” the Financial Times said when reporting on his attempted poisoning. DeRuyter had called coal-producingMpumalanga “a gangsterprovince”.

This all speaks notonlyof poor management by plodding publicsector officials, or ofbasic but accidentalfinancialmiscalculations made in government departments and Washington DC, but of a system rotten to the core. Bad managers have beenprotected by a political establishment thathas playeda vitalhistoric role, butat a pricethatmay now betoo great.

Eskomboasteda longtradition of bringing togethertalented people in a culture that promoted survivalofthe enterprise above all.But history shows that even the strongest ofnationalandcorporate cultures can implode.

Gordianknot

Kenyan power-pr ice hikes ta ke business to the br in k

Whilegovernmentwants topushKenya’spower pricesup,manufacturers saytheywillbeforcedout ofbusiness,damagingthe country’seconomy

By HERALDONYANGO inNairobi

Risingcoststriggered by Russia’s invasionofUkrainehave made lifeimpossible forAfrica’s utilities.Havingalreadyincreased prices by 10%inMarch, Kenya PowerandLighting Company (KPLC) wantstoimplement another roundofelectricity pricehikes

Butmanufacturers, forwhom powercostsareamajor factorin theiroutput,arepushinginthe oppositedirection.The Kenya AssociationofManufacturers (KAM),a lobbygroup, wantspower tariffstobe loweredtoboost industry.Inflationsurgedto 9.2% in February,mainlyduetoincreasingenergycosts.

To reducethepower levy would furthersqueezethecoffersof thestrugglingpowerdistributor, whichsunktoa KSh1.1bn(nearly $265m)net loss by lastDecember, largelybecauseofpowercutsand a depreciatingshilling.

The KAM estimatesthatelectricitypricehikes couldcostmanufacturers KSh19bn(around$4.6bn) –a23%riseinthecostof doing business,which wouldfurther batterthealreadybeleaguered economy. As itstands, Kenya’s powercostsarehigherthanin mostotherAfricancountries, includingEgypt, Ethiopia, TanzaniaandSouthAfrica.

“Theproposaltoincrease electricitytariffsshallhave detrimentaleffectsonthe economyif implemented,” KAMCEOAnthony Mwangitells The Africa Report