Eskom crisis 'damaging' the economy
Fin24

Eskom crisis 'damaging' the economy

2014-02-18 07:40

Port Elizabeth - The South African economy is being held back badly by a crisis at the state-owned electricity provider Eskom, according to experts.

They blame a range of problems linked to management weaknesses at national and company level, warn that there is little prospect of improvement soon, and suggest that nuclear and shale energy may be needed.

Eskom is under pressure to boost capacity and rejuvenate an ageing power grid after electricity shortages led to widespread blackouts in 2008. But it is struggling to meet deadlines.

Until 2005, South Africa enjoyed reliable and cheap electricity. But the power stations built during the apartheid era are suffering frequent outages.

Investment in new plants has been too late, security of supply is under threat and tariffs have trebled in the five years from 2007, according to Anton Eberhard, a University of Cape Town professor in infrastructure reform and regulation.

Electricity alert

Consumers are being asked to reduce their consumption of electricity during peak periods.

In a bid to head off outages, last year Eskom asked big energy users such as ferrochrome smelters to shut down for up to three months, offering to pay them for lost production.

"The limited capacity of South Africa is inhibiting the growth of the economy," said Chris Yelland, an energy analyst.

High electricity tariffs are also slowing down growth.

Eberhard, who is also a government advisor on energy concurs.

"We do face, I think, very serious challenges over the next few years," said Eberhard, agreeing that the "extent to which we can grow quickly now is constrained by inadequate electricity supply".

Tight reserve margins

Eskom itself admits that the power system is "expected to be constrained for at least two years".

Spokesperson Andrew Etzinger said there's enough electricity capacity to meet the country's current demand, but "reserve margins are tight".

The power company has now embarked on massive schemes to build three coal-fired stations which will see the country's generation and transmission capacity grow by 17 000 megawatts from the current 40 000 MW.

One of the biggest coal fired power plants, Medupi, was supposed to have come on stream by the end of last year, but is now running behind schedule due to contractor bungling and labour disputes.

Medupi delays

"The delay on the Medupi was brought about by contractor non-performance and labour disputes on site," said Etzinger, but the problems have been solved and the plant is expected to be completed by end of 2014.

The contractor has been replaced, but analysts are doubtful that the new deadline will be met.

Eskom will also connect a large number of renewable energy independent power producers to the national grid.

South Africa is looking at expanding nuclear energy production and venturing into shale gas.

President Jacob Zuma announced last week that the government expects to "conclude the procurement" of 9 600 MW of nuclear energy, but did not say by when.

'Just bad management'

Recent economic growth has been sluggish, falling to 1.9% forecast last year and from 3.5% in 2011.

The impact of electricity disruption was highlighted by a nine-day power failure at a major coal export terminal, Richards Bay early this month. It was estimated that exporters suffered losses of around $165m.

Eskom is too large to be managed effectively.

"Some of these are structural problems, some are political problems, some are just bad management," said Yelland.

"The bottom line is Eskom is not structured appropriately."

A way forward

He suggests that it be unbundled into separate generation units, while transmission should be outsourced to independent operators. Distribution will need to be managed by a smaller number of financially viable outfits.

In the coastal city of Port Elizabeth, home to one of South Africa's large industrial development zones - Coega where the mega Project Mthombo oil refinery will be built - industrialists say the only option for the growing energy crisis would be another nuclear reactor.

If that "does not happen, we might as well close" the $250m industrial zone built 11 years ago, said Coega manager Meike Wetsch.

Under its latest electricity price schedules, Eskom won last year an 8.0% tariff increase. That makes energy prices high enough to force energy-intensive companies to reduce consumption or turn away from the country.

Comments
  • Don Tandy - 2014-02-18 07:46

    Perhaps the bribery and corruption affecting the completion of Medupi power station needs to be eradicated so the unit can be brought on line?

      Vaughan - 2014-02-18 08:21

      But then according to ANC logic, there would be no point in infrastructure projects if you cut out corruption.

      Skyline Liao - 2014-02-18 08:45

      Eskimo should start subsidizing solos rand wind power again! They shouldn't rely on coal and corruption for power

      Badger - 2014-02-18 08:49

      True Don, What I can grasp is when EksDom says reduce usage at peak times. This is the dumest thing I have ever heard. Families bath kids, cook dinner and and and so how the hell are we supposed to "cut back" Run by a bunch of idiots.....

      Trevor Myburgh - 2014-02-18 10:00

      @don..... I don't think Medupi will ever come on the grid, if it does, it will be in 2018 and with a whole lot of flaws..... because most of the labour force is unskilled and also lazy or well connected... We should thank God that they did not build a nuke power station... dan dood ons almal........ Corrupt ANC please let Nelson Mandela rest in peace and give him his wishes... PLEASE educate the people... Don't give us money or land or food parcels... we only want education.... PLEASE

  • Sisie Indola - 2014-02-18 07:56

    No s h i t e tell us something we don't know. That is what happens when you employ people who know nothing but are put in those positions because you owe them. If you could pull all those illegal connections once and for all there would be no problem, but its those illegal connections that are chewing up electricity and who pays oh yes the people who actually pay again and again. But you won't be bold and actually cut those illegal connectors why because you want their vote and they are forever grateful for any scraps you throw them. Oh and please remember all that electricity that we give to our neighbours as well which once again we pay for. And all that other electricity that is sold to such companies as BHP for a 0.5% (its called discounted rate) and i am sure there are others as well. So who pays oh wait that would be we the people who actually pay for electricity. And have you noticed that they are always doing maintenance every other month - what hogs wash its an excuse for load shedding and long power cuts.

  • Around da Sun - 2014-02-18 07:59

    Seriously now, everything has gotten out of hand in SA. It is, I believe, safe to say that without a doubt that our public servants (who we pay to do a job for us thanks to our taxes) have failed us miserably. It is now actually too late and far gone to play the blame game, point fingers and think up some miserable excuse to blame apartheid. Roll up them sleeves now and get to work. Fix the mess you have single handedly created for us. Public servants, you must realise now very quickly that YOU work for US and NOT the other way around!

  • Albertus Lombaard - 2014-02-18 08:15

    Imagine if the idiots that was in charge of escom is put in charge of private industries like the mining industry. Another example of why we need high quality CEO's in the private industry, ones that can realize social engineering and communism in any industry will kill it.

      Albertus Lombaard - 2014-02-18 08:16

      Oh, and these parastatal CEO's earned and still earn waaaay more than private industry CEO's......

  • Donovan Van Senus - 2014-02-18 08:47

    Privatize electricity!!! Plain and simple

  • Jim Bean - 2014-02-18 08:58

    Get rid of the aluminium smelters. That's what is really killing our power grid. Aluminium smelters draw huge amounts of electricity, which Eksdom sells to them for less than it costs to produce. Joe citizen pays for the rest. And those smelters and their profits don't even belong to South Africa. True heroes of capitol freedom, I tell ya !

      Nic Bischoff - 2014-02-18 09:49

      Hey Jim, I encourage you to do some research on this and write up a letter for the News24 opinions section. I'd be interested in the exact costs and roi that we get for these smelters.

      Jim Bean - 2014-02-18 17:21

      @ Chris. They create just over 1000 jobs. That's hardly a huge sum...

      Praat Saam - 2014-03-04 17:15

      Chris07, your a bit uninformed. SA don't produce the raw materials needed by Aluminum smelters, thats 100% imported. When all the big Eskom clients has to cut 10% in electricity so that the smelters can keep working, much more than 1000 jobs are at stake.

  • Pravin van Tonder - 2014-02-18 09:05

    Feel the BEE

  • Carl Nel - 2014-02-18 09:10

    Everything here leads to 'Just Bad Management'. With suitably QUALIFIED people in management positions, they would have had the foresight to appoint suitably QUALIFIED people in technical positions who would have been able to maintain and upgrade the "Apartheid Era" power stations at much lower cost than what is needed now! Remove the gravy train riders and appoint people that are QUALIFIED to do the job.

  • I am not black or white I am South African - 2014-02-18 09:43

    Here is the big picture - I have just been allowed to see an investment report that shows how Fracking in Europe and America will halve energy costs to the business consumer and according to the report its not IF but when they come online with the energy - at the same time energy costs are going to go higher in SA and we will NOT be able to compete with the rest of the world - not even first world. Not only that under the ANC government they will not be able to manage their way out of the mess.

  • I am not black or white I am South African - 2014-02-18 09:49

    Just to give you an example of energy costs alone can affect an entire industry in this case glass manufacturing which is a high energy consumer. Ten years ago France brought their Nuclear power stations online significantly reducing energy costs. The glass industry virtually collapsed within a 2 years in Britain!!! South Africa is going to hit the same brick wall count on it - Viva ANC

  • Michel Konings - 2014-02-18 09:54

    Cadre deployment vs technocrats. Infrastructure is the bottleneck in Africa. Investors prefer good returns for their investments.

  • Mike Lowry - 2014-02-18 09:58

    And the price of Eskom to farmers just does not match what is received for produce. In our Valley the number of irrigators has dropped drastically - and with that goes employment. Our line charges which have been paid for 30 or more years are roughly R2500 per point per month - then switch on and see what happens. Nearly 200 people lost their jobs on our farm for this reason only!

  • Peter L' Estrange - 2014-02-18 11:32

    Roll on inefficient and useless cadre deployment. We now PAY big time for their thoughtless so-called planning. SABC gone the same way as is SAA which are all huge drain on the fiscus. This money could have benefited the poor in better infrastructure but the ANC connected fat cats would not have gained much would they??

  • CliveK - 2014-02-18 12:18

    It all dates back to then-Pres Mbeki, and minister Useless Radebe, refusing to take advice from the competent people who ran Eskom back in 2000. The rest, as they say, is history, and boy are we still paying for those mistakes by Mbeki and his cabinet. Like SAA, Telkom, Transnet, the Post Office, SABC and other state-owned enterprises, they drain more from the economy than what they contribute - excluding jobs-for-pals, of course.

  • Kerushen Reddy - 2014-02-18 13:47

    I hate to say it but the so call "Apartheid" Infrastructure was reliable and lasted the current government till 2005.... You can fault the fundamentals of our old government, but you cannot deny their planning and engineering skills. Current government infrastructure is ill planned with no foresight and has a shelf life to fund the "Love me Tender" philosophy. It is about short term profitability and not long term stability... And for the racially sensitive, BTW I am not White and was too young at the time to be affected by Apartheid.

  • Neville Roberts - 2014-02-18 13:56

    Eskom is only too large to be managed properly because all the up and coming competence within the organisation was affirmatised.

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