Business Maverick

Eskom Blackouts Sow Doubts on Rescue Plan, South African Growth

By Bloomberg 17 October 2019
Caption
Pylons at Eskom's Koeberg nuclear power plant in Cape Town, South Africa. Koeberg is the only commercial nuclear power station in Africa. (Photo: Gallo Images / Nardus Engelbrecht)

South Africa’s cash-strapped state power company imposed a second day of controlled blackouts, jeopardizing a recovery in the continent’s most-industrialized economy as investors await a government plan to restructure the utility.

The nation is still struggling from outages in the first quarter that contributed to the biggest economic contraction in a decade. Estimates of the blackouts’ toll range from 1 billion rand ($67 million) to 5 billion rand a day. They could also cost South Africa its last investment-grade credit rating from Moody’s Investors Service, which is due to deliver its next assessment on Nov. 1.

Eskom Holdings SOC Ltd., which provides about 95% of South Africa’s electricity and is seen as the biggest threat to the economy, cut 2,000 megawatts from the grid Thursday due to unplanned breakdowns at its plants, it said in a statement. The blackouts could last for a week, Eskom Chief Operating Officer Jan Oberholzer told Talk Radio 702.

If the current level of power cuts continue for that long, “that would give you about 0.1% of economic growth that would be lost,” Econometrix Chief Economist Azar Jammine said by phone. “The damage that this is inflicting on the willingness to invest in the economy will be longer term.”

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Intermittent blackouts have dogged the economy since late 2005, caused by delays in building new plants, coal shortages and maintenance backlogs. The central bank expects a growth rate of just 0.6% this year, rising to 1.8% in 2020 — forecasts that may now be overly optimistic.

The government has been promising for months that it’s preparing measures to stabilize the utility, and that its proposals will be unveiled by the end of this month. The plan includes appointing a chief executive officer and splitting Eskom into generating, transmission and distribution units under a state holding company. The cabinet made no mention of the plan or the power cuts in a statement issued Thursday after its bi-monthly meeting.

California Has Power Problems. You Should See South Africa
An gas station sits in darkness during a power outage period in Pretoria, South Africa, on Feb. 13, 2019.
Eskom said the latest outages were necessary to prevent a collapse of the electricity grid. It cited a series of issues that have taken more than 10,500 megawatts — or about a quarter of its generation capacity — offline.

A conveyor belt supplying coal to the new Medupi plant, which has had billions of rand in cost overruns and construction delays, failed on Oct. 12, it said. Another five generating units were put out of action by boiler-tube leaks, the utility said.

The city center of Cape Town, the country’s tourist mecca, was among areas affected by power cuts that caused traffic snarl-ups and brought businesses to a standstill.

Eskom last instituted blackouts more than six months ago, and hopes had risen that its operational problems had been addressed, despite its warnings that the system remained vulnerable.

“It is clear that business and markets have bought too much spin around the improvements in operations,” said Peter Attard Montalto, head of capital markets research at Intellidex in Johannesburg. “What has happened, at best, is that we have stabilized at a very weak place where the system runs with no safety margin and still a quarter of capacity is out.”

Eskom has amassed 450 billion rand of debt and relies on state bailouts to remain solvent. It’s battled to meet demand for electricity because most of its plants are old and have been poorly maintained.

A long-awaited blueprint that will determine the country’s electricity-generation mix for the next decade was approved by the cabinet on Wednesday, with details to be released by Mineral Resources and Energy Minister Gwede Mantashe on Friday.

That plan won’t help address the nation’s immediate power crisis.

(Updates with cabinet statement in sixth paragraph.)
–With assistance from Loni Prinsloo.

To contact the reporters on this story:
Ana Monteiro in Johannesburg at [email protected];
Liezel Hill in Johannesburg at [email protected]

To contact the editors responsible for this story:
Lynn Thomasson at [email protected]
Paul Richardson, Mike Cohen

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