State of Disaster has little justification without the financial discipline needed to fix SA’s electricity crisis

Eskom’s financial reports from December 2022, read by candlelight as they may have been, paint a picture that may surprise. The embattled utility has been able to bring its debt burden down to about R400-billion, from a peak well over R500-billion in 2020. It has trimmed its other liabilities enough to bring its losses down to R12.3-billion which means that, were it not for debt servicing costs of R70-billion, Eskom would be a profitable venture.

That financial picture, on its own, would suggest that it wouldn’t take much outside intervention to restore Eskom to a profitable entity, capable of growth. Some of that outside intervention has already occurred, with Nersa approving an 18.65% tariff hike for 2023/2024. In the absence of other factors, this would add enough revenue to restore Eskom to profitability by 2024.

But the financial discipline required to claw Eskom back to this point came at a high cost to all of us. The economic losses due to rolling blackouts have been estimated at R900-million per day, a figure which, if allowed to continue to the end of the year, would exceed Eskom’s entire annual revenue of about R240-billion. On the surface, then, the State of Disaster declaration appears to have some merit. Electricity supply has national importance far beyond Eskom’s business prospects.

But there are a multitude of reasons to worry about the declaration. These include constitutional questions – allowing a government to grant itself additional powers in response to a crisis for which it is itself largely responsible is a dangerous precedent and creates appalling incentives.

There are also clear financial concerns — the State of Disaster declared during the Covid pandemic triggered frenzied looting of emergency funds. There is also a dangerous operational precedent. In 2015, then-Deputy President Ramaphosa promised that rolling blackouts would end within 18 months. That promise very clearly didn’t come to fruition but 18 months after it was made it looked as though it had, as South Africa had no rolling blackouts in 2016 and 2017. Behind the scenes, however, this short-term success was accomplished by imposing strict performance targets on coal-fired power stations that couldn’t reach them without compromising maintenance and accumulating long-term damage.

It seems likely that the same approach may be in the pipeline now, given that the proposed rescue plan outlined by the utility’s new board largely consists of increasing performance at existing plants without any specifics on how those improvements are to be achieved. It is not clear whether a State of Disaster could achieve those targets in a sustainable way. The coal fleet’s performance issues are not easily fixed — they result in large part from a range of issues with coal quality standards, the most fundamental being too much sulphur in coal resulting in corrosive damage to boiler tubes, leading to high failure rates.