Eskom and the Energy Crisis in South Africa
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Public discontent with the debilitating energy crisis that has plagued South Africa’s power sector over the past three years heightened in recent weeks. Last week, the South African state-owned power company Eskom announced the sixth stage of load shedding, cutting 6000 megawatts of power. These power cuts across the country have frustrated households, businesses, schools, and hospitals while also disrupting the supply chain of food and healthcare supplies. Public protests in Johannesburg and Durban this past week forced President Cyril Ramaphosa to abort a planned trip to Davos for the World Economic Forum to find a resolution to the long-term energy crisis.
This prolonged crisis can be attributed to government interference, lack of investment, and long-term issues of corruption and maladministration within Eskom. Eskom Chief Executive Officer, Andre de Ruyter is set to resign in March 2023 following criticism from the energy minister over his management of the crisis. However, he contends that his plans to reform operations and root out corruption have been stifled by interference from government officials. To be fair, there is some merit to his claims— he was recently accused of treason by the energy minister for implementing load-shedding measures even though the cuts are necessary to prevent a nationwide blackout.
In addition to the issues of political interference, various South African administrations have failed to invest in new power plants. 15 of the 17 existing power plants are legacy power plants built between 1961 and 1996. These aged power plants which constantly break down are incapable of generating enough electricity to meet the country’s growing demand for power. Various administrations have also failed to address issues of poor maintenance, sabotage of power infrastructure, and fuel theft in power stations. Eskom has also failed to adequately invest in new power stations, especially due to its debt burden of USD$26 billion. What’s more, Eskom’s struggles to reach a satisfactory labor agreement with workers in the power sector has led to frequent strikes over the past two years, further impeding smooth operations at the power stations. ?
Besides the impact on the education sector, healthcare services, and food supply chain, the energy crisis is currently costing the economy USD$ 40 million per day with significant impacts on small businesses— the operating costs associated with alternative energy sources are forcing numerous businesses to shut their doors. In fact, it is estimated that 350,000 job losses in 2022 were tied to power cuts that year. ?The impact is not limited to the domestic economy; news of last week’s load shedding was met with a depreciation of the South African Rand against the dollar. ?
The protests seem to have finally stirred the current administration’s desire to urgently address the crisis. The National Energy Crisis Committee set up by President Ramaphosa announced it is working on new legislation that will ramp up new investment in energy generation and put an end to the lingering crisis.?Several issues need to be addressed in the new legislation. First, the new legislation must allow Eskom to operate independently without undue government interference, which would allow management actions driven by business rather than political considerations. Second, the legislation must specify vigorous internal control measures that will curb corruption within Eskom. Finally, lawmakers should consider additional ways to ensure significant growth in power generation. A key part of that would be to increase investment in Eskom’s infrastructure and personnel. Another layer would be to investigate options to diversify and expand electricity supply with alternative energy sources or the creation of new power generation companies.
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