How South Africa’s Energy Crisis Became an Economic Crisis

Rolling power cuts in South Africa are severely impacting the country’ s growth and increasing the risk of recession. Economists have estimated losses of between 1.5 billion rand and 4 billion rand per day. A Financial Times article described how the coal used in power plants is trucked in from hundreds of miles away but often stolen en route and replaced with…

Pretoria’s Power Problem

Rolling power cuts in South Africa are severely impacting the country’s growth and increasing the risk of recession. The economic costs associated with electricity outages—known as load-shedding—have reduced GDP by 1 to 1.3 percent annually since 2007, estimates Quinten Bertenshaw, executive director of ETM Analytics. Had load-shedding never occurred, he estimates the country’s economy could be 17 percent larger than it is today. Economists have estimated losses of between 1.5 billion rand and 4 billion rand (about $87 million to $232 million) per day.

The country’s growth outlook in 2023 isn’t “impressive,” admitted South African Finance Minister Enoch Godongwana this month, blaming electricity supply challenges for a lower-than-forecast 1.6 percent growth in 2022 and weakening investor confidence. “We can have the best policy on paper, [but] if we can’t provide electricity, it’s useless.”

In an attempt to avoid a total grid collapse, the state-owned enterprise Eskom—which supplies around 90 percent of the country’s electricity—is intensifying load-shedding, affecting businesses already struggling under inflation and high-interest rates.

The utility company is dealing with an ageing fleet of coal-fired plants that are continuously breaking down due to a lack of maintenance, years of underinvestment, and systematic corruption. Despite South African President Cyril Ramaphosa’s pledge to root out corruption, Eskom’s size has allowed thefts to continue.

Eskom CEO André de Ruyter blames coal theft by organized criminal networks for some of the country’s energy problems. A Financial Times article described how the coal used in power plants is trucked in from hundreds of miles away but often stolen en route and replaced with bad quality coal while the good coal is exported abroad.

There were 104 confirmed cases of fraud and corruption registered with the South African Police Service over the year to March 2022, according to the energy company’s financial statements. In November 2022, Eskom announced that police arrested two subcontractors for coal and diesel theft.

Eskom is about $23.6 billion in debt, with auditors sounding the alarm on bankruptcy after a net loss of $719 million last year. Increasing its revenue means tougher choices. The National Energy Regulator of South Africa announced electricity fees would rise 18.65 percent starting April 1, which would lead to a 33.7 percent increase in the mining industry’s energy costs, according to the country’s Minerals Council. Farmers affected by the power outages have asked Ramaphosa to declare a state of disaster.

Europe and the United States have pledged $8.5 billion to help the country shift away from coal. At the same time, South Africa has drawn up a $84 billion five-year renewable energy transition plan—but that transition takes time, and Eskom’s problems are immediate.

“There has just been a systematic degradation of services,” Bertenshaw said, recommending privatization of electricity production and cuts to Eskom’s bloated staff. “The rich are able to shield themselves [and] get off the grid to some degree with inverters or generators of some sort, but it’s the poor that don’t have the means that end up suffering.”

Ramaphosa has overhauled Eskom’s board several times. In the short term, he’s also proposed that Eskom suspend the planned price increase. “I have said to Eskom it will be an injury to our people if we implement this 18 percent increase now when we are going through load-shedding,” he said. To help rescue the country, the African National Congress (ANC) is planning to buy electricity from other countries, including Turkey’s Karpowership, according to a report by Bloomberg. (The company produces electricity from ship-mounted generators.)

However, internal squabbles continue to hinder any concrete action plans. The country’s treasury has refused to fund the cost of extra diesel fuel for standby open-cycle gas turbines, to alleviate load-shedding, yet Eskom has said it has overspent on diesel and run out of money to buy more.

Eskom has seen off 12 chief executives in the past 12 years. The outgoing CEO, de Ruyter, resigned last month after a reported poisoning attempt that is being investigated by police. De Ruyter said he suspects the coffee he drank at his office was laced with cyanide.

There is no doubt that the various problems surrounding Eskom will have an impact on the upcoming elections in 2024. Political pundits widely predict that the country could be led by a coalition government for the first time in the post-apartheid era because the ANC is likely to lose its majority. In the meantime, de Ruyter announced in a virtual news briefing on Sunday that South Africans should brace for ongoing power cuts for at least two more years.

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