Eskom is always a contentious topic to discuss, with the very mention of its name causing anguish and frustration for most South Africans. Since 2007, Eskom’s 10 different CEOs have been unable to successfully address the issue of load shedding. And despite the appointment of various task teams, clarity about the problems facing Eskom and the steps required to solve them remains elusive.
This put into motion the construction of mega power stations Medupi and Kusile, which together were to contribute an additional 9,600 megawatts of generation capacity to the national grid. However, what was to be Eskom’s saviour has become its biggest liability, as the complexity and challenges of these projects have proved to be vast.
But the tariffs are granted on assumed levels of expenditure, and this is where the model has failed. Costs, particularly on energy and interest, have grown significantly faster than revenue, capital expenditure on Medupi and Kusile continues to increase above budget and a culture of non-payment has started to develop among some of Eskom’s larger customers.
In addition, Eskom’s debt burden has increased to R419-billion, of which R336-billion is under government guarantee. To put this into context, this full debt balance equates to around 9% of South African GDP. The interest required to service this debt is significant, and in Eskom’s most recent half-year report, the R26.6-billion of operating cash flow that it generated was quickly absorbed by interest costs of R17.7-billion and capital investments of R17-billion.
Eskom chairperson Jabu Mabuza has been shown capable of turning around struggling entities in his previous roles at Telkom. Furthermore, in tabling the recent bill, Mboweni revealed that he and Public Enterprises Minister Pravin Gordhan were finalising the appointment of a chief restructuring officer. However, Eskom is a political minefield with many vested interests at play, complicating any potential restructuring and turnaround plan.