Finance minister Enoch Godongwana is expected to make an announcement on the government potentially taking on a chunk of Eskom’s debt during his Medium Term Budget Policy Statment (MTBPS) on Wednesday (26 October).
However, should this relief to the embattled power utility come to fruition, it is likely only to be a short reprieve, warns the CEO of Business Leadership South Africa (BLSA) and former Eskom board member, Busi Mavuso.
Mavuso said that taking on the debt would mark another major step forward in the country’s struggle for stable electricity – but the reality of the power crisis in South Africa is that even an expected R200 billion slice off Eskom’s R400 billion debt pile will leave the power utility with very little room to manoeuvre.
Financial services firm PwC said that the government taking on Eskom’s debt could be the only choice available to shore up the power utility’s finances and, in turn, the country’s economic prospects.
The Bureau for Economic Research said that the rise in overall government debt from an Eskom debt transfer could be relatively contained thanks to the revenue overrun in 2022/23.
Eskom has noted that with a dramatically reduced debt service cost, it will be able to operate more freely. It said that the country needs an extra 15GW in the short term to close the energy deficit and bring an end to the severe rolling blackouts.
However, Mavuso said that it is important how Eskom spends any newly available funds.
Firstly, the remaining debt will still be considerable, she noted. Secondly, investments are needed in numerous areas across the business – from repurposing power stations for the just energy transition to upgrading infrastructure to accommodate new power plants.
While it is assumed that Eskom will put focus on maintenance and its existing energy fleet and try to boose energy availability, the reality is that the power utility has already been ramping up its maintenance in the past few years.
This is happening off very low levels after about a decade of neglect – and many of the plants are ageing or beyond their end of life.
Some plants were supposed to have been decommissioned already, but their operation times were extended in 2016 by replacing components when they reached their end of life, Mavuso said.
“In the short term, the aim is to end load-shedding as quickly as possible. Much of the focus has been to increase Eskom’s energy availability factor (EAF) – the amount of time that a plant is able to produce electricity over a certain period, divided by the amount of the time in the period.”
But there’s a danger in chasing unrealistic EAF targets, she said.
“The Eskom plants have deteriorated to such an extent that it’s cheaper to build new power plants with high levels of EAF than to increase maintenance of existing plant and infrastructure to reach the 75% EAF level that has been bandied about in the media.”
The quickest route to achieving a higher and more reliable energy supply and ending load shedding is to generate new plants that allow some space for Eskom to spend enough on maintenance to stabilise EAF at around 60% until yet more new plants come online, she said.
With or without the debt relief, Eskom doesn’t have the amount of money that would be required to undertake a high EAF strategy, Mavuso said.
This wouldn’t be a bit of maintenance around the edges, it would, in effect, be paying to rebuild the old plants because they’re in such poor condition.
“And it will take time – plants would have to be taken offline for long periods, possibly up to two years, which would increase load shedding stages over an extended period because there is zero reserve capacity, putting more strain on the plants that are operational, which itself will lead to more breakdowns and more unplanned outages.”
According to Mavuso, Eskom’s debt is multifaceted, stemming from bonds and loans as well as non-payment from municipalities and residents.
Municipalities owe the national power utility more than R43 billion, of which more than R30 billion is overdue, she said.
Read: These 7 universities in South Africa are ranked among the top 500 in the world