In March 2020, just a few weeks after André de Ruyter took the reins at Eskom, he issued a prescient warning. “The time for an intervention is now,” he said. “If we do nothing, stage 8 [load-shedding] will be a regular event by June 2021.”
De Ruyter’s plea was unequivocal: add another 4,000MW-6,000MW to the grid urgently to allow Eskom to do vital (and much-delayed) maintenance on its ageing power plants, like those at Kendal, Duvha and Tutuka.
But there was no intervention.
Rather than urgently signing up independent power producers (IPPs) to produce energy that could be fed back into the grid, the government — led on this issue by mineral resources & energy minister Gwede Mantashe — dragged its heels.
It was only last month that the first three power purchase agreements were signed — and while that was a good start, it would secure only 150MW of power.
Finally, last week, the inertia caught up with Eskom — spectacularly.
A blizzard of stage 6 load-shedding — the worst consecutive sequence yet, in which SA had to endure staged blackouts for up to 12 hours a day — rocked the country, causing the rand to tumble to R16.40/$ from R15.78, its worst level in two years.
The catalyst was an unlawful strike by most of Eskom’s 41,000 staff, who had demanded a 12% wage hike, rejecting the power utility’s initial 5.3% offer. Eskom’s staff are considered “essential workers”, forbidden from striking — but that didn’t matter for the strikers, who went so far as to bomb the homes of power-plant managers.
The two largest trade unions — the National Union of Metalworkers of SA (Numsa) and National Union of Mineworkers (NUM) — knew they had De Ruyter over a barrel. They held SA to ransom until Eskom tabled a revised 7% offer on June 28.
“It’s been a tough week at the office,” De Ruyter, with some understatement, tells the FM this week. “At some of our power stations, the level of absenteeism was as high as 90%, and the fact is, we need people to operate these stations.”
As blackouts rolled across SA, costing an estimated R4bn a day in lost productivity, the business sector implored President Cyril Ramaphosa to “debottleneck regulatory processes” to save the economy.
Sceptics, however, questioned the extent to which the strike was to blame. Was this not just an excuse for a utility that, at the mercy of politicians who kicked the can down the road far too long, needed a scapegoat?
“We would still have had load-shedding [without the strike], but it wouldn’t have been as bad as it was,” says De Ruyter. “Our calculations show the unlawful strike cost us between 2,700MW and 2,800MW, the difference between going to stage 2 or 3 load-shedding, and going to level 6.”
In some cases, the power stations were farcically understaffed. At one, an Eskom finance manager was given a crash course in how to drive a front-end loader, and ended up shovelling coal to keep the lights on.
“There were people who worked truly extraordinary hours, and went above and beyond. But this just isn’t sustainable,” says De Ruyter.
Nor is it sustainable for the economy, prompting warnings that SA may be headed for a recession.
After a buoyant first quarter, in which SA’s annual GDP growth hit 3% and many economists rushed to upgrade their 2022 growth forecasts, the wheels are rapidly coming off.
“A couple of days of stage 6 load-shedding in one year will neither derail economic growth nor credit ratings outlooks for SA — but persistent, severe load-shedding will,” says Investec economist Annabel Bishop.
Bishop now believes SA is unlikely to achieve real economic growth of more than 2% in 2022, with growth likely to shrink outright in the second quarter (worse than the Reserve Bank’s forecast of 0% growth.)
Should stage 6 load-shedding persist, Bishop says the economy is likely to contract in the third quarter too, which would tip SA into a recession.
Without an urgent fix, “SA’s economic growth outlook will be severely under threat,” she says.
Nor is this level of blackouts sustainable for the business sector.
Sim Tshabalala, CEO of Africa’s largest bank, Standard Bank, says the fallout will be devastating in the immediate future. “We’ll see it in the diminished productivity and in the collapse of companies, particularly small businesses that don’t have the reserve margins to stomach big shocks,” he says. “But even the large companies will struggle to handle these increased costs, this lack of productivity and inefficiency.”
The situation is so dispiriting, he says, because it has come after a number of months in which the economy appeared to be on the mend.
“Right up until last week, people were starting to believe in the momentum. But then you have the strikes and the load-shedding, which shocked a lot of people. The cost of the fall in the rand alone, just in terms of higher input costs and what it does to the cost of capital for business, was immense,” he says.
And that’s at a country level. On the ground, individual companies saw their profit margins evaporate as the costs of keeping their doors open rocketed.
Costing more than R4bn a day
In Standard Bank’s case, it has burnt close to 400,000l of diesel this year, just to keep its branches and offices open. Using the average diesel price over the past six months, the FM estimates this probably translates to an extra R7m-R10m.
“It’s about 85% more expensive for us to run our facilities on diesel than on municipal electricity,” says Tshabalala. “And we’re not an industrial concern, so you can imagine what it’s like for those guys running factories.”
Companies such as Sasol, Tiger Brands, Shoprite and AB InBev will have felt the squeeze far worse.
Take just one shopping centre: the V&A Waterfront in Cape Town attracts 24-million visitors a year in normal times, who visit its 80 restaurants, 12 hotels and more than 500 shops.
Norbert Sasse, CEO of Growthpoint, which owns the centre, tells the FM there are 44 generators at the V&A Waterfront. Last week, he says, these generators worked overtime, running for 7½ hours in a typical 18-hour working day.
“Imagine what that takes operationally, to refuel, maintain and source fuel. The cost is obviously huge, and we’ve got an arrangement with our customers to share the burden of costs, but if you’re a small business, that is really tough,” he says.
Sasse cites the example of a barber, who has no financial buffer and is seeing the losses from the outages rapidly eating into any profit margin he may have had.
To call this frustrating, he says, would be the understatement of the year.
“There are so many things that businesses are already dealing with — exorbitant rates increases, dysfunctional municipalities, the riots in KwaZulu-Natal. Our assessment is that the lack of economic growth and demand has hurt business more than the power crisis — but load-shedding may just be the straw that breaks the camel’s back,” he says.
Needless to say, this also makes a mockery of any attempt by SA to claim it is embracing “clean technology”.
In Growthpoint’s case, it has invested heavily in solar energy, which provides it with 16MW of energy. By next year, it plans to push this to 30MW.
“We’ve done our best to invest in green energy-efficient buildings, but when you’re burning diesel for 7½ hours a day, it does negate those environmental benefits,” he says.
It was also a wake-up for foreign investors, who’d been encouraged by the apparent turnaround before they were assaulted last week by headlines such as “SA Nears a Record Year of Power Outages”.
JSE CEO Leila Fourie tells the FM the blackouts have been unsettling for SA’s largest stock exchange and for investor sentiment.
“Obviously we need to make sure our processes for trading, and settling, can’t be compromised. So we’ve had to focus on that. But at a country-specific level, we obviously have a lot of discussions with international investors about how this is playing out, and what this means,” she says.
The Bureau for Economic Research says the move to stage 6 clearly soured foreign investor sentiment, contributing to the rand’s slide.
You can see why. The Council for Scientific & Industrial Research (CSIR) estimates that load-shedding costs the economy R700m per stage per day — or R4.2bn per day of stage 6 blackouts.
Over the longer term, these costs are truly frightening. Between 2007 and 2019, the CSIR estimates SA’s economy lost between R167bn and R388bn.
The worst year was 2019, when the economy is estimated have lost up to R120bn from load-shedding. That year, the Reserve Bank estimated the blackouts shaved 0.3 to 1.1 percentage points off SA’s growth, leading to the loss of as many as 125,000 jobs.
As Alexforbes chief economist Isaah Mhlanga puts it: “The cost is enormous. It’s difficult to imagine serious investors considering SA as an investment destination.”
It’s no surprise that business and consumer confidence both slid in the three months to July. Manufacturing sentiment also collapsed, with 71% of respondents reporting that they were dissatisfied with prevailing business conditions.
This wasn’t surprising. Capital Economics’ Jason Tuvey warns that load-shedding hits the energy-intensive mining and manufacturing sectors the hardest.
“For much of the past nine months, Eskom has been able to distribute only about 60% of the power it could conceivably produce,” he says. “This helps explain why mining output has fallen for six consecutive months and is a key reason why the economy returned to its pre-virus level only in the first quarter — much later than most other emerging markets.”
Behind the inertia
The fact is, the strike brought Eskom — and SA — to its knees because the government didn’t do what it should have to add new power to the grid. Had even 4,000MW been added, as De Ruyter wanted, it would have been another story.
The maths bears this out. On a typical winter day, SA uses about 36,000MW at the peak. But last week it only had a capacity of about 28,000MW as 3,894MW was on “planned maintenance”, and nearly 16,000MW was unavailable due to breakdowns — partly due to boiler tube leaks at Medupi, and an outage at Koeberg.
The most decrepit power stations are out of service nearly 70% of the time.
The nightmare scenario that De Ruyter sketched 2½ years ago is coming to fruition.
“The problem is that since 2020, we haven’t seen any real progress in bringing new capacity onto the grid,” De Ruyter tells the FM. “It’s frustrating because if you compare us to a country like Vietnam, they added 9,600MW to the grid in less than a year by adding rooftop energy, and incentivising homeowners to use renewables. So it’s doable.”
It’s a frustration echoed by many CEOs.
Last week, Business Unity SA CEO Cas Coovadia said he was not surprised SA had reached this point. “We have been urging the government for numerous years to remove all barriers to private sector intervention in the generation of energy and power, but it is only recently that [it] has heeded these considerations.”
The question is, why hasn’t it happened?
Insiders point to the lack of political will in the ANC to allow the private sector to enter the power system. Says one: “Things have been held up because of this deep ideological divide about who should own the country’s resources. There are some, like Mantashe, who seem to have a deep suspicion of the private sector, and believe there’s almost a conspiracy to deprive SA of using the resources — including the coal resources. Unless that’s resolved, we won’t move forward.”
So often, when discussing Eskom, it comes back to Mantashe. His written performance agreement with Ramaphosa, which runs from June 2019 to April 2024, obliges him to “improve [the] energy availability factor to ensure [a] constant supply of electricity”.
The target is an energy availability ratio above 80% by 2024 — yet this has slipped backwards over the past year to about 60%.
When the FM spoke to Mantashe this week, however, he argued, surprisingly, that he bears no such responsibility for energy availability.
“How could I? The availability factor can’t be managed by one department; it’s managed at Eskom. I don’t have the responsibility for the energy availability factor — I don’t run Eskom,” he tells the FM.
This is an alarming argument, partly because every page in that performance agreement, including that clause on energy availability, is signed by Mantashe.
When this was put to him, he says it is “strange” that such an agreement finds its way to journalists, but he adds: “What I said is practical and real.”
Yet Mantashe has shown no willingness to take any responsibility for the blackouts — either personally, or as chair of the ANC, which has singularly failed to address the power crisis properly over the past 14 years.
He tells the FM his department can’t be responsible for the blackouts. “It is Eskom managing the load-shedding, and Eskom is not in my department. This is not a fight with [public enterprises minister] Pravin [Gordhan], this is just the reality,” he says.
But while it may be Eskom flicking the switch to juggle its scant resources, it is Mantashe’s department that has had the responsibility to push through the IPP agreements.
Mantashe’s performance agreement is clear on that too. It says he can mitigate Eskom’s energy crunch by “augmenting supply with 2,000MW of emergency power, additional power from IPPs and generation for own use in line with the Integrated Resource Plan of 2019”.
And this hasn’t happened at anything like a decent pace.
Mantashe again rejects this argument. “We are doing that. From 2019 to now, more IPPs have been approved than from 2011 to 2019. What more should we do? Should we go out and build the IPPs?” he asks.
He says efforts to pin blame on him come from “people who would like to see the back of me — unfortunately I work very hard and I’m very systematic in what I do”.
His numerous critics, needless to say, might see it less charitably.
This past weekend, Gordhan also came under fire from his own comrades inside the ANC’s national executive committee (NEC) for his handling of the Eskom crisis.
In an interview with the FM this week, Gordhan denies that there is any inertia, but admits the pressure is on to stabilise the ailing utility.
“Government as a whole is giving intense attention to this matter to ensure we have the best available plans in place to sort out the problems in the energy sector. There are short- and medium-term plans ... but we must realise the task is huge and some of these initiatives will take time,” he says.
Gordhan says the challenges are manifold, including the skills exodus during the state capture years. He says there are plans to bring back engineers and senior managers with knowledge of Eskom and its plants, to mentor young operators.
"[Eskom] is working under immense pressure — we have to bring back some of the old-timers to reinforce the operational skills,” he says.
Schisms in SA’s labour framework
Make no mistake: as much as last week’s descent into stage 6 shone an unforgiving spotlight on the consequence of government inaction, it also revealed deep fractures in SA’s labour relations framework.
De Ruyter says the union leaders acted “opportunistically”.
“They understand our challenges very well, but they argue that because Eskom pays so much for coal, and because we pay so much to the IPPs, we can afford it. And this isn’t an applicable argument because these are costs we’d have to incur in any event. But they do this because it plays well politically,” he says.
The irony is that Eskom employees, historically, were among the best treated by their employer.
If staff were transferred between provinces, for example, Eskom would put them up in a hotel, often for months, provide generous loans to allow them to pay for a new home, or give them a “curtain allowance” so they could equip a new house.
Horseback security officials would get a “horse allowance” and those with dogs, a dog allowance.
“But Eskom has been gradually reducing all those cherries,” a source close to the talks tells the FM.
NUM, the largest union at Eskom, speaks for about 42% of the staff (13,000 people); Numsa, for about 30% (9,000 people); Solidarity, for about 20% of the staff, or 6,500 employees.
Initially, NUM demanded a 10% pay hike, while Numsa wanted 12%. Eskom had countered with 5.3%.
Sources tell the FM that negotiators for Eskom had tried to get the company to hike that initial 5.3% offer — but given its R396bn debt, it refused to budge.
The bitterness of this strike has its genesis in last year’s wage talks, when Eskom declared a dispute, unilaterally imposed a 1.5% salary increase for workers, and cut back on key “conditions of service”, including perks.
Those close to the unions tell the FM that Eskom’s management employed a similar tactic in the current round of talks — walking out and declaring a dispute when the unions remained open to further negotiation.
Helgard Cronjé, deputy general secretary of Solidarity, says this had a “large impact”. “There is a general feeling that [Eskom] is abusing the fact that staff are essential services. They were seen as trying to force this round into arbitration,” he tells the FM.
But the strike also illustrated, to critics, that trade unions no longer have control of their members, and couldn’t prevent them walking off the job in an unprotected strike.
“It is not totally impossible that union members went on strike without the consent of their leaders, who were negotiating nationally,” Cronjé adds.
Even today, it remains unclear if workers embarked on the illegal strike on their own or with their leaders’ consent. What is clear is that the strike soon took a nasty turn, spiralling from simply being unlawful to outright criminal.
Firebombs were hurled into the homes of four power-station managers; a Molotov cocktail was thrown into a bus carrying workers (it failed to ignite); strikers entered control rooms and dragged people from behind their desks; and the word “Eskom” was spray-painted on the houses of those who chose to work.
Says De Ruyter: “We did actually get good support from the police, but there was so much intimidation that the police just couldn’t be everywhere. In the end, union leaders need to ensure discipline in their ranks.”
Perhaps more alarmingly, the strike laid bare that Eskom has many staff who are unconcerned about breaking the law.
It’s actually far more sinister than that, says De Ruyter. “There are significant criminal interests still operating at Eskom. We are gathering more intelligence as we close the taps, but it’s clear the pressure is starting to mount on those who’ve had it good for a long time.”
‘More about politics than wages’
The stories are legion of the extent to which Eskom became a platform for widespread looting.
When De Ruyter joined the utility, Eskom was paying R26 for a single one-ply toilet paper roll (real cost: R4), R51 per black refuse bag (real cost: R3), and R21 for a litre of milk (which, back then, cost about R13).
It is that sort of entrenched corruption that leads some to argue that this strike wasn’t about wages — it was about protecting the crooked networks inside the utility, and putting pressure on Ramaphosa.
Says one source close to Eskom: “There is a sense that the radical economic transformation faction opposed to Ramaphosa are working hard to keep their corrupt networks inside Eskom. So I expect these sorts of protests to escalate as we approach the ANC’s electoral conference in December.”
But it’s also about trade union politics, and the battle for relevance.
NUM and Numsa are both highly politicised, and have a long-standing turf war over union membership, which manifests in union bosses seeking to outdo each other in terms of militancy.
NUM’s new general secretary, William Mabapa, is seen to be more militant than his predecessors David Sipunzi or Frans Baleni. But this doesn’t mean he would encourage members to down tools illegally, say insiders.
Perhaps the only thing NUM and Numsa are united on is their opposition to De Ruyter, due mainly to his push for more IPPs to provide electricity to the grid.
De Ruyter is unlikely to melt this ice any time soon, as he tells the FM he will push for criminal prosecution of those who broke the law in this strike.
“We’ve made it very clear we won’t condone criminality. We’ll lay charges, and we’ll use the video footage we have to ensure people are prosecuted where they broke the law,” he says.
This suggests the calm that will return if the staff accept that 7% offer — which they have now done — may be short-lived.
Incidentally, that revised offer was only tabled after the politicians had intervened — a clear sign of just how sensitive the ANC is to the ructions at Eskom.
At the ANC’s NEC this past weekend, the party’s leaders debated whether to declare a “state of national emergency” over the power crisis. While there was much wrangling over who was responsible, the truth is the party collectively sat on its hands from 1998.
You can understand the ANC’s jitters, as many South Africans see the power crisis, rightly, as directly attributable to the worst of the governing party’s excesses: corruption, incompetence and mismanagement.
Independent elections analyst Dawie Scholtz tells the FM that while he has not seen any recent opinion polls, previous polls as well as election results show that load-shedding has indisputably affected the ANC’s results.
“It is really damaging for the ANC and it is a problem for them because this is likely to continue right up until 2024,” he says.
Scholtz says any party with a tangible plan to fix SA’s energy problems, and which is able to sell that to the electorate, will be able to exploit the ANC’s weakness.
Can this really be fixed?
For most South Africans, the question at the root of all this is a simple one: can load-shedding be fixed any time soon?
“Yes, it’s an absolutely solvable problem,” says De Ruyter. “People shouldn’t despair, even though it’s difficult, given the past week, to remain optimistic. But it’s clear that if Eskom provides access to the grid, the private sector is more than willing to come and invest. There is appetite, there is capability, and there is money.”
Last month, Eskom selected 18 companies to which it would lease land in Mpumalanga so they can develop renewable energy projects to feed 1,800MW into the grid.
As De Ruyter puts it: “The bids were heavily oversubscribed, even though there was no National Treasury guarantee provided. It shows that among all this doom and gloom, there are rays of light.”
The country’s CEOs are also optimistic.
The JSE’s Fourie believes the ructions last week were just a “short-term response” to the labour dispute. “Over the longer term, the interventions announced last week (like the increase in private-generation capacity, and ability to sell this to the grid) put the country in a much better position to resolve this,” she says.
Tshabalala concurs. “The strike was a hell of a shock for everybody, and there’s also no question that Eskom’s performance isn’t good. But we’ve had some positive outcomes, in that the private sector can now build plants of up to 100MW without a licence, so they can sell directly to customers,” he says.
Equally encouraging is that Eskom’s split into three entities — for generation, transmission and distribution of power — is going well. “But there’s no getting around the fact that we need to accelerate policy and regulatory processes,” says Tshabalala.
Still, as Capital Economics’ Tuvey says, even if load-shedding is scaled back in the coming weeks, efforts to overhaul SA’s energy infrastructure will take time. “The upshot,” he says, “is that SA is likely to remain in a vicious cycle when it comes to its electricity, economic and fiscal problems.”
In contrast to the unions, which have called for De Ruyter’s head, Tshabalala believes Eskom’s management has “done a remarkable job”.
“They have to deal with institutional issues; they have to deal with politics; they have to deal with the demands from society; and they have to deal with engineering problems. It would take the wisdom of Solomon to run that institution right now,” he says.
And, given the government’s tried-and-tested method of sitting on its hands, it clearly would also take the patience of Job, to abuse another biblical metaphor.
Last week, SA spiralled into exactly the position experts had said it would, in the absence of government action. The prognosis for another two years of inertia is even more apocalyptic.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.