A recent opinion piece gave vivid life to George W Bush’s concept of “the soft bigotry of low expectations”. In it, the idea was floated that the man running the generation operation at Eskom, Bheki Nxumalo, ought to be recognised as an “unsung hero of 2024”.
Those of us plunged into darkness last weekend will not need reminding that grown-up analysis of South Africa’s energy security is critical to our understanding of the performance of investments and businesses. Eskom’s fundamentals are abysmal and are not improving. The turnaround in electricity supply is a function of the addition of 6GW of rooftop solar (customers abandoning Eskom), the cessation of sabotage at the utility’s coal-fired plants and the belated return of supply from units that ought never to have broken down in the first place.
Nobody has been able to explain how the sabotage at Eskom’s plants stopped overnight. Rumour abounds that the decision to extend the lives of three old coal plants instead of decommissioning them was central — actually a R90bn plan to extend the life of the coal value chain, in which so much corruption has been observed and to which certain ministers are so admirably loyal.
Eskom is a rogue parastatal. In the 2023 budget, finance minister Enoch Godongwana said that a condition of the R254bn bailout was that Eskom “must” concession plants to the private sector.
That’s not going to happen. A further condition — the unbundling — is in the works and there is genuine reason to have hope on this count, but the relevant legislation (the Energy Regulation Amendment Act) was tampered with and has not been fully signed into law.
It gives yawning timelines, huge powers of determination to ministers and very little detail on the nitty-gritty. How a supposedly independent transmission system operator will deal with balancing the technical needs of the grid, the carbon requirements of industrial customers, the cost of energy, and the political clown show around Eskom and its debt is not set down.
That leaves ordinary Eskom customers and investors with a trust deficit that cannot be patched up by electricity minister Kgosientsho Ramokgopa’s congenial manner.
That leaves ordinary Eskom customers and investors with a trust deficit that cannot be patched up by electricity minister Kgosientsho Ramokgopa’s congenial manner
Ramokgopa has to deal with three impediments to his credibility. No board of a normal company would survive the auditor-general’s (AG’s) report on Eskom, tabled two weeks ago in parliament. It is shocking, and shows that Eskom is not only rotten but also appears not to be interested in cleaning up.
Second, in the annual results that upset the AG, Eskom said it was looking into claims of corruption raised by former CEO André de Ruyter, but dismissed his investigations as “lacking evidence”. This assertion might leave anyone reading it speechless. The results also reminded us of a R100bn hole in the balance sheet created by municipal customers. That’s a problem that only politics can fix, which isn’t great for financial planning.
Third, Eskom reckons the new transmission company will need R210bn to build the infrastructure required to on-board new renewables as the coal plants come offline. That will need to come from somewhere, but until the National Treasury can show it has a measure of control of Eskom and delinquent municipalities, the cost of capital will drag and the just energy transition partners (sucker-punched by coal plant life extensions, despite the promises to the contrary) are — like the rest of us — likely to be tired of the vibes-reality gap. Closing it would be heroic.
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