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What Happens When the Lights Go Out? South Africa’s Eskom Challenge

Nchimunya Hamukoma | Posted : April 09, 2019

The author is an alumnus of the 2018 Atlantic Dialogues Emerging Leaders program

On a Saturday evening in March at an upscale gallery in Johannesburg’s CBD, the lights went out.  A child in the crowd yelped in shock, but most of the adults let out a gentle sigh of resignation. An attendant came by soon after to assure that it wasn’t load shedding and that the power would be reconnected shortly, but we had become inured to the darkness and the idea that electricity wasn’t something we could rely on.

In early 2019, South Africa suffered a wave of load shedding, the national utility’s gentle euphemism for blackouts. Though scheduled in advance and communicated via apps and real time websites, it was difficult to process that we had no power. 
With 51 GW1  of installed generation capacity, South Africa is fairly close to the international electricity rule of thumb of 1GW of power for every 1 million residents. We weren’t expecting it, when the blackouts started.

South Africa’s Energy Context

Until the early 2000s blackouts were a foreign concept in South Africa. Eskom, the state-owned electricity company had always run on the principle that it was better to have excess than to do without. Over the years, this had led to significant investments in generation and South Africa’s position as the largest energy producer in Africa with 46%2  of the continent’s generation capacity.

South Africa experienced its first wave of load shedding in 2007/8, where poor planning and complex political relations led to an underinvestment in electricity. In 2014 the pattern continued when the planned power stations failed to come online in time. Five years later, the power stations are still partially under construction and, according to reports, corruption in the tender process has meant that stations weren’t built to spec and are operating below capacity. That, coupled with a failure in maintenance on the old power plants has led to deficit in production and the blackouts of the first quarter.

In addition to its technical challenges, Eskom also faces major financial ones. In January 2018, the National Prosecuting Authority found that Eskom had made fraudulent payments to McKinsey and Trillian as part of a circumvention of the utility’s supply management processes3. This case was the tipping point that revealed a host of improper contracts that have left the parastatal with a debt of over R420 billion (29,6 billion USD). 

South Africa’s case is quite unique in the African context because of the levels at which it was once operating.  As recently as 2001,  Eskom was the Financial Times’ power company of the year for its “success in providing the world’s lowest cost energy while at the same time making superior technological innovations, increasing transmission system reliability and developing economical, efficient and safe methods for the combustion of low-grade coal”4

The prominence of the utility and the widespread reach of the blackouts have put Eskom at the forefront of the national discussion on policy and the country’s future. In his February State of the Nation Address, President Cyril Ramaphosa proposed the splitting of Eskom into three separate entities of generation, transmission and distribution. Currently ranked as the world’s eleventh-largest electricity utility in terms of capacity and the ninth largest in terms of sales5, an unbundling could be the impetus the industry needs to transform. However, the unbundling of energy assets has had mixed results across the continent.

Lessons from the rest of the continent

In 2001 in Nigeria, the National Electric Power Policy was the beginning of an unbundling and privatisation of the country’s electricity supply indus¬try with generation and distribution privatised and transmission held as a national asset6.  Nevertheless, pri¬vatisation failed to address the root causes of the country’s electricity backlog; an inability to guarantee cost-reflective payments across the supply chain and to secure available gas and gas supply infrastructure7.  Leaving Nigeria unable to develop a functional electricity supply industry that meets the needs of all citizens8

In Uganda however, liberalisation through the enactment of the Electricity Act in 1999 has had more positive consequences. The electricity sector is currently made up of the Uganda Electricity Generation Company Limited (UEGCL), Uganda Electricity Transmission Company Limited (UETCL), and Uganda Electricity Distribution Company Limited (UEDCL) that manage, generation, transmission and distribution as three separate entities under the Electricity Regulatory Authority (ERA). The liberalisation eliminated load shedding and has seen an increase of the generation capacity from  359.5 MW to 601.1 MW as well as doubling of electricity access from 7% to 15%9

These examples show that the results of unbundling are very much dependent on the process’s potential to address underling problems in the electricity supply industry. South Africa’s problems are rooted in an inability to balance policy goals with technical know-how, a situation that has been exacerbated by the depth and breadth of corruption in the industry. However, there are still some aspects that play in the country’s favour, namely the sheer size of its generation capacity and the fact that it has gotten some things right in the policy space, such as  the Renewable Energy Independent Power Producer Procurement Programme.

As on that Saturday night in the gallery, the lights eventually came back on. However,  what we need to account for in the South African context, is the confidence that is lost when the lights go out. 
 

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  1See, https://www.usaid.gov/powerafrica/south-africa
  2See, https://www.un.org/africarenewal/magazine/october-2008/powering-africa%E2%80%99s-economies
  3See, https://www.fin24.com/Economy/npa-concludes-eskom-payments-to-mckinsey-and-trillian-were-criminal-20180117
  4See, https://mg.co.za/article/2019-03-01-00-energy-reform-in-context 
  5See, http://www.dpe.gov.za/soc/Pages/Eskom.aspx
  6See, http://thenationonlineng.net/remedying-the-power-sector-for-service-delivery/
  7OU Paul, Obanor Albert and Aliu Sufianu Adeiza. 2015. ‘Electricity Crisis in Nigeria: The Way Forward.’ American Journal of Renewable and Sustainable Energy. Vol. 1, No. 4: 180–186. 
  8See, http://www.thebrenthurstfoundation.org/workspace/files/brenthurst-paper-2019-03.pdf
  9See, https://www.era.or.ug/index.php/sector-overview/uganda-electricity-sector
 

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