NEWS
15/06/2018 11:32 SAST | Updated 15/06/2018 11:32 SAST

Just How Much Trouble Is Eskom In? Quite A Lot, And It's Complicated...

According to analysts, the parastatal is both financially and environmentally unsustainable.

Pylons carry electricity from a sub-station of state power utility Eskom outside Cape Town in this picture taken March 20, 2016. REUTERS/Mike Hutchings
Mike Hutchings / Reuters
Pylons carry electricity from a sub-station of state power utility Eskom outside Cape Town in this picture taken March 20, 2016. REUTERS/Mike Hutchings

With the ongoing threat of workers downing tools and load shedding being rolled out across the country, the challenge of patching up Eskom seems more and more impossible.

Analysts believe the power supplier is both financially and environmentally unsustainable, battling with low revenues while trying to keep its workers in check.

Energy expert Chris Yelland said Eskom is in "dire straits".

READ: Eskom Secures Interdict Against Protesting Workers.

Environmental issues

"Most of Eskom's power stations do not comply with emission standards in South Africa, but they still run because of permission from government to have these regulations postponed for five years. These stations would not be able to operate if these laws were applied, and their emissions would be illegal in most other countries," Yelland said

"To ensure environmental compliance, Eskom would need R400-billion. In addition to all its other financial woes, Eskom [management] will also have to keep this figure in the back of their minds, because South Africa committed to the Paris Agreement on emissions. Eskom is the biggest carbon-dioxide emitter on the continent by far."

Financial issues

Yelland explained that Eskom is in a Catch-22 when it comes to building its revenue.

"The product Eskom sells is kilowatt-hours. Its sales volumes have been decreasing every year for the past 10 years. To compensate, Eskom puts up its price. But it is regulated by the National Energy Regulator of South Africa (Nersa), and they are not allowing the hike in prices Eskom wants. The more Eskom puts its price up, the less it sells. But if it doesn't increase its prices, it doesn't make enough revenue. It's a downward death spiral," Yelland said.

"It's two biggest cost items are the cost of primary energy, which is coal, and staff remuneration. Coal prices have gone up dramatically in the past 10 years, and Eskom is highly overstaffed. It has 15,000 more workers than other benchmark utilities."

He advised that Eskom needs to put a lid on wage and salary increases and reduce its number of staff.

"It will also have to sell more product and put its price up. It's a massive contradiction. So who knows how Eskom will manage this balancing act."

Economist Mike Schussler said saving Eskom may put more financial pressure on the average South African citizen.

"Loan guarantees from government to Eskom are put on the shoulders of taxpayers. Eskom does not have the ability to do anything without borrowing. Either way, we as electricity users and taxpayers will bear the brunt," he said.

"Its staff complement increased dramatically, yet it produced less power. It went the other way. The reins were not held tightly at Eskom. Studies have shown that Eskom is overstaffed. It will have to make meaningful staff cuts to survive."