Making billions by sabotaging Eskom

Coal-trucking syndicates profited from disrupting Eskom’s efficient operation of coal conveyor belts and railways that supplied the utility’s power stations with fuel. 

This was coupled with the sale of sub-standard coal, which would generate immense profits for the seller while damaging Eskom’s equipment and being less efficient than higher grades of fuel. 

These syndicates contributed to the widespread load-shedding that South Africa experienced over the past decade, all the while making billions of rands. 

Eskom and law enforcement agencies appear to have eradicated these syndicates, or at least mitigated their impact, with sabotage declining to a negligible level in recent years.

Energy expert and EE Business Intelligence managing director Chris Yelland explained to the State of the Nation podcast how these syndicates made money by sabotaging Eskom’s operations.

“Transporting coal by truck is significantly more expensive than other methods, and it creates an entire ecosystem that fed off Eskom’s largesse in the past,” Yelland said. 

Eskom has historically had some of the most efficient coal-fired power plants in the world, producing reliable electricity at a cost no one else could match. 

Yelland said that, at times, Eskom’s electricity prices were half of the next cheapest utility globally, which created a huge competitive advantage for local miners and heavy industry. 

This was largely due to the utility’s immensely efficient operations, with it having power plants close to coal mines, where fuel can be transported by conveyor belt or railway cheaply and easily. 

Eskom’s low prices were also partly due to the utility overbuilding capacity in the 1970s and 1980s and to mismanagement, with the utility not putting money aside to invest in future power plant construction. 

However, Yelland also noted that this efficiency was disrupted by trucking syndicates that found ways to benefit from Eskom’s mismanagement and largesse over the past decade. 

“Of course, they don’t want conveyors to work. They don’t want rail lines to work because they want to make money as truck drivers,” Yelland said. 

“As truck drivers, they are heavily indebted, they have borrowed money to buy trucks, and they became reliant on the revenue from transporting coal to Eskom by road for their very survival.” 

As a result, an ecosystem developed around Eskom that made good money from the utility at a time when it was struggling to keep the lights on. 

“They are determined to protect that revenue and ensure that more efficient ways of doing things do not work,” Yelland said. 

“Conveyors start burning down mysteriously. Railway line projects are suddenly 10 years late and can’t get going. I put this down to this ecosystem that is heavily invested in more expensive, less efficient transportation.” 

Russia and the end of sabotage

Former Eskom CEO Andre de Ruyter previously outlined a similar phenomenon and attributed the rise in sabotage to soaring coal prices during his tenure, following the Russian invasion of Ukraine.

De Ruyter repeatedly blamed sabotage and corruption at Eskom for the utility’s dismal operational performance, with record load-shedding experienced during his tenure as CEO.

The incidents of sabotage seemingly disappeared after De Ruyter left the utility, something he attributed to the work of the police and a decline in the price of coal.

This made road transport of coal less profitable and led to the illegal substitution of high-quality fuel with cheaper, lower-quality alternatives. 

“Immediately after the invasion, the Russian supply of gas into Western Europe stopped, and they had to buy coal from South Africa,” De Ruyter explained. 

As a result, coal prices soared to record highs, resulting in miners and exporters raking in immense profits. Criminal syndicates were not going to miss out on this. 

“That spike in coal prices created a huge arbitrage between Eskom contract prices and export prices for exactly the same quality of coal,” De Ruyter said. 

“That coal could then be stolen from Eskom and exported from South Africa to Western Europe, and that is exactly what happened.” 

“That is why a lot of our operational issues can indirectly be attributed to Mr Putin in Russia, which is kind of weird when you think of it, but that is the butterfly effect.”

It follows from De Ruyter’s reasoning that he believes sabotage and criminality declined at Eskom after his tenure, due to stabilisation and a decline in coal prices.

In contrast to De Ruyter, Eskom chairman Mteto Nyati pointed to the utility’s own efforts to crack down on crime, fraud, and corruption. 

Nyati explained that Eskom had a five-step plan to bring criminal activity to an end, which is being implemented in conjunction with efforts from law enforcement agencies. 

This was coupled with a shift in how Eskom conducts maintenance, with the utility turning away from contractors to original equipment manufacturers (OEMs).

The shift has not only improved the quality of Eskom’s maintenance and overall performance, but also removed a crucial incentive that had led to widespread sabotage. 

Using OEMs for maintenance enables Eskom to enter into service-level agreements, making it easier for the utility to hold service providers to account. 

In this case, if maintenance is inadequate and the unit trips shortly after returning to service, the OEM will fix it at its own cost. This incentivises OEMs to conduct high-quality maintenance. 

Previously, most maintenance was conducted by contractors. This created an incentive for power stations to experience frequent breakdowns, which in turn created more work for contractors.