Eskom coming to its end

Efficient Group chief economist Dawie Roodt said Eskom is going the same way as SAA and the Post Office, and the private sector will take over the power utility’s functions.

Roodt explained that Eskom will not get privatised through official government policy but rather that the private sector will generate its own electricity.

“Eskom is poorly managed and cannot provide reliable electricity. The private sector is stepping in to fulfil this duty,” he said.

He added that the government is not good at running anything, which is leading to the demise of the power utility.

“Eskom has already lost a third of its market. It will continue to lose customers and eventually come to an end,” Roodt said.

Although Eskom’s generation part is set to die a slow death, its transmission network is likely to survive and remain in state hands.

Building a national electricity network is very costly and time-consuming, and this is where a state utility makes sense.

“The transmission network is a natural monopoly. The state will most likely remain the owner of this network,” Roodt said.

He likened it to a highway. “It is not possible to compete against a natural monopoly,” he said.

Roodt predicts that the distribution networks will also become privatised despite pushback from municipalities that make lots of money from these networks.

In future, electricity distributors will buy electricity from where they can get it the cheapest and sell it to where they can get the best price.

“The generation and distribution parts will be in private hands, which has happened in many countries worldwide,” Roodt said.

Eskom’s big debt burden

The bad news for South African taxpayers is that they still have to foot the bill during Eskom’s slow decline.

Eskom has R439 billion in debt, and the government plans to take over around half of the debt as part of an agreement with the power utility.

About R40 billion of debt will be held by the transmission unit and R30 billion by the distribution unit, with the balance going to the generation division.

“Most of this debt is guaranteed by South African taxpayers. The finance minister has already started to take over Eskom’s debt and is likely to take over even more debt in future,” he said.

The situation is aggravated by the recent 7% salary increase for Eskom employees for the next three years.

“For a bankrupt company to give a 7% increase to already overpaid employees is incomprehensible,” Roodt said. “Eskom continues to be mismanaged.”

So, while the private sector is taking over many of Eskom’s functions, Roodt said the only real outstanding question is what will happen to its debt.