The cost to fix Eskom

Truth and Energy civil nuclear engineer Hugo Kruger said it will cost around R1 trillion to fix Eskom – a bill taxpayers will likely have to foot.

Kruger explained that Eskom’s declining performance and South Africans’ increased use of alternative energy sources means the utility will likely require another government bailout from the National Treasury.

Eskom’s results for the 2023 financial year revealed that the utility’s net loss had grown, and its performance deteriorated further. 

Eskom has implemented above-inflation tariff hikes for the past few years to make up for declining revenue as a result of lost sales on the back of load-shedding.

This year, the utility has also received a R254 billion debt relief package from the National Treasury, as the utility’s debt burden stood at R423 billion.

However, all these measures have done little to salvage Eskom’s fiscal health and performance.

“If you look at the performance, it’s declining. They’ve increased their tariff by something like 500% over the last few years, and their performance has gone down. They’re getting bailouts, and the performance continues to go down,” Kruger said.

The utility revealed in its results that Eskom’s energy availability factor worsened from 62.02% to 56.03% in 2023.

This leads Kruger to the conclusion that Eskom is simply a “very bad-performing utility” and will need more money from the National Treasury – and, therefore, taxpayers – to keep afloat.

“My view is this: South Africa is going to continue to pump money into Eskom to keep it afloat. Those books don’t make sense because if the municipal debt and all these things can’t get paid back, Eskom will sink,” he said.

Eskom interim CEO Calib Cassim said municipal debt to Eskom increased from R44.8 billion to R58.5 billion over the last year.

“So the taxpayers are going to fund it through Treasury anyways, and we’re probably going to continue doing that until there are sufficient alternatives so Eskom can go into the dark and die a slow death,” Kruger said.

“That would be the ideal solution for South Africa.” 

However, Kruger said there is one alternative to Eskom being taken over by the private sector should the country wish to continue bailing the utility out for another decade. 

“There’s another alternative, which sounds more attractive – Eskom gets proper maintenance and starts performing like a traditional utility,” he said.

“Because if you look at utilities worldwide, they can outperform the private sector on many occasions, but then it needs to be properly managed.” 

Kruger said it is important for South Africa to decide what solution it wants for Eskom.

“Are we prepared to throw money at it in its current state? Are they just going to burn diesel, or are we prepared to fix it? Or do we just want it to die slowly? Those are the three scenarios that stand for South Africa, and we need to decide on that,” he said.

He explained that the objective to fix and upgrade Eskom’s coal fleet will not come cheap.

Based on an estimation of R20 billion per gigawatt of electricity, Kruger said Eskom would likely need around R1 trillion more from the Treasury to fix its existing fleet.

“That will have to be recapitalized over a long period to fix the coal fleet if they want to, but I don’t get the impression that they do want to,” Kruger said. 

“I get the impression they just want the assets to die slowly, and they want to see how much they can sell off to make it work.”

“This is something that we haven’t gotten clarity from the government because what is the strategy with Eskom? This is the problem – if the strategy is to keep Eskom afloat, they need to open up about the cost of Eskom.”

He emphasised that his estimation is just an approximate number, and some stations may still perform well and not need a complete overhaul.

“If not the case, if they want to sell Eskom off, we shouldn’t give them a cent. Sell it tomorrow and save us the pain. Just give it to the private sector and let them run it. But there’s going to be pain regardless.”