Three things keeping Eskom’s management up at night
Eskom’s huge debt pile, inability to collect billions in revenue from municipalities and rampant illegal connections keep chairman Mteto Nyati and the utility’s management team awake at night.
South Africans have not experienced load-shedding for over 150 consecutive days, marking a significant turnaround in Eskom’s performance.
This turnaround has largely been unexpected. Experts predicted it would take at least five years and hundreds of billions of rands to end load-shedding.
However, the utility’s management team has implemented its Generation Recovery Plan (GRP), which has greatly improved the reliability of the utility’s plants.
This reliability is key as it enables greater predictability regarding Eskom’s performance and avoids the wild swings in load-shedding seen last year.
The main driver behind this enhanced reliability is the higher quality maintenance conducted at Eskom’s plants.
At the presentation of Eskom’s 2024/25 Summer Outlook, chairman Mteto Nyati praised the management team for implementing this plan.
“You can have a plan, but if you do not implement it, then it is useless. That is a big problem in South Africa. We dream, but we can never execute,” Nyati said.
He also mentioned that the major problem at Eskom has been the lack of leadership and management in recent years.
This resulted in low staff morale, low productivity, and the major problems with Eskom being misdiagnosed.
In the Outlook, Eskom revealed that it expects no load-shedding in summer, with stage 2 only a remote possibility in the worst-case scenario.
The utility has reduced its diesel bill by over R10 billion year-on-year, showing that it did not need to rely on its open-cycle gas turbines (OCGT) to keep the lights on for the past 150 days.
Eskom managed to keep its average unplanned capacity losses to 12.4 GW during Winter, far lower than the 15.5 GW likely scenario it presented at the time.
However, Eskom’s Summer Outlook was not all sunshine and rainbows. Nyati said there are still numerous systemic threats to the company.
Nyati explained that Eskom’s business model is outdated in the 21st century and reform is on the way to modernise how the utility operates.
Another major risk the utility faces is the lack of grid capacity to add new generation projects from the private sector and government.
Eskom is also still plagued with corruption and criminality despite sabotage being effectively dealt with at the utility.
Alongside these systemic issues, Nyati flagged three main things keeping him and his management team up at night.
- Eskom’s debt burden
Eskom is still heavily weighed down by its significant debt pile, and little progress is being made to tackle it sustainably.
Such a large debt pile has constrained Eskom’s operations by crowding spending on key infrastructure projects and new generation.
This has been addressed by the government to a degree, with the National Treasury implementing a debt relief programme to take on R254 billion of Eskom’s R400 billion debt.
Eskom has struggled to meet some of the conditions attached to this debt relief programme, resulting in it missing out on billions more from the government.
Of concern for Nyati is that debt-servicing costs will still take up a substantial portion of Eskom’s generated cash, with the utility struggling to pay off the debt without the government moving it onto its balance sheet.
- Municipal debt
The second systemic risk keeping Eskom’s management team awake at night is the revenue it is owed by municipalities which cannot pay their bills.
Municipal debt owed to Eskom has crossed R80 billion and threatens to sink the utility if it is not addressed.
Electricity Minister Kgosientsho Ramokgopa told a media briefing last month that the current trajectory of the debt owed to Eskom poses a threat to the future existence of the power utility.
“To give you the magnitude of the problem, if we don’t resolve this problem, our projection is that at the current rate, by 2050, Eskom will be owed R3.1 trillion. Eskom will collapse. Generation capacity is going to be compromised. So, it’s important that we resolve this question.”
Nyati echoed this sentiment, urging the government to find a solution. National Treasury does have a debt relief programme for municipalities, but many do not qualify for support.
- Illegal connections
The third systemic risk poses a different yet equally significant threat, promising to potentially collapse Eskom’s grid.
While the utility has not had to implement load-shedding for the past 151 days, it has had to impose load reduction in parts of South Africa.
This is because its infrastructure is unable to handle the extra load placed on it by illegal connections in these areas.
Nyati said this issue speaks to the values that South Africa has as a society, with many feeling as though they can get away with criminality.
This is also a major source of wasted capital from Eskom, with equipment having to be regularly replaced due to it being overloaded.
Eskom is working with the government, law enforcement agencies and communities to tackle this issue, until the problem is solved load reduction will be implemented.
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