Eskom will die without price increases – Andre de Ruyter
Eskom needs debt relief in combination with tariff increases to survive, said outgoing Chief Executive Officer Andre de Ruyter, who has led the utility for three years as South Africa’s power outages have intensified.
The continent’s most-industrialized nation has had 100 straight days of electricity cuts because of supply shortages largely caused by unreliable coal-fired power plants.
Fixing the energy crisis that’s crimping the economy has become a central focus for President Cyril Ramaphosa’s government.
Financial constraints at Eskom, which has R396 billion of debt, combined with breakdowns, theft and sabotage at its plants, have caused the utility to impose blackouts for about 15 years, but they’ve progressively worsened in the past five months with Ramaphosa’s administration scrambling to find a way out of the crisis.
The blackouts, known locally as load-shedding, are costing South Africa’s economy as much as R899 million a day, according to the central bank.
“We need cost-reflective tariffs,” De Ruyter said in an interview with Bloomberg TV from Cape Town. “If debt relief isn’t accompanied by reform to the tariff, then we will be back with our begging bowl at the National Treasury’s door in three to five years’ time.”
The National Treasury has pledged to take over as much as two-thirds of Eskom’s debt later this year, with details expected to be announced in Finance Minister Enoch Godongwana’s budget speech later this month.
Last month, South Africa’s energy regulator agreed to let Eskom raise electricity costs by almost 19%, though that was well below the 32% hike that the utility had requested.
The steep increase prompted Ramaphosa to appeal for the decision to be suspended, particularly at a time when Eskom can’t regularly provide power.
South Africa’s government has responded to the energy crisis over the past two years with measures such as the procurement of emergency power generation from private developers and expediting and expanding an existing program to buy electricity from renewable sources.
Those steps have hit legal snags and delays, though some regulatory measures to encourage private generation have made progress.
Outages are likely to continue for at least two more years as Eskom overhauls its fleet. The utility is trying to lift its energy availability factor — a measure of how much capacity can be used — to 70% by March 2025 from about half currently and needs to add 4,000 to 6,000 megawatts of generating capacity.
De Ruyter became the utility’s 13th CEO in a decade when he started the role in 2020. He sought to get the utility to produce more green energy, as its old coal-burning plants were taken offline and he challenged tariff decisions made by the energy regulator, saying the company needed to charge more to cover its costs.
Repairing the backbone of generation — ageing plants that burn the dirtiest fossil fuel — has proven one of the toughest obstacles. De Ruyter’s plan — known as “philosophy maintenance” — failed to prevent breakdowns that resulted in progressively worse power outages.
Some relief from the shortages will start to emerge by next year as more private generation projects are realized, he said in the interview on Tuesday. The company is also looking to outsource some of its operations to bring in skills that have become scarce, he said.
Energy Minister Gwede Mantashe has openly criticized the performance of Eskom, its plans to transition from coal and the failure to improve plant performance. Eskom will brief a committee of lawmakers later on Tuesday about ways to solve the power outages.
The utility needs to operate quicker and ideally “avoid some of the bureaucratic encumbrances that we’ve suffered in terms of procurement regulations, in terms of the skills that we need to recruit, in terms of how we have to account to various oversight bodies which of course takes up an enormous amount of time,” De Ruyter said.
De Ruyter resigned in December and is due to leave the company at the end of March. A successor hasn’t been appointed yet.
“It certainly is a tough job,” De Ruyter said. “Not for the faint-hearted.”