Load shedding exposes cracks at Eskom, analyst warns


Cape Town – Eskom's latest bout of load shedding signals that the beleaguered power utility is faced with difficult decisions that it can no long postpone, says energy analyst and expert Chris Yelland.

Eskom announced load shedding for the first time in years on Thursday evening, citing demonstrations by employees belonging to the National Union of Mineworkers (NUM) and the National Union of Metalworkers of South Africa (Numsa).

The utility's spokesperson Khulu Phasiwe said further load shedding was in store for Friday, from late morning to nine o'clock in the evening.

"The reason for this is that there have been a number of power generating units that have broken down," he said. Eskom later said there was a 'high risk" of load shedding over the weekend. 

"We are in the process of assessing what the cause of this breakdown is. But unfortunately, we have implemented stage one load shedding," said Phasiwe.

'Deeply worrying'

Yelland told Fin24 that there could be no exaggeration of the damage that load shedding has caused, and will continue to cause, to the economy.

"Load shedding is extremely damaging for the economy. The factions and private negotiating we are seeing between unions and Eskom are deeply worrying and threatening the economy, financiers, business, management staff, customers, suppliers to Eskom and society in general," said Yelland.

Yelland said factions that threatened security of electricity supply in South Africa must be condemned as the consequences of their actions are serious. Even though Eskom has had operational challenges for years, business was most likely unprepared for load shedding. 

"We were informed a week ago that [the] load shedding risk is extremely low.

"We know that this comes from labour unrest, but the fact that Eskom told us last week ago that there was no chance of load shedding, and a week later stage one load shedding is announced, kind of shows that nobody was prepared for this," he said.

Yelland said Eskom continued to face challenges at a financial level, at an an operational level and at an environmental level.

"Environmentally, most of Eskom’s stations don't comply with [...] legislation of ours and various other countries. They only operate in South Africa because they apply for exemption to these environmental laws.

"To comply with these laws, they would need R400bn to upgrade their infrastructure," he said.

He said the fact that less than a day into labour unrest, Eskom was forced to announce load shedding, exposed operational issues that must be dealt with.

To institute load shedding as a way of softening the blow of labour unrest shows that the company is not operating properly, he said.

Salaries a 'major cost'

"Revenue is determined by sales volumes and the price you sell it at. Eskom sales volumes have been declining, and to compensate, they have been trying to raise their prices to meet the rising costs. The problem is that the costs are being determined by a regulator, not Eskom," he said.

He urged Eskom to fix procurement and staff imbalances, saying the power utility was paying too much in salaries in proportion to the electricity units it sold.

He added that Eskom had been paying more to procure coal over the years, even though it was purchasing less coal.

"On the cost side, the biggest cost items are primary energy coal. The price of coal has been going up for many years, and that has been because of poor procurement management, even though they are buying less coal," he said.

While a freeze in increases and bonuses was a step in the right direction in controlling wage costs, he said the utility would inevitably have to consider reducing its staff head count. 

"Wages and salaries are now a major cost. When compared with staff member per unit of electricity sold, the total salaries and staff remuneration divided by staff employees gives you R700 000 per staff member per year," he concluded.

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