Fixing Eskom is about more than South Africa - African Development Bank

An electricity pylon (iStock).
An electricity pylon (iStock).

South Africa’s struggling power utility must be fixed because energy security in the region largely depends on it, according to the African Development Bank.

Eskom, which is buckling under R450bn of debt, is "too big to fail" because it powers Africa’s most-industrialised economy and much of the region, AfDB President Akinwumi Adesina said in an interview Sunday in Johannesburg.

The utility produces about 95% of South Africa’s power and almost half of the electricity used on the continent, according to its website, and it forms part of the interconnected Southern African Power Pool. Of its total energy sales, exports to the region make up 6%.

Eskom relies on government support to remain solvent and is seen as the biggest single risk to South Africa’s economy. While the government has announced it would split the producer into three operating businesses, details about this and how it would reorganise the utility’s debt are still outstanding. The company also doesn’t yet have a permanent chief executive officer.

There is considerable regional demand that it can’t meet due to a lack of investment in transmission infrastructure, the utility said in its 2019 annual report. Eskom’s current operational challenges are also negatively affecting power exports, it said.

The government’s plans to turn Eskom around are commendable, but it must ensure that the utility is managed more efficiently and effectively, Adesina said. The company must invest in the correct energy systems to deliver more affordable power and guarantee continued manufacturing capacity for South Africa and the Southern African Development Community, he said.

The Abidjan-based lender has invested about $4bn in Eskom and has assured the South African government of its support in fixing the power producer, Adesina said.

The Bank, meanwhile, will discuss 59 projects valued at $67bn with dealmakers at its flagship investment conference this week.

The deals, which span 29 countries, range from regional infrastructure development to investments in energy, financial services, urban housing and small business support.

“The focus is really on the projects that are going to significantly transform the lives of Africans,” Adesina said. He spoke before the start of the Africa Investment Forum in Johannesburg on Monday.

The forum is part of the lender’s efforts to narrow Africa’s infrastructure gap of as much as $170bn a year. Inadequate power, railways, ports and roads in Africa curb productivity by as much as 40% and reduce per capita economic growth by about 2.2 percentage points, according to World Bank data.

While the global economy is showing signs of weakness, investors are increasingly paying attention to Africa as it has some of the world’s fastest-growing economies in Ghana, Rwanda and Ethiopia, Adesina said. More than 100 countries will be represented at the conference, with 1 600 delegates from outside of Africa seeking opportunities on the continent, he said.

The first investment forum, held last year, secured interest in deals valued at almost $40bn.

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