Page 58 - IRMSA Risk Report 2020

4.3.9
INSUFFICIENT ELEC TRICIT Y AND / OR ENER GY

DUE TO INEFFECTIVE LEADERSHIP, CORRUPTION, HISTORICAL MAINTENANCE/REFURBISHMENT BACKLOGS A
CONSTRAINED SYSTEM, DELAYS IN KEY POLICY DECISIONS AND AN ENORMOUS DEBT BURDEN, ESKOM’S ABILITY TO
PROVIDE SUFFICIENT ELECTRICITY MAY DETERIORATE FURTHER WITH NEGATIVE IMPACTS ON ECONOMIC GROWTH
AND INVESTOR CONFIDENCE.

SCENARIOS FLAGS RISK RANKING OVER LAST 5 YEARS

Leadership RANKING SCALE
Institutional capacity 10 9 8 7 6 5 4 3 2 1
Politics
SPRING OF HOPE
Social cohesion
National policy
FAKE IT TILL WE MAKE IT...OR NOT? Service delivery ANNUAL RANKING
Inequality 2015 2016 2017 2018 2019 2020
NOT
NOT
Economy RANKED RANKED
PERPETUAL HANGOVER
Global trends
Climate
This risk has been present for a number of years and, despite improvements in 2016 and 2017, has further deteriorated
in 2018 and 2019. Eskom is in a dire financial position and is struggling with deep-rooted operational and governance
problems. It seems as if the utility has reached a point of no return, where historical structures and solutions may no longer
be suitable to ensure the country’s electricity supply going forward. This is underpinned by the climate crisis, an accelerating
global energy transition, strong and divergent stakeholder interests, as well as the need for a Just Energy Transition that
matches the South African context.

TOP 5 CHALLENGES TO ACHIEVING TOP 5 RISK TREATMENT OPTIONS AND
TARGETS OPPORTUNITIES
1. Deteriorating plant performance, due to inadequate 1. Prioritisation of maintenance and the space needed in a
investment in maintenance & mid-life refurbishment. constrained system to increase the reliability of plants.
2. Poor performance of Medupi and Kusile due to design 2. Clear direction on industry structure and market rules to
problems as well as delays in commissioning. encourage investment.
3. Funding and capacity constraints impacting the ability to 3. Integrated planning and frequent iterations to deal with
undertake plant maintenance. uncertainty and change.
4. Decision-making processes and long lead times for the 4. Energy efficiency to reduce demand and energy diversity to
development of new infrastructure. increase supply.
5. Lack of effective leadership and long-term strategic thinking in 5. Electricity generation or storage by private individuals,
a highly complex sector. where possible, to reduce pressure and reliance on the grid.

FAC TS AND FIGURES
INDIC ATOR 2007/08 2018/19 CHANGE
Installed capacity (MW) 42 618 45 561 7%
Electricity sales (GWh) 218 120 212 190 2.7%
Revenue (Rbn) 39.4 177.4 350%
Average selling price (c/kWh) 18 85.06 373%
Coal purchases (Mt) 117.4 115.49 1.6%
Coal costs (Rbn) 10 53.8 438%
Employee costs (Rbn) 9.5 29.5 210%
Number of employees 32 674 48 628 49%
Debt securities and borrowings (Rbn) 40.5 388.7 860%
• Eskom’s net loss of R21bn (R2.3bn in the prior year) during 2018/19 is attributed to municipal debt of R20bn;
• Eskom’s revenue increased from R39.4bn in 2007/08 to R180bn in 2018/19 but was diminished by the increase in input costs;
• Over the past decade, debt has increased by 986.42% from R40.5bn in 2007/08 to R440bn in 2018/19, with debt servicing cost
amounting to R85bn per year;
• During 2017/18, Eskom had a workforce of 48 628. A decade previously the workforce was 13 000. Political and trade union pressure
prevents the retrenchment of workers to reduce costs;
• Eskom’s wage bill for 2018/19 is estimated at R27.14bn (R5.14bn in 1998) following a 7.5% wage increase in 2018;
• The widening gap between electricity demand and sales is symptomatic of a “utility death spiral” where new technology makes self-
generation increasingly price-competitive, which leads to continuously declined sales and increased tariffs, in a never-ending spiral; and
• NERSA approved a 13.87% average price increase w.e.f. 1 April 2019 for Eskom direct customers and a 15.63% average price increase for
municipalities w.e.f. 1 July 2019. Additional increases of 8.1% for 2020 and 5.2% for 2021 were also announced. These figures are well
below Eskom’s targeted increases of 17.1%, 15.4% and 15.5% for the next three years respectively.
Sources: Eskom on its 2018/19 Annual Report, www.pmg.org.za/committee-meeting; Eskom group annual results, for the year ended 31 March 2019, p. 12.; Eskom
on its 2018/19 Annual Report, www.pmg.org.za/committee-meeting; Department of Public Enterprises, Context of SONA 2019: The Eskom challenges, Centre for
Risk Analysis, SANEA