BUSINESS NEWS - On a dry plain in Limpopo province in 2007, the leaders of South Africa’s monopoly utility broke ground for huge new power plant. It was named Medupi for “rain that soaks parched lands” in Sepedi, a local language.
Jubilant officials proclaimed that the project would stimulate local growth and relieve the strained grid in a nation where almost 9 million people had no access to power. Then-Eskom CEO Jacob Maroga said the station was the first of its kind since the 1980s.
More than a decade later, the facility is still years from completion and estimated costs have doubled to over $10 billion. On the site, massive metalwork and pipe segments await placement. A cooling rack resembling an industrial Parthenon runs alongside six towering boilers that will take an estimated 120 000 tons of structural steel to complete.
It’s a costly symbol of the disaster that is South Africa’s state-run electric utility. Eskom has R399 billion in total debt, costing it $2 billion in interest payments last year. Moody’s Investors Service considers Eskom a key risk in deciding whether to downgrade South Africa, and Goldman Sachs Group has called it the single biggest risk to the country’s economy. Even the turnaround plan is behind schedule.
Fixing Eskom is arguably President Cyril Ramaphosa’s biggest challenge as he attempts to modernise South Africa, boost growth, provide jobs and overcome years of entrenched corruption. And shore up his support ahead of national elections next year. So important is Eskom that he mentioned it specifically in his first state-of-the-union address in February.
“Action we have taken at Eskom to strengthen governance, root out corruption and restore its financial position is just the beginning,” Ramaphosa said. “This is the year in which we will turn the tide of corruption in our public institutions.”
Eskom isn’t just a utility, it is South Africa’s biggest recipient of state loan guarantees. And its costs are out of control: The biggest union, the National Union of Mineworkers, has a contract requiring a wage increase of 23% over three years and a bonus, after protests and sabotage resulted in power cuts. Ramaphosa’s odds of changing that are weighted by the fact that he himself co-founded the union in 1982.
“Ultimately political constraints are going to prevent him from moving as rapidly as perhaps one would like,” said Daniel Silke, the director of Political Futures Consultancy in Cape Town. “The one thing that he doesn’t want to be accused of is overseeing job losses in the runup to an election.”
There are no good statistics about Eskom.
