Eskom’s reintroduction of power cuts, and its escalation to stage 6 load-shedding this past week, are due to multi-billion rand coal contracts implemented by former CEO Brian Molefe, according to a report by the Sunday Times.
Eskom COO Jan Oberholzer told the Sunday Times that while sabotage, poor maintenance, rain, leaky boilers, and broken conveyer builders all contribute to the power crisis, a large part of the reason for the power utility’s near-collapse are the coal contracts implemented by Molefe in 2015.
“What we pay for is often definitely not what we receive in terms of specifications,” Oberholzer said.
Eskom previously relied on 50-year coal contracts, which restricted its supply to large, established mining houses.
However, Molefe escalated the company’s plan to rely on smaller BEE suppliers instead, which Oberholzer said led to opportunistic suppliers taking advantage of Eskom’s large demands by supplying substandard coal.
To combat this, Oberholzer said that Eskom is reviewing its active coal contracts to ensure adherence and price fairness.
The cost of load-shedding
Scheduled power cuts have alleviated temporarily after Eskom escalated to stage 6 load-shedding, but they are expected to return and to continue losing South African business money.
According to economists at the Efficient Group, load-shedding cost the country R8.5 billion of real, inflation-adjusted rands this year.
The group’s “cost of load-shedding model” considers GDP from the supply side and uses assumptions about the ability of an industry to mitigate the cost of downtime.
“Certain industries and the businesses within it can relocate during times of load-shedding to continue business as usual,” Efficient Group economist Francois Stofberg said.
“Others can use generators more cost-efficiently, and still others can shift production and even consumption patterns to a later stage,” he said.
Stofberg said that the group’s model assumes an average downtime of seven hours a day – which is equivalent to something between stage 3 and 4 on a consistent basis.