Oil price crash is good news for Eskom

The plunge in international oil prices has a potential upside for South Africa’s debt-stricken state power utility.

Eskom Holdings SOC Ltd. can’t generate enough power from its coal-fired power stations to meet demand, and burnt through diesel worth R6.5 billion ($407 million) at its open-cycle gas turbines in its last financial year to try and avert or limit power cuts.

With the utility expecting supply constraints to persist for at least 18 months, a prolonged fuel price slump will go some way to helping contain its primary energy costs.

The price of oil plummeted as much as 32% in rand terms on Monday, and was 19% lower at 11:15 a.m. in Johannesburg, after talks between the Organization of Petroleum Exporting Countries (OPEC) and Russia collapsed and Saudi Arabia initiated a price war.

The price of crude in rand terms — which determines South Africa’s gasoline prices, which are regulated by the state — has plunged 19% in the past two trading sessions.

Eskom supplies about 95% of the electricity used in Africa’s most industrialized economy, has amassed 454 billion rands worth of debt and isn’t generating enough income to cover its operating and debt-servicing costs.

Now read: How much money you will save by installing solar power in South Africa

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Oil price crash is good news for Eskom