Eskom is a South African electricity public utility, established in 1923 as the Electricity Supply Commission (ESCOM) by the government of the Union of South Africa in terms of the Electricity Act (1922). It was founded by a parliamentary act, namely the Electricity Act of 1922, which allowed the Electricity Control Board to appoint Hendrik Johannes van der Bijl as the Chairman of the Board. The company was also known by its Afrikaans name Elektrisiteitsvoorsieningskommissie (EVKOM). The two acronyms were combined in 1986 and the company is now known as Eskom. Eskom represents South Africa in the Southern African Power Pool.
Eskom operates a number of notable power stations, including Kendal Power Station, and Koeberg nuclear power station in the Western Cape Province, the only nuclear power plant in Africa. The company is divided into Generation, Transmission and Distribution divisions and together Eskom generates approximately 95% of electricity used in South Africa.
Due to the South African government's attempted privatisation of Eskom in the late 1991s, Eskom's requests for budget to build new stations were denied. President Thabo Mbeki said in December 2007 that this was an error, and it is now adversely affecting the South African economy.
In January 2008 Eskom introduced "load shedding", planned rolling blackouts based on a rotating schedule, in periods where short supply threatens the integrity of the grid. Demand-side management has focused on encouraging consumers to conserve power during peak periods in order to reduce the incidence of load shedding.
In the later months of 2007 South Africa started experiencing widespread rolling blackouts as supply fell behind demand, threatening to destabilize the national grid. With a reserve margin estimated at 8% or below, such "load shedding" is implemented whenever generating units are taken offline for maintenance, repairs or re-fueling (in the case of nuclear units).
Eskom and various parliamentarians attributed these rolling-blackouts to insufficient generation capacity. According to their claims, the solution is the construction of additional power stations and generators. These, they said, will take time to construct and commission. 2012 was frequently mentioned as the earliest possible end to the power shortages.
Investigative television show Carte Blanche reported that part of the problem is related to the supply of coal to the coal-fired power plants. Several other causes have been postulated, including skills shortages and increasing demand for electricity around the country.
It appears that the steps that Eskom took to maintain some of its plants, increase coal stock piles and improve plant performance had led to them suspending load shedding from May 2008 onwards.
Load shedding was reintroduced in early November 2014. The Majuba power plant lost its capacity to generate power after a collapse of one of its coal storage silos on 1 November 2014. The Majuba power plant delivered approximately 10% of the country's entire capacity and the collapse halted the delivery of coal to the plant. A second silo developed a major crack on 20 November causing the shut down of the plant again, this after temporary measures were instituted to deliver coal to the plant.
On December 5, 2014, Eskom started major stage three load shedding in South Africa after the shut down of two power plants on November 4 (of said year) due to diesel shortages. It was also reported that the Palmiet and Drakenburg were also experiencing difficulties due to a depletion of water reserve to the Hydro plants. Stage three is the highest degree of load shedding.
On Thursday 4 November, Eskom fell 4,000 megawatts (5,400,000 hp) short of the electricity country's demand of 28,000 megawatts (38,000,000 hp). The power utility has the ability to produce 45,583 megawatts (61,128,000 hp) but could only supply 24,000 megawatts (32,000,000 hp) due to “planned and unplanned” maintenance. One turbine at Eskom’s Duvha Power Station is still out of commission due to an "unexplained incident" in March 2014.
Load shedding was scheduled to resume in February 2015, due to industry start up, after the December holiday period.
In January and February 2008 global platinum and palladium prices hit record highs as mines were first shut down and subsequently restricted in their electricity use. South Africa supplies 85% of the world's platinum and 30% of palladium. Mining companies estimate that hundreds of thousands of ounces of both gold and platinum production will be lost every year until the crisis passes. Estimates on the direct economic impact are not yet available, but given South Africa's reliance on precious metals exports to finance its current account deficit, traders have severely downgraded the currency.
Due primarily to the impact on mining companies, economists have downgraded GDP growth forecasts significantly. The current consensus hovers around 4% (well short of the 6% government target), with the caveat that growth could reduce by 20 basis points every month under certain circumstances.
Banks and telecommunications companies have generally continued to operate as usual thanks to existing backup systems. Retailers initially reported large losses due to spoiled frozen and chilled foodstuffs, but are rapidly installing generating systems. Many large factories have reported it impossible to carry the capital expense required to keep operations uninterrupted. However, the largest (including aluminum smelters that can be effectively destroyed by outages of longer than four hours) have guaranteed service level agreements with Eskom and have been largely unaffected.
Big companies with international investors have also been affected by the electricity crisis and have had no choice but to announce these effects to the international community, bringing the situation to the attention of potential foreign investors.
As of February 2008 blackouts were temporarily halted due to reduced demand and maintenance stabilization. This drop in demand was caused by many of the country's mines shutting down or slowing to help alleviate the burden. However, regularly scheduled mandatory load shedding started in April 2008, to allow maintenance periods of power generators, and recovery of coal stockpiles before the winter, when electricity usage is expected to surge.
Expanding generating capacity will see an estimated spend of R280 billion over the next five years, with around 20 000 megawatts of additional capacity due to be online by 2025. However, neither short nor long term funding has yet been secured and the downgrading of Eskom's credit rating has ignited speculation of a capital injection by the government.
On December 11, 2014 it was announced that President Jacob Zuma had assigned Deputy President Cyril Ramaphosa to oversee the turnaround of three state owned companies namely Eskom, the South African Airways, and the South African Post Office”, all of which were in dire straits.
On January 15, 2015 Eskom's then CEO Tshediso Matona admitted that Eskom's policy to "Keep the Lights on" meant that power station maintenance was neglected for years, and that South Africans will have to get used to electricity blackouts for the next four to five years.
In 2016, Matshela Koko, former head of generation for Eskom, was named as acting CEO.
In 2016 Eskom stated it intended to pursue a nuclear solution to current energy woes. According to projections from late 2016, the use of nuclear power would provide over 1000GW of power by 2050. In preparation, the company has launched a training program for 100 technicians, engineers and artisans that will certify them as nuclear operators. In January 2018 Eskom's acting Chief Financial Officer stated that the company cannot afford a new build, following a 34% drop in interim profits due to declining sales and increasing financing costs. The government stated it will proceed with the plan but more slowly.
The National Energy Regulator of South Africa denied an application by Eskom to increase electricity tariffs by a future 19.9% for the financial year 2018/19. The regulator instead granted a 5.2% increase and gave a list of reasons for the refusal to grant higher tariffs that the South African newspaper Business Day stated painted "a picture of inefficiency, inaccurate forecasting and cost overruns" at the power utility. Part of the refusal was the finding that Eskom had an additional 6,000 employees that were not needed, costing the company R3.8 billion annually.
On March 28, 2018 Moody's Investors Service downgraded Eskom's credit rating to B2 from B1 stating that it was concerned with "the lack of any tangible financial support for the company in the February state budget".
Decision makers and leaders both in Eskom and in the government predicted in the late 1990s that Eskom would run out of power reserves by 2007 unless action was taken to prevent it. There has also been criticism that Eskom exports electricity to neighbouring African states when it doesn't have the capacity to meet South Africa's demand. Eskom, however, announced on 20 January 2008 that it had ceased to export power. The government claimed the shortage caught them by surprise since the South African economy grew faster than expected. However, their target growth rate of 6% per year was not reached from 1996 to 2004. The average GDP growth rate during this period was 3.1%.
In 1998 Eskom acquired a minority stake in alternative energy technology company Amazing Amanzi Systems (Pty) Ltd with the vision of incorporating it into its joint venture with Royal Dutch shell as part of the Shell Solar Homes project. and Controversy erupted at the cancellation of the Shell Solar Project and the roll-out of free and/or subsidized kerosene water heaters and stoves due to political pressure.
In December 2015 an agreement between Eskom and Areva to replace steam generators at the Koeberg nuclear plant was judged “unlawful”, by the Supreme Court of Appeal, bringing the utility company’s tender process into question.
Eskom has 16,789,974 subscribers in South Africa, the largest electricity utility in the country, comprising about one-third of the population.
Eskom was forced to suspend its Chief Financial Officer Anoj Singh in July 2017 when the Development Bank of South Africa threatened to recall a R15 billion loan if no action was taken against Eskom officials (including Singh) who were involved in corruption allegations involving to the Gupta family. In September 2017 Minister for Public Enterprises, Lynne Brown, instructed Eskom to take legal action against firms and individuals involved; ranging from Gupta family owned consultancy firm Trillian Capital Partners Ltd. and consultancy firm McKinsey to Anoj Singh and acting Chief Executive Matshela Koko.
A report compiled by Eskom and G9 Forensic found that the two consulting firms including Gupta owned Trillian made R1.6 billion (US$120 million) in fees with an additional R7.8 billion to made from future contracts. An investigation done by the amaBhungane Centre for Investigative Journalism found that the Gupta family had received contracts worth R11.7 billion from Eskom to supply coal between 2014 and 2017. With pressure for Eskom to sign the first coal supply contracts with Gupta owned entities being applied on the state owned firm by South African president Jacob Zuma.
By 2017 increasing levels of debt and corruption scandals effecting the company has led investment bank Goldman Sachs to declare Eskom as being the "biggest risk to South Africa’s economy." The company had R413 billion in debt and plans to raise an additional R340 billion (US$26 billion) by 2022 thereby representing eight percent of South Africa's GDP. R218.2 billion of the company's debt consist of government guarantees. Exacerbating the company's financial situation was a recorded R3 billion worth of irregular expenditures in 2017.
|Wikimedia Commons has media related to Eskom.|