Eskom: Textbook electricity generation failure
With the ANC at the helm, the power utility was always doomed. Right from the start, the party wanted to reap the benefits of lucrative contracts without any accountability to the public.
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2 December 2021
Eskom has become the most hated institution in South Africa. It is now the swear word “Eishkom”, denoting annoyance, as people curse the rising severity of planned and unplanned outages. Power for the election itself was specially provided for and collapsed thereafter. Every week, there is uncertain electricity supply that jeopardises jobs amid rising unemployment.
Electricity generation illustrates the crisis of the ANC and the entire state bureaucracy. The plight of Eskom illustrates the way in which patronage and crony capitalism works in the country. Huge resources were thrown into coal power generation, but a disaster has followed the greatest investment ever in South Africa.
What became the electricity disaster was planned as Black economic empowerment by the ANC, empowerment for itself. It is a case study of arrogance, fronting foreign firms, conflicts of interest and incompetence – and continuing failure. In the language of accountants, this has been fruitless and wasteful expenditure.
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Former president Thabo Mbeki was warned in the late 1990s that massive investment in power generation was needed. He delayed as he wanted to see Black companies and the elite benefit. In anticipation of the mega-deal, the ANC set up an investment company, Chancellor House, which then formed a consortium with Hitachi.
The contract for the first new major power stations in two decades was awarded to this consortium. About 60% of the contract was to be performed by local subsidiary Hitachi Power Africa, which is 25% owned by Chancellor House. The ANC company then had a R3-billion stake in the contract, and would secure sufficient money for the party to fund its own bureaucracy as well as feed off the state. Amid rising unemployment, cadres could enjoy the “double dip” of two salaries: one from the party, the other from the state.
The ANC took command. An avalanche of appointments or “deployments” was made by the ANC to constitute the new Team Eskom. This resulted in eight out of 10 Eskom board members being sacked by Jacob Zuma in 2011 and 10 chief executives skipping in and out of power in 10 years. Hopefuls were “given a go” on the board and in the administration.
Grandiose plans
The vision was dramatic. Two gigantic power plants drawing on the country’s considerable coal reserves were planned. Although the World Bank had a policy against investment in coal generation, Mbeki managed to secure the required approval for start-up funding. Instead of engaging a specialist management company, the ANC decided the consortium could manage the massive project, which meant more money for itself.
The investment programme included two 4 800MW coal-fired power plants, Medupi and Kusile, which, upon completion, would be among the biggest the world has seen. It was the most complex project in South African history and required brilliant specialist project managers. Instead there was mismanagement from the start, with labour disputes, cost overruns, penalties for companies that had to be paid to wait to enter construction, extortionate consultation fees – and no improved generation of electricity.
Gross mismanagement by Team Eskom (ANC Pty Ltd) resulted in breakdowns of the old and poorly maintained power stations and massive cost overruns at the two new plants. No one knows the exact final cost, but it is at least three times the original $3.75 billion (about R60.5 billion) borrowed from the World Bank. A conservative estimate of the cost to completion for Medupi and Kusile in 2016 was R208.7 billion and R239.4 billion, respectively. Capital expenditure at these two plants has been modestly estimated at R450 billion, or $30 billion.
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That’s beginning to look like money; a generous grant pledged at the COP26 climate conference to cover the green transition in South Africa is only $8.5 billion. In comparison, Samsung has just announced plans for a semiconductor factory in Texas in the United States at a cost of $17 billion.
Meanwhile, the average price of electricity increased fivefold (500%) since 2007, while Eskom’s debt grew nearly tenfold. Mismanagement has led to a monstrous disaster with incompetence of the highest order. Despite an infusion of immense capital spending, tariffs soared as coal power generation staggered from outage to outage. Every outage arises from the so-called baseload coal generation.
From the boast of the cheapest electricity in the world, South Africa now has some of the most expensive, if fully costed – and its supply is irregular. There is no possibility of generating jobs for the 12 million unemployed with such disastrous power infrastructure.
There are design faults that should have been anticipated. For example, mega power plants are not built next to a mine. All coal is transported long distances on a conveyor belt, which has frequent breakdowns. The alternative? Hiring truck companies that cost a fortune and reduce the roads to rubble. Another is heavy rainfall that leads to “wet coal”, which delays handling and feeding coal into boilers and results in outages.
Then there is corruption and mismanagement. Inferior coal coming from corrupt deals is used and flare-ups of heat break up the refractory furnace bricks. Such flare-ups cause surges in steam, raise the pressure inside the pipes transferring steam and lead to bursts, taking weeks to fix. Most significantly, careless management of escaping hydrogen exploded an entire power plant in August; this will take two years to repair.
Management is a record of misery, with reports that surface only after days of outages demanding explanations. Eskom is a law unto itself and lives in clouds of secrecy, and there are no professional or political exchanges or accountability, not even in Parliament. Each disaster leads to uncontrolled expenditure benefitting the hyenas living on superprofit from the growing crisis in coal power.
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Far from delivering the planned power generation, in practice these plants only generate 60% of the needed capacity. They have not meant any overall improvement as they generate power at a sub-par level, like their ailing, ageing cousins.
As the graph shows, the result of massive investment is no greater electricity supply than the 244 605 gigawatt hours generated in 2004. Years of massive expenditure have only worsened the amount of electricity generated.
Failing generating capacity has resulted in rotating power cuts that have reached new heights this year and dealt a further blow to an already struggling economy. An estimated one million jobs have been lost to Eskom and there are certainly more in the future as capital expenditure is postponed or halted.
An outdated model
The existing state-owned enterprise model of public management worked well for apartheid rulers. Based on services limited to mining and the white population and based on cheap mining labour, Eskom served as the hub of the mineral-energy complex serving international markets. That was the public utility’s express purpose at its inception in 1923 until the post-apartheid period and the reason it gained its international appellation as the provider of the cheapest dependable electricity in the world. Eskom bonds were internationally favoured prime bonds with low risk and yields, no more.
The Eskom model of authoritarian, centralised planning conducted in secrecy and without any public oversight has become a monster eating away at the possibility of expanding jobs. No modern industry or commerce can survive on irregular power supply.
Instead of mines and refineries – the extractory sector – being its central locus, the apartheid design of the mineral-energy complex, the local component of colonial integration into globalisation, has to be phased out. There has to be a shift to democratic public management with the metros coalescing in a new public power utility on the basis of meeting the needs of industry and the urban and rural poor. Renewables open the road to decentralised generation and greater local direction instead of centralised chaos.
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The oversight and management of Eskom have to be utterly transformed to achieve efficiency and workers’ initiative to provide power for jobs, cities, manufacturing and mines. Corporatisation and unbundling will only lead to painful adaptation chaos and profiteering, rather than effective reconstruction.
Here is a suggestion: workers’ control of power facilities within the framework of a democratic plan for improved power on a new publicly administered basis, not the secret plans we now have. Instead of secrecy we need open, rapid and just green transition with new, genuinely democratic public ownership. Power will then drive the economy, not drain our productive capacity.
Of particular concern is the use of the $8.5 billion pledged at COP26 – there has to be public disclosure of the green energy transition plan so that no secret consortia can be set up by the ANC bureaucracy.
An earlier version of this article appears in On the Brink, a journal of the Workers’ International Network.
