iSERVICE

Eskom: The real cause of the crisis

James Myburgh
01 February 2008

The policies which led to last week’s massive black-outs.

Since 1997 the ANC government has used various methods to fend-off criticism. These have run from attacking motive to bullying, obfuscation, bullshitting, lying, and outright denial. Over time civil society and media became inured to these tactics. So it was something of a welcome surprise when senior government officials - including the president and his deputy - started admitting responsibility for South Africa's energy shortages.

The basic line pushed by President Thabo Mbeki (and others) was that government underestimated the likely rate of economic growth and wrongly ignored Eskom's warnings that it needed to start building new capacity. For this they were very sorry.

These apologies have not silenced criticism, but they have been very effective in drawing attention away from where it should have been focused. This is known, in other fields, as misdirection. A Wikipedia entry notes how "The magician choreographs his actions so that even the critical and observant spectators are likely to look where the magician wants them to. More importantly, they do not look where they should not." One way of doing this is through movement, whereby "A larger action covers a smaller action."

Similarly, it is to the government's advantage to admit to failing to approve the building of new generating capacity on time. At worst they can be accused of ideological prevarication. Meanwhile, our gaze is shifted away from places where the ANC would prefer it not to wander. One of these is the way in which the ANC funding vehicle - Chancellor House - has been cut-in on massive contracts for the building of the Bravo and Madupi power stations. The other relates to the way in which the Eskom's racial obsessions were responsible for last week's massive black outs.

On Wednesday this week there was a heated debate in parliament on these outages. The Minister of Minerals and Energy, Buyelwa Sonjica, spoke first for government; and the DA MP, Hendrik Schmidt, led the response for the opposition. The debate between the two of them centred on the failure to build new generating capacity soon enough. Strikingly, neither side mentioned the word "coal" in their prepared speeches. This is rather surprising because the cause of last week's "national emergency" had relatively little to do with the generalised power squeeze. It had everything to do with Eskom's negligence in securing enough usable coal for its power stations.

The roots of last week's catastrophe lie in two fateful decisions made by Eskom soon after Thulani Gcabashe was appointed CEO in 2000. The first of these was to sell off most of Eskom's coal stockpiles. Eskom's annual report for 2001 states that the decision had been taken to "reduce actively its coal stockpile levels to reduce working capital and related holding costs." In 2000 Eskom had 19,8 million tons (Mt) of coal in stock or 61 days of burn. By the end of 2001 this had been brought down to 14,8Mt or 44 days of burn.

The second decision was to not extend the existing coal procurement regime to meet the expected increase in demand over the following 15 years. Through the course of 2001 Eskom had burnt some 94.1Mt of coal in its power stations. This was provided to the company by the big mining houses on long-term 40 year contracts. In terms of those contracts the coal they were supposed to supply was required to meet certain specifications. One of these was that it had to be useable in the wet.

It was evident then that as Eskom would need to provide more power in the future, it would also have to burn more coal. In February 2002 Gcabashe told a conference that Eskom expected its demand for coal to rise by some 30Mt to 40Mt by 2015. However, he said that Eskom wanted to limit the "the bidding for the bulk of [Eskom's] additional coal requirement contracts to black economic empowerment companies." Eskom was also keen to move away from long-term contracts and create instead an "active coal spot market."

In June 2002 Gcabashe approved a corporate directive on procurement from black suppliers. This established a "Hierarchy of Procurement" which had to be followed in "sourcing products and services." Although existing agreements were to be respected, for any further purchases drawn from outside the company Eskom was required to go first to "Black Women-owned Suppliers," then "Small Black Suppliers," then "Large Black Suppliers," then "Black Empowering Suppliers." Only once these options had been exhausted could "other" South African suppliers be considered.

Eskom's annual report for 2002 stated that the company had now implemented "the first phase of the long-term plan to support BEE and introduce flexibility in purchasing coal requirements (over and above the existing long-term contracts.)" Implementing this directive would be an "important part" of all the performance compacts of senior managers.

Over the next few years Eskom pursued parallel policies of reducing its coal stockpiles and increasing its reliance on BEE companies for the transport and purchase of coal. The 2005 annual report stated that it was supporting tiny, small, medium and large black businesses when it came to "purchasing coal". It also used BEE road transport companies for the transport of coal. In the 2006 annual report Gcabashe noted that each power station now only targeted "a 20-day coal stockpile."

By the following year the problems with the new procurement regimen were becoming apparent, even to the Eskom top brass. The 2007 annual report noted that "coal procurement has continued to be problematic due to under-production at the tied colleries, availability of coal of the correct quality from short-term suppliers and transportation of increased quantities of coal by road." However, there was no suggestion that it was planning to modify its policy. It made clear that "Eskom continues to support BEE coal-mining initiatives when buying coal and uses [only] BEE hauliers for the transport of coal."

In mid-2007 Rob Lines, Eskom's generation general manager, told Justin Brown of Business Report (June 26) that "Eskom was increasingly buying coal on the spot market rather than using its contracts with coal mining firms. The group was buying up to 24m tons of its annual coal need of about 120m tons in the market rather than on fixed contracts. The utility had a total stockpile of more than 6m tons at its power stations [about 18 days of supply]."

Something was going seriously wrong with Eskom's coal procurement for in December last year - Reuters UK reported this week - it issued a tender "seeking consultants to review and improve its coal buying systems."

The power crisis of last week was caused by the combination of low stockpiles of coal, the long-term power squeeze, and the consequences of Eskom's pathological racial procurement policies.

South Africa currently has 39,200MW of generating capacity. Of this 3,700MW (9,4%) was offline for maintenance in January. This left 35,500MW available to meet the country's power needs. However, over the week before last Eskom was hit by massive unplanned power outages. For instance, on January 16 there was an unplanned outage of 5,600MW - 14,4% of total capacity or 16% of available capacity. According to Carte Blanche on Thursday last week (24 January) the outages had spiralled to 8,500MW - 21,7% of total capacity or 24% of available capacity. Including planned outages 31% off South Africa's power was now offline. The programme stated, "coal problems were given as the reason for breakdowns at more than 20 power stations."

This is what brought South Africa's national electricity supply system to the brink of collapse, and forced the closure of the mines on Friday 25 January. The government's own report [PDF] - published on January 25 - identified the main cause of the crisis as problems with the quantity and quality of coal supply. It states that "some of the reasons for these failures were: Boiler Tube leaks/failure; Various small equipment failure; Generator output reductions (load losses) as a result of coal quality; Problems with coal supply."

As Ann Crotty noted in Business Report this week there are few systems in place to control the quality of coal bought on the spot market and delivered to the power stations by truck. She quoted one expert as saying: "Coal that is being delivered by trucks ... is often of very poor quality and very fine in size." The "rocks in trucked coal" cause boiler tube leaks, and fine coal dust operational problems. A spokesman for Eskom admitted last week that "heavy rain in Mpumalanga, where Eskom had most of its coal-fired power stations, turned [this kind of] coal into mud, which needed to be dried before it could be burnt."

Crotty noted that despite growing problems with securing sufficient coal supplies last year, Eskom was restricted by its BEE procurement requirements from meeting "its increased needs by modifying the existing contracts it had with its three major suppliers."

So far government and Eskom have refused to provide the real reasons for last week's national emergency - even as they rush to undue some of the effects. Although all this information is in the public domain - thanks to some excellent reporting - public attention is far away. There is far more discussion of the 1998 White Paper on Energy Policy than there is on the mismanagement and racial preoccupations which brought South Africa's economy to the brink last week.

Eskom: Coal purchased, coal burnt, BEE purchases
Year   2007 2006 2005 2004 2003 2002 2001 2000
Months   12 mths 12 mths 15 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Coal burnt (Mt) Actual 119.11 112.1 136.4 109.5 104.37 96.46 94.14 92.45
  Target 115.3 113.6 133.8 106.4 NA NA NA NA
Coal bought (Mt) Actual 117.4 111.7 137.8 112.7 104.9 92.8 89.1 NA
  Target 120.1 125.3 135 106.8 NA 89.3 NA NA
BEE bought (Mt)   29.2 26.2 28.6 23.2 23.8 18.1 17.4 NA
Source: Eskom annual reports 2002-2007            


 
 
The roots of last week's catastrophe lie in two fateful decisions made by Eskom soon after Thulani Gcabashe was appointed CEO in 2000. The first of these was to sell off most of Eskom's coal stockpiles."
 

Comments

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 responses to this article

One wonders why they actually WANT to govern? Just sub-contract it to the honkeys.
This does not mean you need to give up political power and BMW's - you just have to stop being stubborn. Imagine a world where everything works 100% AND you get to drive bling cars and cut private sector deals which make you very rich and powerful. Think . .more

by Acme (Honkey) Management cc on February 01 2008, 08:20
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Short & Sweet
You are a real ashole, idiot, racist crab I have ever heard off. You relate Eskom's problems to Blacks when it has a Board full of White males who could have taken drastic steps to correct the situation. As far as I remember and based on my Corporate . .more

by Pops on February 01 2008, 09:05
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BEE
The white survivors at ESKOM are powerless, helpless, emasculated, unhappy and on the endangered list.

by lad on February 01 2008, 10:13
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by The only 'bugs' in the picture are the ones eating your 'brain' on February 01 2008, 12:01
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Not true
It is the inevitable result of large scale agressive implementation of AA/BEE policies.

The board has to implement what the government has forced them to do, so you can't really blame them.

You can see the effects of these policies . .more

by anonymous on February 01 2008, 12:31
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POPS & BUGS
Pops, what does "The BUG stops with the Eskom board..." mean? Which bug are we talking about? The BEE BuG?

by Carlos on February 01 2008, 16:37
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pops
hey hey chopper

first off... blatant flaming shows a personal weakness,

second, when you are going to use something in capital letters, please make sure it's . .more

by Frank on February 12 2008, 19:50
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Sorry boss....South Africa is not racists..you rather go and fly. We are here to stay.

by Sibu on February 01 2008, 10:57
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by Stay in darkness you bloody genius on February 01 2008, 11:48
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It's our turn now. Sorry Baas.

by Short & sweet on February 01 2008, 11:55
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by What - to stay in darkness? on February 01 2008, 13:20
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Jasper, where else do you think we should go and stay. If you feel that ANC is not doing well why not leave the country as you surely dont belong here.



by K***** on February 08 2008, 14:32
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Gcabashe is an idiot, but his wife is on the AVENG board and who knows how many others
So of course nothing will happen, we need a truth and reconciliation for this crisis

by anonymous on February 01 2008, 08:05
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Interesting that Aveng is one of the consortium partners of the french company bidding to build nucl...

by anonymous on February 01 2008, 09:46
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I am sure she will recuse herself BAHAHA

by anonymous on February 01 2008, 11:02
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ESKOM
Just one more nail in the coffen (South Africa).


by Andre Fouche on February 01 2008, 08:18
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Something wrong with your figures 40 000MW or 40 GW capacity ?

by Kevin on February 01 2008, 08:40
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Kevin, what's the difference

by Uh... on February 01 2008, 09:05
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live here, keep your money offhsore, be prepared to move in 6 month frame ....

by 3 cheers for my british passport hip hip hooray!!!!!!! on February 01 2008, 10:44
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thats why we emigrated.

by anonymous on February 01 2008, 13:00
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TAXES TO QUEENIE
ALLREADY LIVING IN EXILE AND PAYING MY TAXES TO THE QUEENIE, AT LEAST MY TAXES ARE NOT FUNDING THE CLOWNS THAT ARE NOW IN CONTROL OF AZANIA. PLUS I GOT LIGHTS 24/7/365. AN ADDED BONUS IS A MR PLOD ON EVERY CORNER CATCHING THE OCCASIONAL ROUGE. GOODBY . .more

by MLUNGU on February 04 2008, 03:43
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Correction made. Thanks.

by James Myburgh on February 01 2008, 09:39
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Parliament has called on Escom management to help them prove that the skills shortage did not contribute to the current national disaster. The questions which they need to answer are:

1. What is the excuse for commissioning old power stations . .more

by Cynic on February 01 2008, 09:03
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by all this hot air - the facts are simple, this country & continent is governed by incompetent, racist, corrupt, nincompoops, with IQ's of fruit fly's - is simply is what it is .... on February 01 2008, 12:57
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the fact
I agree. But you must admit in the black's favour: even prior to 1994 the country was also run by incompetant, rascist, corrupt nincompoops.
However the main difference:
Whites can plan more than one week ahead. Blacks cant plan past lunchtime.

by reality of the banana_republic that IS RSA on February 07 2008, 10:55
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Did you say the continent is governed??
I think I may have misread your comment.
There is no governance on this continent.!!
There are only racists who are on the take, from the top to the bottom in what is referred to as "governments", but are very far from being what could be . .more

by Gavin on February 11 2008, 12:20
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Message to Pops
You are the idiot. There is nothing the whiteys can do as they report to the BLACK government that owns Eskom.

by Roy on February 01 2008, 09:31
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Reply to Roy
Then why are they there? Tokenism. Roy you are P******* you are not worth talking to. Actually you are worse than an idiot. Well done Pops.

by Themba on February 01 2008, 12:45
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by YOu still have not comprehended the scale of the fiasco have you, you bloody moron? on February 01 2008, 13:23
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Roy if you can't handle the hit, please get out of the kitchen as we won't tolerate racists here in SA. You just need to get used to it, we are in charge now....surely that's not difficult for you understand.

by Sibu.re-Roy on February 01 2008, 15:33
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Thema/Sibu cut your jibber jabber: you're a P******* vacuous duo
Typical losers... all Roy did was state an unpalatable truth yet you defend the indefensible and thus epitomise the failure of Africa. And you will vote the ANC clowns back in power next time. And they will carry on destroying the country. And you will . .more

by Lord de Maxibonne on February 02 2008, 03:12
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Eskom
It is a crying shame on the government and on eskom.

by Andre Strydom on February 01 2008, 10:06
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Eskom's board must resign. It's the honourable thing to do.

by Mark on February 01 2008, 10:07
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So, Eskom's road to hell was paved with good intentions. But why did the BEE hauliers and miners messed up so badly? After all, they had sweetheart deals from Eskom. How difficult was it to get right?

by Jeremy on February 01 2008, 10:33
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ANC crony hired to run Eskom was an accident waiting to happen
The eskom CEO was an accident waiting to happen. Bad management descisions created this chaos. The Eskom managment had one goal and one goal only: to enrich themselves to the maximum in the shortest time possible, and at the same time get rid of all the . .more

by To be expected on February 01 2008, 10:48
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Former ESKOM consultant
In 2000/2001 i was consultant to implement ESKOM's new start-of-the-art IT system for plant maintenance. The cost of implementing such a system aprox R 100 million. I was surprised to see the very young and of course very black power station managers in . .more

by Former ESKOM consultant on February 01 2008, 11:13
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ComfortZone
Yeah I agree with Brad, only whites who don't have any ambition should work at eskom since they not going to anywhere in there jobs anyways.

If I was black that would be the first place I would look for a job.

by Dan on February 01 2008, 11:33
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by The point is.. THIS IS OUR TURN NOW... Get used to it or fly dude. on February 01 2008, 15:39
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by It was your turn to prove equal ability. All you have done is prove that you are a dismal failure on February 02 2008, 13:58
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by WHy do you address the comment at Former Escom Consultant? Can you actually read? on February 01 2008, 11:52
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hmmm.
Although I don't like your choice of words, it is the truth.

My Uncle worked for Eskom for about 20 years and was doing very well, he was up for promotion and did not get the position because of his skin color, but he was smart enough to leave . .more

by Thomas on February 01 2008, 11:58
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It is a glorious day in London today
The sun is out and there is ample electricity... :)

by Michael on February 01 2008, 12:23
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Me by dis country cheap cheap from poor african man soon.

by China man on February 01 2008, 13:01
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CHEEP CHEEP
HAA SO COMRADE THE IGRNORENSE OF THE PREASANTS IS PROOVE THAT COMRADE MAO WAS CRORECT.

by LUYTSTER on February 04 2008, 03:57
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You will never succeed China man

by south african on February 09 2008, 10:17
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Rather your kids tell their friends that you dance in drag at a gay bar
than admit they work at ESKOM

by Dave on February 01 2008, 14:34
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It's a pity that SA is full of racists like Brad, really we have a large number of racists here, surely we can boost our current acc deficit by exporting f**ls like these. I repeat THIS IS OUR TURN NOW, get used to it.

by Proudly SA on February 01 2008, 15:47
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by Proud of having the ability to destroy. What a contribution. It has always been you only ability on February 02 2008, 13:52
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And still they deny responsibility for their own misery

by Do you need more proof? on February 02 2008, 13:55
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Proudly SA - you are stupid!
..."surely we can boost our current acc deficit by exporting f**ls like these"... Are you a moron? This just proves the point that you are way below our standard intelligence, let alone.

People taking their money out of the country screws the . .more

by Scarface on February 15 2008, 16:46
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You said it all: It was "start-of-the-art" NOT "state-of-the-art"

by Dave on February 01 2008, 14:32
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Where was the opposition?
So what was the official opposition doing since the energy
white paper was published 10 years ago? Are they not
supposed to hold government to account. Or do they
sit on their arses until something goes wrong then jump
up and down? I . .more

by Greg on February 01 2008, 12:47
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Good point Greg

by anonymous on February 01 2008, 13:22
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a VERY good point but then they are a bunch of lame ducks anyway
and some, like Kortbroek, have amazing chameleon-like abilities to change their values

by Dave on February 01 2008, 14:36
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Matla Power station burn-out
One of the reason a power shortage occurred is because the number 4 unit at Matla burn out. I have a picture available. Needless to say "Matla Management" hushed and threatened everyone to keep it quiet. In the same vein damages through incompetency . .more

by johan theron on February 01 2008, 13:51
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Matla Power station burn-out
Johan please post your picture on the "Why South Africa Sucks" blog...

by Piet Pompiies on February 14 2008, 17:50
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face facts
It's about time the government ministers and Eskom stopped lying to the public and deal with the real problems. Coal supply and quality is a serious problem and the facts in this article are from Eskom itself. The other serious problem of poor maintenance . .more

by Brian on February 05 2008, 10:37
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RE: Unfairness to the black Zulu nation
Why should we assist the white power brokers to get rich off our labor ? It's time for black to say "No" !

by Zulu Bmgoaki on February 05 2008, 15:08
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typical of the mind-numbing stupidity in SA
Blacks never say NO if offered a handout!

by Jasper on February 08 2008, 14:21
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Banking Cartel to Take Over the Mining Sector
What is the likelihood the banking cartel will get a hold on SA's mines? Now with Marxists calling the political shots, ditto for Zimbabwe, pretty much all of Africa's natural resources could come under the control of the bankers.

Bill

by Charleston Voice on February 06 2008, 22:52
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The Eskom meltdown
As regards planning (or lack of) for future economic growth, where was the President's economic advisory panel of distinguished persons - Tony O'Reilly ,et al - in all of this?

by Nostradamus on February 08 2008, 08:36
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Mr Jasper
Where else do you think we shud go and stay, we fought for "apartheid" in the past and we are here to stay. If you feel ANC is not doing well pack your bags and FLY.

by K***** on February 08 2008, 14:38
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This is the end of all things to come
As the rain falls...so do we!

Apartheid ended 14 years ago, we fought for/against.
Is this the basis of your argument, because if it is you are sadly misguided. Like 65% of other South Africans(Who ironically seem to be running our . .more

by The teacher on February 14 2008, 15:07
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To blame or not to blame ... Eskom or ANC Gov
Just out of interest for those of you who make claims "he's not qualified" - "fire him" a bit of info:

Jacob Maroga CV

1985 - B.Sc. Eng.(Electrical) Wits
1995 - Management Development Program (MDP) UNISA SBL
1995 - . .more

by awol on February 15 2008, 17:36
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I will not support eskom stupidity...
this is not a matter of black and white, a human bieng was created to be stupid and so are eskom officials. we all know that when u are white in colour ur brain is blank and you just never notice

by anonymous on April 07 2008, 16:48
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IT WAS ALL A JOKE............
i was joking eskom is not stupid and a white person is not blank phela zincane izinto ezibophisa abantu kulo mzantsi we democracy akukho freedom kwaphela

by Anony,ous on April 07 2008, 16:54
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is it helping?
To be serious people, what is pointing fingers gonna help us with? Nothing, so, my oppinion is lets do what the "engineers" say and take part in in helping eskom fix the problem, by supporting not criticising people plaese. we wanted people who didn't . .more

by sphe on April 14 2008, 19:41
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Come on
im studying a BSc in Poperty Studies.im doing my thesis on the possibilities of curbing the impact of the eskom crisis using large scale developments as a platform for using renewable resources and "GREEN" strategies and implementing strategies for eskom . .more

by chris on April 22 2008, 11:43
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whose fooling who?
''Each and every pig has its day''.not a matter of black or white but white.my forefathers struggled in south africa.did yours struggled,if not why complaining?Eskom not to blame but south african back ground.who were using-up SA energry while we were . .more

by Emmanuel on May 02 2008, 10:56
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