Dire Eskom results show need for privatisation 

25 November 2014

Today Eskom reported a profit of R9.3 billion for the first six months of the financial year, down 24% from the R12.2 billion for the same period last year.

By the end of the year, the final profit for Eskom in 2014 is expected to come in at a meagre R500 million, down from R5.18 billion last year. 

Eskom is clearly in crisis. We are facing constant threats of load shedding and collapsing infrastructure at Eskom. Simultaneously, Eskom's credit rating has been downgraded to junk status, making its debt servicing costs increasingly unaffordable and unsustainable. It is now an open question whether Eskom, even with the backing of the South African government, will be able to afford:

Upgrading and maintaining its existing distribution network and power plants,

Building new power plants to keep the lights on, and

Servicing the increasing pile of debt it owes to investors 

Eskom's CEO, Tshediso Matona, today also conceded that Eskom is so highly leveraged, that the R20 billion government buffer it received this year is already under pressure. 

Government's financial situation makes the following facts abundantly clear:

The state cannot afford to continue bailing out Eskom,

The state cannot afford to have economic growth constrained by Eskom's inability to deliver an uninterrupted supply of electricity, and 

The state cannot afford another downgrade in its sovereign credit rating. Eskom is already weighing down investors' perception of the South African governments debt and therefore we cannot allow a further deterioration of Eskom's financial situation. 

The bottom line is that the state cannot afford to fix Eskom, and Eskom cannot afford to fix itself. The only rational, affordable and sustainable response is to investigate the role private actors could play in stabilising South Africa's energy supply crisis. 

The CEO said that operational challenges were the leading problem facing the company. The candidness of this assessment is welcomed, as Eskom is the only business I know of that requests their clients to use less of their product.

With the country's real Growth Domestic Product (GDP) coming in at a meagre 1.4%, South Africa can ill-afford a power system that continues to be significantly constrained.

The partial privatisation of Eskom and the involvement of other independent power producers is now a mathematical inevitability. The status quo is simply no longer affordable. 

Statement issued by Natasha Michael MP, DA Shadow Minister Public Enterprises, November 26 2014

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