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Eskom headed for distress, bailout

Eskom headed for distress, bailout

11th April 2014

By: Natasha Odendaal
Creamer Media Senior Deputy Editor

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State-owned power utility Eskom will likely need a R50-billion to R100-billion bailout if it is to survive over the next few years, Shava Mining Enterprise’s Andrew Kinghorn warned on Friday.

The power utility was in distress as it battled to keep its head above financial water and South Africa’s lights on, with the country heading for “unavoidable” national debt of 44% – from a debt of 27.3% of gross domestic product in 2008.

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Kinghorn, speaking at the second Zimbabwe Energy Future conference, in Johannesburg, said the National Energy Regulator of South Africa had only allowed an 8% increase, which would leave the utility with a R190-billion shortfall over the next five years.

“Potentially, Eskom is going to cripple the country – that’s how bad it is,” Kinghorn said.

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For Eskom to stay in business, a charge of R1.20/kWh was required, despite tripling the price over the past few years to the current cap of 70c/kWh.

Government, which should “accept responsibility” for its role in Eskom’s “failure”, and Eskom were currently in discussions to find solutions to secure the required financial resources, particularly as Eskom increasingly overran its emergency power-generation budget of R2-billion.

Eskom’s battle to “keep the lights on” had led to reliance on its 2 426 MW emergency diesel-powered open-cycle gas turbines, generating a bill of over R10-billion.

But, even the turbines were not enough as the country suffered “black Thursday”, when South Africa experienced rolling blackouts for 14 hours on March 6, as Eskom initiated the first load shedding since 2008 in an attempt to avoid total collapse of the national grid.

Kinghorn, who outlined several challenges faced by Eskom – such as supply constraints in certain circumstances, an inability to source more loans, which in effect halted all tenders, costly storage issues, rising energy demand, questionable contracts, delays in bringing more energy online and a lack of working capital – suggested the privatisation of some assets to ease the financial and capacity strain on government.

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