Eskom announced early on Wednesday that phase 2 load shedding will be activated from 09:00 to 23:00. The severe power constraints are apparently caused by a broken coal conveyor belt at the Medupi power station. This reduced the station’s power supply by half. The struggling power supplier said in a brief statement that due to a lack of generating capacity, he was forced to take this step.
According to Eskom, they have been extensively using the help of pump generators and open cycle gas turbines since Saturday to make up for the electricity shortage, but cannot sustain due to the decline in dam and diesel levels. In addition, five generating units are not available due to boiler tube leaks. As a result, the state entity then had to implement Phase 2 Load shedding from 9:00 am to 11:00 pm which dumps 2000 MW of power on a rotational basis to prevent a total collapse in the power grid. Phase 1 is the ‘lightest’ load shedding schedule, while up to 4,000 MW of power can be dumped during phase 4.
Last month, Eskom warned that the maintenance of plants, which regularly take place during the summer to improve reliability, could cause further load shedding, which in turn has a serious impact on the country’s economic prospects.
The national power supply is currently in deep financial trouble and is trying to recover the billions of rand it lost through corruption, as well as consumer, major customer and municipal defaults. He told parliament last week that 30 days of load shedding were applied in the 2018/19 financial year, while Eskom had a diesel bill of R6.5 billion in the same year to try to mitigate its effect.
South Africa last experienced the effects of load shedding in March this year, partly because a cyclone in Mozambique has affected power imports from the country. Eskom did not have enough diesel at the time.
Over 270 hours of load shedding contributed to the South African economy shrinking 3.2% in the first quarter of this year. Although it did not end in a recession in the second quarter, the economy is struggling.
The national power supplier, whose debt is currently estimated at R420bn, is in deep financial trouble due to the state of unsteady power stations and new power stations that are not running. Medupi and Kusile, which were originally scheduled to be fully operational in 2015, are still behind schedule and to get them both now fully operational is estimated to cost an enormous R18 billion.
Eskom, which was in the midst of the state capture, obviously struggles to meet the demand for electricity. Its workforce is estimated at 48,600, which, according to the World Bank, is 16,000 too much for the size and capacity of the company.
In addition, over the past decade, nearly R47 billion has been spent on diesel purchases over the past 10 years in order to try to keep turbines optimally
Moody’s is the only major rating agency that has not yet reduced South Africa’s credit rating to “junk”. It will have to announce its decision on the SA rating in two weeks’ time.
If SA also loses Moody’s investment grade, it will cost the country its place in the most important group of government bonds. Citigroup’s World Government Bond Index contains only securities that are investment grade. All the many overseas investment funds that are only allowed to invest in investment grade bonds will be forced to sell their South African government bonds. This will increase the cost of government debt.