South Africa’s Energy Crisis Could Spark A Political And Economic Disaster

By Haley Zaremba for Oilprice.com,

South Africa’s energy crisis is teetering on the edge of a major political and economic crisis.

Bogged down by inefficiency, ineptitude, and severe levels of corruption, the country’s power utility Eskom has proven incapable of providing sufficient and reliable energy to the nation’s grid, despite the domestic abundance of coal. Once one of the most reliable utilities in Africa, Eksom now exists in a state of constant emergency which is currently threatening to push the country into civil disarray and economic catastrophe.

Eksom desperately needs to service its poorly maintained power plants. On any given day, Eksom operates at about 50% capacity. Rolling blackouts, known locally as ‘load shedding’ have become a normal and expected part in day-to-day life in South Africa. “It even has predictable stages,” Forbes reported in a recent excoriation of Eksom operations, “ranging from Stage 1 (reducing power for two hours at a time over a four-day period) through Stage 8 (reducing power for 12 hours out of every 24).”

In the last 12 months, however, these blackouts have gone into overdrive, with the power going out several times a day and up to 12 hours at a time. Adding insult to injury, Eksom has added a steep energy tariff to help bolster their own failing finances. The issue has transformed to a semi-accepted nuisance to a barrier to local livelihoods and the functioning of the national economy. Supply chains that rely on refrigeration to keep the shelves stocked, such as the dairy industry, have had to throw out their products. As a result, South Africans are angry. Civil unrest is on the rise, and protesters are not only targeting Eksom but also the ruling African National Congress (ANC) party. 

Challenging Eksom won’t be easy, however. The utility has shown that it isn’t afraid to fight dirty. Former CEO André de Ruyter tried looking into the company’s systematic corruption, and was fed cyanide-laced coffee in his office in what is now being looked into as an assassination attempt. The ANC, too, is protective of the current way of running things and starkly opposes taking away Eksom’s monopoly by privatizing South African power plants. While the platform is unwilling to budge on this point, many ANC delegates have expressed that they think the current power crisis will likely cost the party the next election. 

If South Africa can’t wrangle Eksom, however, there is likely no end in sight for the nation’s economic woes. The country faces a “perfect storm of inflation, electricity cuts and corruption accusations that will continue to deteriorate South Africa’s profile and to pose risk for investments in the country,” as Aleix Montana, Africa analyst at risk consultancy Verisk Maplecroft, told CNBC. 

While South Africa doesn’t hold much interest for many foreign investors, however, foreign governments are under the gun to work out a deal with South Africa to help the struggling nation to wean itself off of coal. Cleaning up South Africa’s act is an essential part of the pathway to keeping global warming within acceptable limits. At present, coal represents 80% of the country’s energy mix, more than any other industrialized nation. Furthermore, in order to try to meet energy demand and limit blackouts, Eskom is currently completing two coal-burning power plants that will be some of the largest in the world, partially financed by billions of dollars in World Bank loans.

Phasing out coal and building up green energy infrastructure is a huge challenge for any country, but especially so for a nation that’s already cash-strapped and lacking energy security even with plenty of fossil fuels. To help make such a lofty goal possible, the United States and Europe are currently working on putting together a $8.5 billion international aid package to help fund South Africa’s green energy transition. This ongoing deal is part of a push for climate financing, the importance of which was re-emphasized at COP27 last fall. While wealthy nations have historically fallen dismally short of their climate finance pledges, some word leaders are starting to make good on those promises, and South Africa is set to be one of the first and biggest benefactors.

Ironically, Eksom’s dismal track record could provide an invaluable entry point for weaning South Africa off of coal. Huge parts of the nation’s fleet of coal plants are in desperate need of being updated and replaced; as such, converting these existing plants into renewable energy plants won’t be much more costly than what the country has to invest in the energy sector regardless. With the financial support of wealthier nations, South Africa could conceivably revamp its energy industry in a remarkably short time span.