As Eskom marches on with the biggest power expansion programme outside China and India, it is stumbling from one crisis to the next. It began with the January 2008 blackout, when SA's mines had to shut down for nearly a week.
That was followed by Eskom's shocking request to the National Energy Regulator of SA (Nersa) for a 53% power hike that year. It got only 27,5%, and Nersa indicated price hikes of 23%-25% for the next three years.
Then Eskom dumped an application for three consecutive price increases of 45% on Nersa's doorstep at the end of last year. Unsurprisingly, that application didn't go down well, so Eskom dropped its request to 35% a year for three years. And the nation breathed a sigh of relief. Hardly.
Eskom's tariff demands will knock the economy, just as SA is emerging from the recession.
Mpho Makwana
Perhaps what irks many companies the most is that Eskom wants to double prices over the next three years even though it can't meet power demand.But herein lies the problem. Eskom needs to build power stations at a rate of knots. To do so, it needs to spend, as acting chairman and CEO Mpho Makwana recently pointed out, R400bn by 2014 - nearly half of SA's 2009/2010 national budget.
Someone has to pay for this. Eskom wasn't saving for this huge new build programme - instead it was paying profits to its shareholder, government. In the late 1990s, government knew SA needed new power stations, but it wanted to privatise the power sector. Come 2001, the penny dropped that the price of power in SA was too low to attract any investment from the private sector, so Eskom would have to build them instead. But by then it was too late.
Now the company is facing a cash crunch, comparable to many private companies that were caught with huge debt at the onset of the credit crisis (diversified miners Rio Tinto and Xstrata are good examples).
What did the mining companies do to plug the huge holes in their balance sheets? First they took a chainsaw to costs. Then they quickly approached shareholders to raise money. Rio Tinto, for example, also had an asset sale to raise funds.
This is what Eskom should have done ages ago. Sure, now it's selling a stake in its new R120bn-plus Kusile power station, but it's basing its tariff increase application on the assumption that it will be able to find a buyer. There is no guarantee it will.
The other fundamental flaw with SA's electricity system is that Eskom is the sole buyer of power. This means any independent power producers that want to feed into the national grid have to sell their power to Eskom, while competing with the parastatal at the same time. This is clearly not ideal.
On a positive note, President Jacob Zuma has acknowledged this in his state of the nation address, and says government will separate Eskom's power generation business from distribution, and the new entity that buys and sells power in SA will be an independent one. That should help pave the way for fair competition and new private investment in the power sector.
As Nersa deliberates what increase to grant Eskom on February 24, it should remember that consumers often find they can make do with much less, particularly when they have no choice. However, an absolute imperative for Eskom is to get its house in order - and that means sorting out its leadership and funding crisis.
Having an acting CEO and chairman for any extended period is dangerous for any company. Even more so when both posts are being filled by the same person.
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