When I posted yesterday, I was surprised by how many people came back with comments along the lines of “Well, if only you Zimbabweans would get off our grid, then we wouldn’t have this issue.”
As it turns out, I can refer you back to some earlier posts. Specifically, these two:
- In Defence of Eskom: History and BHP Billiton
- The Investor Diaries: Week 38. And some thoughts on Eskom.
In addition, I’m going to give you this infographic from Greenpeace:
And I’m going to show you this table of historical electricity costs, relative to the rest of the world:
The Common Misconceptions
Myth 1: It’s the blerry high salary that we pay the CEO!
Well no. In the grand scheme of costs, the Eskom CEO salary is about R15 million. Total annual costs? Well, if you take the Eskom 2014 interim results as a guide, total annual costs for the year ended 31 March 2015 will be at least R150 billion. That CEO salary? 0.01% of the bill.
Big relative to the rest of us. Insignificant compared to what we’re dealing with.
Myth 2: It’s all the exports!
Well no. It’s actually all the mining. In particular, the non-ferrous mining industry, which uses about 25% of Eskom’s electricity and contributes only about 4% of GDP.
How did we get to this point?
Long-term supply contracts entered into during the last years of Apartheid that incentivised global mining firms to establish their smelting processes here in South Africa at astonishingly low cost. Supply contracts that are still in existence and will continue to be in existence for quite some time.
That said – I’m sure that the non-GDP-contributing smelters will move off in search of more reliable electricity if they’re subjected to enough load-shedding.
So that’s a positive!
Myth 3: How dare they – look at my high electricity bill each month!
The bill may feel high now, particularly relative to the low cost electricity that was once the norm.
But it’s all those years of low cost electricity that got South Africa to where it is.
All that low cost electricity meant that:
- Eskom wasn’t doing repairs and maintenance properly, because it wasn’t earning enough.
- No private sector electricity suppliers could compete with the low cost electricity, so Eskom was left with its monopoly (even after it tried to get rid of it).
- And because electricity was cheap, there was a lot less incentive for industries, businesses and homes to become energy efficient.
If we want to blame anyone here, we should probably blame NERSA for refusing to allow the necessary tariff increases to cover the costs of maintenance (and to provide a reason for private sector disruption, and a reason for people to start finding more ways of becoming efficient).
We should also blame the municipalities for collecting our money on Eskom’s behalf, and then not passing it on to Eskom when they should have.
And finally, Eskom itself really shouldn’t have delayed its maintenance and repairs programs in order to keep us happy in the short term.
The Good News
And I think there is some:
- People and businesses using generators, inverters, gas stoves and LED lighting will start to take the pressure off the grid.
- Because inverters tend to charge during off-peak hours, and supply during the peak times, there will be a muting in the power demand swings.
- There’s going to be greater public attention paid to infrastructure maintenance, which tends to be a grudge purchase (but it stops being such a grudge purchase when the population gets a real taste of what life is like without it).
- Some of the new power plants will be finished faster than they might otherwise have been.
- The unreliable power situation might move the heavily-subsidised industries on before their supply contracts are up (we can only hope!).
In the meantime, we’re in for a bit of an adjustment.
Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.
gwadiso February 6, 2015 at 11:42
Jay, please don’t ask me where my head has been stuck in the sand. Maybe my head is still stuck there.
I am confused. EFF and AMCU believes that big Mining Companies got big out of exploiting black people and got rich, and got to keep most of the profits. If it true that these companies are in fact exploiting the country’s grid today, why has those two groups not said anything about it yet.
Please forward today’s post to them, maybe they don’t know.
No South African compares this country to Zim, Kenya or Ghana. If you want to drive a point home, then compare us to Brazil, India, or Mexico.Reply