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Fixing Eskom is about more than South Africa, AfDB says

11th November 2019

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South Africa’s struggling power utility must be fixed because energy security in the region largely depends on it, according to the African Development Bank (AfDB).

Eskom Holdings, which is buckling under R450-billion of debt, is “too big to fail” because it powers Africa’s most-industrialized economy and much of the region, AfDB president Akinwumi Adesina said in an interview Sunday in Johannesburg.

The utility produces about 95% of South Africa’s power and almost half of the electricity used on the continent, according to its website, and it forms part of the interconnected Southern African Power Pool. Of its total energy sales, exports to the region make up 6%.

Eskom relies on government support to remain solvent and is seen as the biggest single risk to South Africa’s economy. While the government has announced it would split the producer into three operating businesses, details about this and how it would reorganize the utility’s debt are still outstanding. The company also doesn’t yet have a permanent chief executive officer.

There is considerable regional demand that it can’t meet due to a lack of investment in transmission infrastructure, the utility said in its 2019 annual report. Eskom’s current operational challenges are also negatively affecting power exports, it said.

The government’s plans to turn Eskom around are commendable, but it must ensure that the utility is managed more efficiently and effectively, Adesina said. The company must invest in the correct energy systems to deliver more affordable power and guarantee continued manufacturing capacity for South Africa and the Southern African Development Community, he said.

The Abidjan-based lender has invested about $4-billion in Eskom and has assured the South African government of its support in fixing the power producer, Adesina said.

Edited by Bloomberg

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