Eskom Crisis Case Solution
About Eskom Crisis:
Eskom is a state-owned monopoly utility of South Africa, which has been facing significant generation problems, plant construction problems, uncertainty over maintenance and rolling black-outs. This is mainly driven by the poor practices of utility maintenance and sporadic economic growth. (Maize, 2016)However, the important component in the generating mix of Eskom is Hydro, which has turned out to be an unspoken challenge because of annual extreme weather events such as flood and drought.(Styan J. B., 2016)In 1996, South Africa was warned by Eskom regarding the shortage of electricity. Due to this reason, Eskom was known to face one of the most difficult times since its establishment. (Gedye, 2018)
In terms of generation problems, two core issues were faced by Eskom, which mainly included its capability of keeping the power on and its finances. (Styan J.-B. , 2019)The reason behind the dire financial position of Eskom were billions in municipal debt,which were owed to the energy utility. (Gedye, 2018)Despite these two core issues, the other concerns that led to the Eskom’s crisis involved political interference, bad debts, and coal problems. (Styan, 2019)Eskom continued to remain in the spotlight regarding the future of power utility followed by the debt crisis, delayed and overpriced infrastructure builds, legal disputes with the regulators of energy, billions owned by municipalities and an ideological battle.(Gedye, 2018)The timeline of the events experienced regarding the onset of crisis and increased concerns are shown in Appendix A.
Based on the timeline of events, the debt crisis of Eskom were expected to deepen because Eskom had been borrowing money to repay its debt. The inability of the utility to ensure that the power would remain on was based on the inability of SA to attract foreign investors. (Styan J.-B. , 2019)According to Wayne McCurrie, the problems in Eskom began by the approach to finance the building of a new power station through debt. (Gedye, 2018) In 2008, the financial meltdown and electricity outrage led to an increased accusations and speculations associated with Eskom affairs and its utilization of public funds. (Pauw, 2017)
In recent years, the electricity sector of South Africa has represented an introduction of new actors and technological approaches which mainly included prospers. Prospers were generally referred to as both the producer and consumer of electricity. Along with prospers, small scale embedded generation from the roof-top solar photovoltaic were also included. (Lucy Baker, 2019)The other factors responsible for improving or worsening the energy crisis, involved: the government, municipal it irresponsible for the provision of electricity to most of the consumers, Parliamentary Budgetary Office, the Financial and Fiscal Commission, and the Minister of Finance. (Pauw, 2017)
The provision of SOE bailouts was primarily based on the health of balance sheet which was altered in case of Eskom. This was because the convincing the Legislature to Eskom’s bailout was considered easy by the Executive. It was based on the parlous state of the provision of electricity at the time, making an optimal decision despite following a rule. Based on the fact that allocation, control of expenditure, and oversight of different state departments was to be conducted by the Parliament. Because Legislature voted the money to departments per program. In case of Eskom, such activities were performed by the Executives. Also, the consideration of funding would have been in millions if Eskom was a government department than in billions. (Pauw, 2017)
Because of the power utility’s dire cost implication, Eskom did not deal decisively with the union’s demand of cancelling the IPP (Independent Power Procedure) project.Regardless of the expense, the contract was signed because of which Eskom wanted unions to accept the IPP’s decision. Another decision taken by Eskom was its approach of building a new power station using its debt.(Gedye, 2018)Around R600 millions of loan was provided to Tegeta – a Gupta linked coal mining organization by Eskom in the year 2016. (Styan J. B., 2016)
According to various studies, the labor cost at Eskom were too high as compared to other utilities and the utility was overstaffed from20 percent to 40 percent.(Gedye, 2018) Similarly, there was a need to lead the development of an offset program to bring significant reduction in the emission of polluters in its value chain. Because emissions of ash and other pollutants was one of the major concerns for Eskom after water. In 2016, the power plants of pastoral represented the production of around 32.6 tons of ash by the consumption of 115m tons of coal. In addition to this, 215.6 tons of CO2 and 78 kilotons particulates was emitted by the plant of Eskom. (Styan J. B., 2016)
Impact of Political forces:
Eskom played a crucial part in the techno politics and minerals-energy complex in South Africa. In 2015, a support package was voted by the Parliament of South Africa, which was of not less than R83 million to Eskom – a state-owned Enterprise (SOE). (Pauw, 2017) Electricity was considered as site specific as a large system of technology that is embedded in broader social, economic, and political forces. Being a natural monopoly, electricity lend itself in the direction of economies of scale. Due to this reason, the governance of electricity is difficult and has proven to be one of the hardest industrial network to be reformed. (Lucy Baker, 2019)
Similarly, the debate over the resource strategy of showed that redistribution of wealth could not be used to tackle the poverty, unemployment, and inequality alone. Rather, there is a need to improve the economic growth rate that is primarily dependent to have the correct public policies in place and to have a growing and an adequate supply of electricity that is affordable.(Maize, 2016)Followed by the transition to democracy in the early 2000s, the progression of national electrification program was mainly influenced bythe requirement of cost for additional infrastructure in order to connect the sporadically populated rural areas.(Lucy Baker, 2019)
In 2015, considering the insufficient estimation of the amount by the political parties, they had no choice than to approve the bill. In case of not providing R23 Billion to Eskom, it was expected to represent a rapid increase in liquidity crisis and bankruptcy, i.e. moving downwards. In terms of such deliberations, Eskom was known to be a massive strategic failures public entity. Although the government did not have a policy on bailouts of SOE but they were to be financed on the basis of the balance sheet health, according to the National Treasury 2010. But, Eskom had weaken balance sheet………………..
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