November 28, 2019 / 5:42 PM / 16 days ago

Factbox: South Africa's power crisis - reforming state utility Eskom

(Reuters) - South Africa is trying to overhaul ailing state power utility Eskom after more than a decade of intermittent electricity cuts that have stifled Africa’s most industrialized economy.

Below are key facts about Eskom, its financial problems and the planned reforms.

GENERATION SHORTFALL

Eskom, established in 1923 under white minority rule to serve the mining sector, is in the top 20 power utilities in the world by installed generation capacity.

But it has struggled to meet demand since 2007, with several bouts of severe power cuts.

The utility now has a total nominal capacity of around 44,000 megawatts (MW), with 36,500 MW of that coming from 15 coal-fired power stations.

Alongside its creaking coal fleet, Eskom operates Africa’s only nuclear power plant near Cape Town, as well as gas, hydropower and wind plants.

It generates more than 90% of South Africa’s power and 40% of the electricity on the continent.

Eskom is scrambling to complete two new mammoth coal plants, Medupi and Kusile, which have been beset by huge cost and time overruns.

DEBT, LOSSES AND BAILOUTS

Eskom is struggling to service 450 billion rand ($30.5 billion) of debt, which it ran up because of soaring expenditure on Medupi, Kusile, coal and salaries.

Executives also blame years of low tariff awards, which have not allowed the company to recover its costs, and corruption scandals under previous management.

It made a 20 billion rand loss in the year to the end of March and expects to make a similar loss in the current financial year. [L8N2883HZ]

The government has promised to inject 59 billion rand into the utility in 2019/20 and 2020/21, in addition to 230 billion rand of bailouts spread over the next decade.

Analysts say even those bailouts aren’t enough to make Eskom sustainable in the long term.

An outline of the government’s Eskom plan unveiled in October gave no details of further debt relief, but finance ministry officials have said they are weighing options including swapping Eskom debt for government bonds and moving its debt into a special purpose vehicle.

THREE-WAY SPLIT

President Cyril Ramaphosa pledged in a state of the nation speech to split Eskom into three entities for generation, transmission and distribution to make it more efficient.

The government says it will prioritize setting up a separate transmission unit within a state-owned Eskom holding company by the end of March 2020, while the legal separation of all three entities should be complete by the end of 2022.

The aim is to create greater transparency over performance, improve management focus and minimize corruption.

Some analysts are skeptical officials will follow through with their Eskom plans in full, given fierce opposition from labor unions and vested interests in the energy sector.

Eskom employs more than 46,000 people, which many analysts consider excessive.

Ramaphosa has promised Eskom won’t be privatized and that voluntary severance packages will be offered to staff instead of redundancies. Job cuts are a sensitive issue given unemployment is running at 29%, an 11-year high.

Compiled by Alexander Winning and Emelia Sithole-Matarise; editing by David Evans

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