Load shedding by Eskom, South Africa’s embattled power utility, dented the first quarter’s economic output. Q1’s GDP declined by 3.2 percent, the largest quarterly drop in 10 years and economists blamed Eskom’s rolling blackouts for the unforeseen contraction.
Eskom’s load shedding has huge impacts on the economic output given that it supplies 95 percent of the power in South Africa. To supply power across the country, Eskom relies largely on its ageing, heavily polluting coal-fired power stations.
The debt-ridden state entity cannot afford to frequently maintain its power plants owed to the debts accrued and has been dependent on government bailouts to remain afloat.
The cash-strapped power utility this morning made known it would implement load-shedding from 9 am until 11 pm due to a shortage of capacity.
The utility’s chief operating officer Jan Oberholzer has further revealed that the load shedding is likely to go on for the next week due to the constraints on Eskom’s power generation system.
Eskom’s reason for implementing load shedding is to “protect the power system from total collapse”.
Earlier, the government entity attributed the load shedding to high levels of unplanned breakdowns. The breakdowns are a result of a lack of maintenance.
The broke power utility has a debt of ZAR 450 Bn and for the year ending March 2019, it suffered a loss of ZAR 20.7 Bn, its biggest-ever financial year loss. The state-owned entity has continuously recorded losses that have had ripple effects on the economy.
The utility’s crippled financial and operational condition has continued to pose a huge threat to South Africa’s economic prospects given that it is hurting the fiscus.
The broke entity is unable to repair its ageing plants even though they are unable to produce enough power to meet the rising demand.
The stable power supply in Q2 saw South Africa’s economy rebound with a growth of 3.2 percent. It is without a doubt that power shortages have been a major limitation on output in Africa’s second-biggest economy.
The newly announced rolling power cuts will have a huge negative impact on business and further lead to an economic slowdown.
In a move aimed at rescuing the debt-strapped utility, the Cyril Ramaphosa-led government earlier announced that it would conclude Eskom’s clear economic growth strategy “in the next few weeks.”
Featured Image Courtesy: SAP