A Short History of ESKOM, Part 2 (2001-2022)

Following on from Part 1, this article seeks to analyse some of the historical and present dynamics bedevilling ESKOM. Over the past twenty years, ESKOM’s systems have been under severe strain due to technical and organisations failures. ESKOM has attempted to grapple with their supply issues through investment in Kusile and Medupi, two large coal fired power stations which by 2022 are still not functioning to their capacity. The overall productivity of ESKOM’s ageing coal fleet has declined and corruption and political appointments in the power utilities’ management have crippled its functioning. Below, this article attempts to understand the various factors which have led to rolling blackouts for most of 2022.

Old King Coal, Failing Systems and Expanding Capacity

As noted in Part 1, ESKOM rapidly expanded their provision of electricity during the period 1994-2014. From the early 2000s, however, system problems began to emerge. The first catastrophic failure at Duvha power station happened in 2003.[1] Further complications, and perhaps the most pronounced, arose in the Western Cape between 2005-2006. Many units of the Koeberg nuclear plant shut down and pylons and powerlines caught fire, which led to blackouts in the province during these years. In 2007, more consistent blackouts hit the country, this time with the name “loadshedding”. The cause of the blackouts was “deficiencies in ESKOM’s system”. The culmination of the power supply crisis was in early 2008 when gold and platinum mining companies were forced to stop all extraction and processing activities for five days in order to avoid a blackout and this created massive economic losses.[2]

Therefore, in the first decade of the 2000s, ESKOM failed to meet demand. The failure of generating capacity, ageing equipment and the need for upgrades on power transmission and distribution systems meant that by 2007-2008 the government was experiencing a severe energy crisis.[3]

According to Jaglin and Dubresson, the crises at ESKOM were simple; depleted coal stocks, poor quality coal, unscheduled maintenance and inadequate reserve margins (no reserve capacity) hampered the system from all sides. On the government’s side, “indecision and paralysis deprived ESKOM of vision, direction and strategy”; a severe lack of investment and a failure to take into account warnings that South Africa would be short of electricity around 2005-2007 meant that the ESKOM suffered at the hands of the government’s indecision. On ESKOM’s side, personal conflicts and poor management meant that the power utility was unable to sufficiently communicate its plans, strategies and needs.[4]

Compounding this, ESKOM had a severe loss of professional skills, relating to their rigorous implementation of affirmative action (mentioned in more detail later in the article). In January 2008, when the electricity crisis was at its worst, ESKOM had 848 skilled vacancies. Two skills areas were of particular importance; maintenance planning and skilled contract negotiators.[5]

From 2005-2006 warnings about a power crisis became more pronounced and in response ESKOM began to debate the trajectory of the country’s energy supply. ESKOM and its partners drafted numerous proposals to deal with the energy crisis. The overall plan would include a great increase in fossil fuel, nuclear and renewable energy sources. A document drafted by a technical committee revised the proposals put forward by ESKOM. The document envisaged an increase in South Africa’s generation capacity from 46 993 MW in 2010 to 89 532 MW in 2030. There was not a single person from the renewable energy sector included in the technical committee, showing the commitment to the minerals-energy complex.[6] 

The resolutions put forward in 2005, which were consolidated in 2010 were to ensure three new power stations, Ingula (hydroelectric), Medupi (coal) and Kusile (coal).[7] By far the largest proportion of investment went towards the monster-sized coal fired power stations and to facilitate the functioning of the minerals-energy complex. A $3 billion loan from the World Bank was granted to build massive coal-fired power stations, Medupi and Kusile in Mpumalanga. In order to fill the conditions of the loan, Medupi would have to install flue-gas desulphurisation equipment to abate harmful emissions going into the atmosphere. In 2017, they still hadn’t installed the equipment and asked for a ten-year extension to do so.[8]

The investment in Medupi and Kusile showed the government’s commitment to large players in the coal industry. ESKOM also appeased large mines and corporations by making confidential electricity sales to these companies, thus exempting companies like Gencor, Anglo-American and BHP Billiton from paying the required amount for electricity – this forcing the funding of large projects onto smaller consumers of electricity.[9]

While new power stations were being built, ESKOM embarked on an energy emergency plan where efforts were made to rapidly restore stocks of good quality coal and improve maintenance to avoid a total system collapse. An Energy Conservation Scheme was launched which managed to reduce consumption over the short term. The global financial crisis also lifted pressure on ESKOM’s capacity as economic growth dropped.[10] After 2008, ESKOM’s profits grew for three consecutive years, but then dropped dramatically due to tariff increases, slower economic growth and energy saving measures. ESKOM had garnered large amounts of investment from borrowing, profit earning, state funding and other measures. Yet these funding efforts were undermined by the inability to secure electricity tariff increases, increasing international prices for materials and unfavourable exchange rates. This meant that despite massive efforts for funding, ESKOM still had a “funding gap” of R225 billion in 2014. Constant bailouts by the government have helped ESKOM stave off a “short-term financial disaster accompanied by a lasting breakdown in electricity generation”.[11]

One of the central issues facing ESKOM was rapidly increasing cost of coal. In 2008, the National Energy Regulator of South Africa (NERSA) capped the price of coal, which greatly reduced system buffers leading to the 2008 loadshedding crisis. Coal began to be exported to countries like China and India, and also, large companies failed to meet delivery targets which led to smaller companies entering the fold and overcharging. With good quality coal being sent abroad, ESKOM’s power stations were forced to use poor quality coal which caused “load losses”. In the end, according to Jaglin and Dubresson, ESKOM’s stock of coal, “depend above all on power balances between private suppliers, the state-owned company and protagonists in the central spheres of government whose job it is to manage and regulate the electricity market”.[12] By 2018, underinvestment in coal collieries contributed to a coal emergency.[13]

ESKOM’s production of electricity and the overall consumption dropped between 2007 and 2015. Yet the electricity crisis sparked again in 2015, owing to the ageing and fragile system. Gas turbines were added, but these were far more expensive to operate than coal-fired plants. ESKOM did embark on plans for mass rolling out of solar geysers, private co-generation and compulsory energy conservation. Yet the system got progressively worse, and in 2014, ESKOM admitted that its operations could not continue because of unplanned maintenance operations. In 2015, the country had 56 days of loadshedding from January to April 2015.[14]

ESKOM in the Pits: Cronyism and State Capture

When former Public Protector Thuli Madonsela released her state capture report in 2016, ESKOM was cited as a primary site where “systemic looting of national resources” occurred. ESKOM is the largest state-owned corporation and its concentration of capital, resource flows and public-private networks made it an attractive site for criminality and looting. Going back, the 1998 White Paper on Energy, while making provisions outlined in Part 1, also called for greater accountability within ESKOM. This was rejected by a variety of partners, including organised labour, municipalities, government and ESKOM itself.[15]  

Just prior to 2010, systematic attempts were made to seize ESKOM positions. Evidence of this is that after 2009, governance at ESKOM was consistently tinkered with as CEOs began to resign and top management was constantly reshuffled.[16] Jaglin and Dubresson argue that from the early 2010s, ESKOM was faced growing difficulties; the government had made ESKOM “the spearhead of transformation” and ESKOM has become a tool of neopatrimonialism where “tenderpreneurship” has become commonplace. Competition for tenders or “tenderpreneurship” has been characterised by a competing classes of ANC capitalists who have set up this neopatrimonial system.[17]  Critically, ESKOM is at the centre of the minerals energy complex, the system which was gradually structured since 1923.[18]

From 2010 onwards, greater efforts were made to manipulate and control ESKOM, this time through the office of the Minister of Public Enterprises, then Malusi Gigaba. Gigaba had the role of planning ESKOM’s trajectory, approving appointments and overseeing governance. An ally of both Jacob Zuma and the Guptas, Gigaba would aid the process of ESKOM’s transformation towards gearing political allies with key contracts to the detriment of the South Africa’s only electricity provider. Gigaba placed people in positions where corrupt contracts could flourish, and he also greatly “undermined procurement processes and expertise” (one example is where technicians informed the ministry that turbines at Koeberg needed to be replaced and Gigaba flatly refused to do so). Gigaba defended these actions saying that he was rolling back Apartheid which had bolstered white business elites – a false discourse which has become commonplace in defending corruption and political appointments.[19]

It is noted by Hermanus and Godinho that Gigaba “used his false transformation narrative to commandeer coal supply contracts in service of corrupt transactions”. Coal was a key site where “economic transformation” could take place, particularly in the form of giving contracts to new black elites. The Guptas were given coal contracts as old suppliers were unseated. Both Medupi and Kusile were designed to generate new group of elites to lead the minerals-energy complex. Many of these coal deals are kept secret and are made outside of the eye of the media and the public. The spread of crony-capitalism has been aimed at forming a new industrial elite, and not efficiently expanding electricity production.[20]

When Collin Matjila was appointed as ESKOM CEO in 2014, it opened the doors even more widely for the Guptas to take control of coal supply. Evidence of this was that his resume was circulated to both the Guptas and Jacob Zuma’s son, Duduzane Zuma who had links to Tegeta a large coal supplier. Matjila “supported” a lot of irregular procurement and he gave contracts to Gupta-linked coal suppliers despite them not meeting standards.[21]  Hermanus and Godinho note that Gigaba styled himself as part of the new black industrial class, who would pave the way for the entry of the Guptas and Gupta-linked Salim Essa (with Transnet contracts), with the aid of CEOs like Matjila and later Brian Molefe.[22]

Lynne Brown took over from Gigaba in 2014 and further entrenched cronyist systems of procurement and contract awarding to Gupta linked people. External private interests therefore became “deeply linked to ESKOM’s organisational functioning”.[23] Under Brown’s leadership, between 2014-2015, ESKOM implemented Broad-Based Black Economic Empowerment (BBBEE) for its coal supply. Black Economic Empowerment had put stringent conditions on the operations of companies with public sector or government contracts. A complex web of legislation and bureaucracy meant that ESKOM and its suppliers were subject to these conditions. Although stringent, ESKOM had previously taken a middle ground of supporting black suppliers only if they met certain conditions. This changed when Gigaba announced ESKOM can only give coal contracts to companies with a majority of black shareholders (determined as fifty plus one percent of the company).[24] These cronyist relationships and the corrosive leadership which governed ESKOM, left the company with “deep levels of distrust”.[25]

With an already stretched coal supply, Brown’s strategy of strictly implementing BBBEE was not matched with a robust plan to ensure energy security.[26] The new and expanded strategy of black economic empowerment was intended to grow black coal suppliers. It instead ran into a number of problems. First, small black coal suppliers were unable to successfully enter the market because of a lack of skills and limited capital. Second, small black companies who were given a contract by ESKOM were not guaranteed capital and investment to thrive. Thirdly, the cost of thermal coal extraction is extremely high and small firms could not meet this demand. These factors show poor planning and eventually created conflict with large and established coal suppliers, with the largest of them favouring export and depriving ESKOM of coal for their power stations.[27]

As a measure of ESKOM’s performance over time, AmaBhungane have looked at Energy Availability Factor (EAF). In the 1990s, ESKOM aimed for an EAF of 90:7:3, i.e., plants are 90% functional, 7% under maintenance and 3% broken down. By 2015, there was a 44% backlog of planned outages – which meant that despite loadshedding being at a minimum between 2009 and 2014, this had only been because plants were kept running, despite massive backlogs of maintenance.[28] 

In 2015, there was also increased government intervention in procurement and supply chains, particularly when ESKOM was under the leadership of Brian Molefe and Anoj Singh (who were placed in the positions of CEO and CFO respectively).[29] The network of corrupt contracts was then expanded beyond government to include banks, accounting firms, consultancies and private companies.[30]

Evidence of this comes from AmaBhungane, who noted the adverse effects of global consulting firms McKinsey and Trillian. McKinsey gave advice to ESKOM over a six-month period, increasing their EAF by 5%. Yet, a deeper look reveals that McKinsey did so by reducing planned maintenance and only marginally so by introducing expert engineers. McKinsey then claimed that they had helped ESKOM achieve a 31% increase in their EAF, a figure which was creatively manipulated by the consultants.[31]

ESKOM signed contracts with Gupta owned companies which where bloated and did not meet the standards for coal and equipment. This scale of illegal meddling in ESKOM contracts and procurement did not stop until the ESKOM board was reshuffled in 2018 with the eventual demise of Jacob Zuma as president. Despite Cyril Ramaphosa becoming president and creating a more stable ESKOM board, the power utility was still not able to deal with the electricity crisis.[32]      

Reflections on the Past and the Future: Accountability, Renewable Energy and a New Technopolitical Regime

Former Executive for Enterprise Development at ESKOM Erica Johnson suggests that ESKOM had a number of factors which hindered its progress consistently from the mid-2000s. A first issue she suggests is that ESKOM had too many shareholders, i.e., ESKOM had to fulfil multiple responsibilities like transformation and environmental objectives. Secondly, Johnson suggests ESKOM was unable to “act in its own interest”.  Discussing ESKOM’s ballooning debt (the largest proportion of which was in Soweto), she suggests that the company failed to deal with their debt for “political reasons”. A further example is that Kusile power station was strategically placed next to a large coal mine but because of BEE requirements, it could not operate. A third factor is that ESKOM can be held vulnerable to equipment suppliers and maintenance technicians. Rent seeking and wage negotiations which employees undertake are often underpinned by that fact that workers are fully in control over timelines and fixing units. All of these factors mean that ESKOM is beholden to factors beyond itself.[33]     

Jaglin and Dubresson argue that ESKOM has been increasingly side-lined in South Africa’s energy future, particularly in the sense that government’s efforts to add private electricity into the grid have side-lined ESKOM’s monopoly.  They cite the nuclear programme, led by Jacob Zuma. Rather than being a national strategy co-ordinated and overseen by ESKOM, it was instead an “opaque ‘country-to-country negotiation process’” led by private firms and Zuma himself. Similarly, new fossil fuel explorations and new renewable energy projects have been taken up by private firms with very little initiative taken by ESKOM.[34]

Renewable energy is a vital component of South Africa’s energy future, especially considering the looming threat of climate change. Renewable energy only emerged in the South African government’s plans after the World Summit on Sustainable Development held in 2002. South Africa planned to generate 6236 MW by 2019. Renewable energy projects have been stimulated by the energy crisis, yet ESKOM’s own plans have been marred by the company’s lack of consistency and continuity in implementing projects. So too, while renewable energy systems are emerging and being invested, ESKOM’s skills and technical expertise remain in the fossil fuel industry.[35] ESKOM therefore has occupied a limited role in renewable energy generation and government policy has instead kept ESKOM on a coal path and promoted renewable energy generation predominantly in the private sector.[36]

Jaglin and Dubresson note that criticisms to the government’s choices (regarding investment, integration of new forms of energy) hinged on consultation, transparency and in interests and visions of South Africa’s energy future. From 2011, there was debate about the creation of independent, private electricity distributors. Private investment was far from certain, as ESKOM, the National Union of Mineworkers and the South African Energy Agency expressed reservations about the proposal. The debate around privatisation was delayed until 2014 and didn’t develop much further since then. With ESKOM’s most recent energy crisis, Gwede Mantashe had removed the threshold for companies and Independent Power Producers (IPP) to generate electricity to 100 MW. These efforts seem to be gaining traction, as seen this year (2022) in the granting of contracts to private energy companies to contribute 2000 MW to the grid.   

Jaglin and Dubresson note that public companies constitute “avenues for black advancement” and that they are “powerful bases for the capture and redistribution of considerable financial volumes through ‘tenderpreneurship’”. Hermanus and Godinho sum up that “not only were institutions and resources captured, so too was the purpose and function of the electricity system”.[37] ESKOM has had a majority of its middle and senior management positions occupied by black people, yet many of these managers were without the necessary technical expertise for electricity generation. In this light, repeated technical failures have undermined the fruitful connections between ESKOM and their private investors. Costly borrowing and an all-time low of public confidence have made it difficult for ESKOM to emerge from its crisis.[38]

Conclusion

There are a number of further reflections contained this chronology which can be added to those mentioned in Part 1. The government and ESKOM have failed in terms of new investment in electricity generation, breaking away from the minerals-energy complex and more environmentally friendly electricity production. Relating to ESKOM’s “arms-length from the state”, ESKOM has deepened its links to the government as it became a public company and subject to political manipulations. Further, and linked, ESKOM has not employed the correct technopolitical programme, including hiring good technical managers.

Added to this myriad of complications, corruption and “tenderpreneurship” within the power utility have crippled its ability to supply electricity consistently. Poor quality coal and political appointments relating to cronyism have deprived ESKOM of its vital needs to function.