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Power crisis permanent new reality - Pick n Pay

Pick n Pay maintains its view that retailers should not be paying the levy on diesel used for generators. Picture: Supplied

Pick n Pay maintains its view that retailers should not be paying the levy on diesel used for generators. Picture: Supplied

Published May 15, 2023


South Africa has been plagued by severe load shedding for the past few months. Winter is fast approaching and Eskom is proposing load shedding schedules of up to Stage 16, with load curtailment for industries up to Stage 4, the highest.

Business Report spoke to some retailers to find out how are they preparing themselves should Stage 16 take place.

Retailer Pick n Pay, which released its results this month and had spoken extensively about the impacts of load shedding on its performance, said it took the view that the power crisis was a permanent new reality.

“Our priority is to provide uninterrupted service for customers in our stores, whatever the level of load shedding. We will keep adapting our plans and our operations to keep our stores open and serving customers. We maintain our view that retailers should not be paying the levy on diesel used for generators," the group said.

Woolworths said most of its stores had standby generator power supplies, enabling them to continue to trade despite Eskom’s capacity and maintenance issues. Its store emergency backup generators keep equipment like refrigeration units and tills up and running, and provide ambient lighting.

The group said: “We have also focused on energy measurement, management, and efficiency initiatives across our facilities, resulting in around a 40% relative reduction over the last decade. However, the impact on consumer and business confidence is significant.

“Our suppliers have contingencies in place to mitigate the impact of load shedding as much as possible. For example, they use solar power, power generators, and production planning to name a few. This enables production to continue through load shedding.”

Woolworths, however, said the continued load shedding did add complexity and had increased pressure on factories and equipment.

Meanwhile, Deal Leaders International CE: Corporate and Advisory Andrew Bahlmann said when talking of Stage 16 load shedding, it meant a total collapse of the grid.

“Until now this has not been regarded as something highly probable, but what is clear from the fact that insurers are positioning themselves to exclude the eventuality from commercial insurance policies is that based on their underwriting assessment they now regard it as ‘probable’ more than ‘possible’,” he said.

Bahlmann said a cynic might say load shedding could never get to Stage 16 because most businesses would have shut their doors by the time it got to Stage 8.

“Load shedding is already having an extremely negative impact on the economy and is frightening off potential foreign investors. It is driving up the cost of doing business, in tandem with higher interest rates, higher inflation, and lower business confidence, to the extent that the real cost of capital is higher than the trading margin that most industries make.

"Only export-orientated companies in mining and agriculture buttressed by a weak exchange rate are thriving. We are already seeing debtor delinquency rates steadily creeping up and credit rejection rates increasing as the number of companies struggling to repay debt increases," he said.

Anchor investment analyst Casey Delport said the simple answer at the end of the day was that, should Stage 16 come into effect and/or the grid would collapse, there wouldn’t be much of an economy to analyse.

“If the electricity grid in South Africa were to collapse, it would have significant and wide-ranging impacts on the country's economy that would be very difficult to quantify at this point,” Delport said.

According to Delport, should the grid collapse there were a few logical starting points which included the disruption of the industrial sector.

“The industrial sector heavily relies on a stable and consistent electricity supply. A grid collapse would naturally cause manufacturing plants, mines, and other industries to halt operations. This would result in reduced production, revenue loss, and potential layoffs that would further drive up unemployment,” she said.

Delport said business and investment confidence would be affected.

“A collapsed electricity grid would erode business confidence and further deter domestic and foreign investments. Companies require a reliable power supply to operate efficiently and sustain their operations. Uncertainty about electricity availability would make businesses hesitant to invest in South Africa, potentially leading to reduced economic growth - a trend in fact that we are already seeing,” Delport said.

She said there would be infrastructure damage, particularly if there were subsequent power surges or failures. Equipment, machinery, and electrical systems could be affected, leading to costly repairs and replacements.

“Service sector disruption would happen. The service sector, including banking, telecommunications, healthcare, and transportation, heavily relies on electricity for their daily operations. If the grid collapses, these services would be severely impacted, causing disruptions in essential services, financial transactions, and communication networks," she said.

According to Delport, there would be a loss of productivity as power outages would disrupt the productivity of individuals and businesses, resulting in economic losses.

Offices, schools, and households would struggle to function effectively, leading to reduced output and economic activity, this in turn, would lead to serious, long-term structural issues for the economy as a whole.

“During power outages, alternative sources of energy such as generators or imported fuel would need to be utilised, increasing costs for both businesses and consumers. This increased expenditure could strain household budgets, reduce discretionary spending, and negatively impact consumer demand.

“There would be unemployment and social impact. One of the most obvious points, and particularly concerning for SA, is that an economic downturn due to a collapsed electricity grid could lead to job losses and increased unemployment. This could result in increased social challenges such as poverty, crime, and social unrest, exacerbating the economic situation,” she said.

Delport said all of these points would weaken the overall economy significantly.

“In terms of more immediate scenarios, if Eskom institutes the proposed Stage 16, that would simply serve to worsen the already poor international investor sentiment around SA.,” she said.