Return of load shedding deals economy a blow
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JOHANNESBURG - South Africa’s dwindling economic fortunes were dealt a further blow yesterday as Eskom implemented stage 2 load shedding – the first time since March – putting the country’s sovereign credit rating in jeopardy.
The cash-strapped utility reintroduced rotational power cuts that may last the rest of the week as generation challenges weighed in on its supply. The troubled power utility said the cutting of 2 000 megawatts (MW) from the grid was as a result of high levels of unplanned breakdowns and a broken conveyor belt supplying Medupi Power Station, with 600MW lost from five generating units due to boiler tube leaks. Last month, Eskom assured the country that no planned load shedding was expected throughout October. The utility said it would be ramping up the maintenance of its neglected generation units in the next seven months to ensure that the country had enough power to sustain demand. The implementation of stage 4 load shedding in the first quarter of this year saw the economy declining as production was halted for up to 12 hours a day.
Old Mutual Investment Group chief economist Johann Els said the load shedding would have an impact on business confidence. “It is negative in the era when the economy is so weak and struggling to recover; it impacts confidence. But it is difficult to quantify, since mines have not reported how this has affected them,” Els said. “For the past four years, our economy has been struggling to grow beyond 1 percent, so we need all the electricity we can. We need Eskom to keep maintaining its power plants.” Load shedding has particularly affected the country’s manufacturing and mining output, pushing growth prospects below 1 percent for 2019. On Tuesday, the World Bank revised its growth forecast down to 0.7 percent from its previous 1.5 percent in April. The South African Reserve Bank has put economic growth for this year at 0.6 percent.
The structural, operational, and financial challenges faced by Eskom have been described as the single largest threat to the country’s fiscus as the power utility has a debt of more than R450 billion. The government has given Eskom at least R129bn in guarantees in the medium term. Despite Moody’s assurances that it was likely to maintain South Africa’s investment grading with a negative outlook in its next review in November, there are fears that Eskom’ bility might compromise this further. Senior dealer at TreasuryONE Andre Botha said the blackouts could see the rand weakening negatively affected in the next few weeks on the interruption of stable energy supply.
“Eskom just announced that there is a likelihood of rolling blackouts. The rand did not like that headline, and we are trading at R15 at the moment,” Botha said. “With local issues in play again, expect some volatility in the next few weeks.”