THE RECENT bout of nationwide power outages has again highlighted the need to reconsider South Africa’s electricity supply and, at the same time, seek a viable solution for the industries which suffer as a result of these interruptions.
The roll-out of load shedding has already resulted in an outcry from various industries after Eskom at the end of November declared a power emergency for larger industrial business, and requested a 10 percent reduction in electricity usage.
Given the time of year and final run-up to the festive season, many businesses are in peak production period, especially those in manufacturing, and will incur significant losses as a result of the power outages.
Cape Chamber of Commerce president Janine Myburgh was quoted earlier last week as saying that the economy was “held ransom by the inability of Eskom to provide electricity”.
While the latest pressure on the power supply is attributed to the collapse of a coal storage silo at the Majuba power station in Mpumalanga earlier in November, only exacerbated by the lack of supply from the Cahora Bassa Hydroelectric Generation Station due to maintenance, this is a recurring issue for South Africa.
At the end of 2007 and into 2008, the country experienced widespread blackouts. In an inquiry commission by the energy regulator, the effects of the power shortages on the economy between November 1, 2007 and January 31, 2008 was estimated to be R50 billion.
Economist Dawie Roodt was recently quoted saying the blackouts have cost the country R300bn in economic growth.
Eskom’s power plants are losing capacity quicker than the facilities can be upgraded, and the risks associated to local small and big business as a result can be substantial if preventive or protective measures are not put in place.
Not only do businesses need to protect themselves for the possibilities of interruption, in terms of financial loss, but for other possible risks associated with the prolonged, and sometimes unexpected, cut in power.
While Eskom has put load-shedding schedules in place to allow for consumers and businesses to plan accordingly, these are not always guaranteed. For instance, earlier in November some areas of Johannesburg found themselves in the dark for much longer than the four hours allocated to the specific area. This uncertainty makes it difficult for business to adequately plan operations around the loss of power.
Companies which deal with cold storage are a key example, as a prolonged period of no electricity will result in stock losses as the produce expires. While some businesses will have an insurance policy in place to cover business interruptions, some do not cover long periods without electricity which have negative consequences in terms of stock losses.
While there are more sophisticated policies available that cover such instances, the reality is that many local, smaller businesses do not have these risk-management policies in place.
While many businesses operating within the engineering and mining industry have generators, the cost of switching major industrial machinery on and off can cause huge power surges and can equate to losses for the company as the machinery can malfunction as a result of these surges. Losses of this nature all collectively amount to huge costs to the economy.
While businesses may be aware of the physical risks associated with a power failure, they are often unaware of the legal liability issues that arise in the inevitable darkness. For example, a hospital with a poorly maintained generator may not provide adequate back-up, and a power failure during a surgical procedure can lead to a loss of life, not to mention the problems associated with maintaining the delicate balance of life-support and intensive-care machinery.
Such incidents may result in a lawsuit due to insufficient contingency plans. Another, less extreme example, is a customer slipping or falling causing an injury on a client’s property during a blackout.
While in the past, business owners may have been able to rely on the defence that power supplies are out of their control, it is a known fact that our national electricity grid is unstable.
Businesses have a duty of care owed to their customers to ensure that they have back-ups or safety measures in place, and should ensure that they have adequate liability policies in place should these claims occur as they will struggle to lay the blame on Eskom, should a lawsuit originate from a power failure.
Questions can be raised around how a country such as South Africa, which has always had sufficient access to supply, finds itself in this situation.
But the fact is that we are a country which predominately (92 percent) relies on the national power grid as our only source of power – which is not the case in many other countries. Private generators equate to 3 percent of electricity supply in the country.
The growing population will only put additional pressure on the already strained electricity source in the country’s growing economy. According to Statistics SA, the population in South Africa last year was 53 million, up from 17.4 million in 1960. That is a 204 percent increase during the past 50 years.
Unfortunately, to only compound matters, businesses not only have to think of electricity outages, but face the possibility of a water crisis. The Department of Water and Sanitation announced to MPs earlier this month that if a long-term solution to acid-mine drainage is not found, the Gauteng region could face a water crisis in two to three years.
The KwaZulu-Natal north coast also received a scare last week with the eThekwini Water and Sanitation Unit stating that the area was at a level-three warning and that water consumption in the area needs to be reduced by 30 percent to avoid implanting forced water restrictions.
Similar to electricity, water is a major source of industrialisation from cleaning to manufacturing. Not only can a water shortage impact business processes, but the use of contaminated water by accident – whether it be acid-mine water from old mines or intoxicated water from other sources – can impact a business’s product.
Business owners and decision-makers also need to be aware of their risk-management duties under the National Environmental Management Act and compliance when discarding product waste to avoid unnecessary consequences.
The shortages in electricity and water can have a crippling effect on local businesses that are not prepared and highlight the need for businesses across the country, and across sectors, to implement stringent risk-management policies to not only avoid losses for their business, but also the South African economy as a whole.
Michael Petersen is chief executive of Risk Benefit Solutions.