Load shedding likely to push economy into recession

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The current load shedding will likely push the economy into a recession with companies unable to operate at full capacity. This is according to Centre For Risk Analysis Chief economist Ian Cruickshanks.

He says Eskom is a huge risk to the economy and it being unable to provide affordable and stable electricity will lead to serious economic misfortune.

The country also risks being downgraded to junk status as it seems to not be getting a grip on concerns previously raised by rating agencies like the weak growth, bailouts for state-owned companies and growing government debt.

In addition to the low growth, Eskom has been identified as the country’s biggest economic risk.

Government’s debt burden and liabilities related Eskom and other State Owned entities in a country with a constrained fiscus, have been highlighted as negative for the economy.

To mitigate the immediate risk that Eskom poses to the economy, the utility receives assistance to service its debt obligations.

Eskom has about R440 billion in debt and has been receiving government bailouts after massive cost overruns at two partially completed coal-fired plants.

In this week’s Letter from the President’s Desk, President Cyril Ramaphosa says the problems with the construction of Medupi and Kusile account for much of the financial crisis at Eskom.

The President says the cost of building Medupi escalated dramatically since its building started; it is behind schedule. He says with five of its six units now in commercial operation – it is not yet performing at the level it is expected to perform.

The consequences of Eskom’s inability to supply constant power and at affordable prices will lead to negative consequences for the economy.

Ian Cruickshanks says Eskom currently is a huge risk to the economy.

Scale down operations

Households and businesses are currently battling hours of power cuts. Some mining companies have been forced to scale down operations due to safety concerns as a result of the load shedding. This will likely translate to an even lower economic performance for this year.

Rating agencies have raised concerns about low growth, growing government debt and contingent liabilities.

South Africa is ranked at sub-investment grade by S&P and Fitch, while Moody’s has the country at one notch above non-investment grade.

If South Africa is downgraded, it would also be removed from key bond indices which would lead to even more outflows.

While the government has proposed splitting it into three parts to try and address its challenges, Cruickshanks says it would help if the right people are put in decision-making positions.

Eskom says it was forced to shed up to 6 000 megawatts of power on Monday, because the electrical supply panel to the conveyor belt that supplies coal to the Medupi power station burnt out.

The power utility has since downgraded to stage 4 load shedding from stage 6. Eskom’s Chief Operations Officer, Jan Oberholzer explains: