South Africa’s state-owned power company, Eskom suspended electricity cuts after 5 days of load shedding which weakened the rand and affected businesses across the African country.
“Due to further improvement in generation performance and the notable strides made in replenishing water and diesel reserves, Eskom is not likely to implement load-shedding on Friday,” Eskom said.
Eskom which accounts for 90 percent of South Africa’s power supply had accumulated an outstanding debt of around 10 percent of the country’s Gross Domestic Product (GDP) as at March 2018. The parastatal has since been struggling with power station breakdowns and diesel shortages which have crippled its ability to run backup power sources.
South African President, Cyril Ramaphosa stated that restructuring the power company would help the situation. He also mentioned his plans to split the power company into three different units-generation, transmission and distribution, adding that this was not a path to privatization and that a financial support package for Eskom would be accompanied by a transformative plan.
Last week, Eskom started the power cuts from Sunday with 2,000 megawatts (MW) and increased the power cuts to 4,000MW by Monday, making it the largest cut since 2014/2015. The power cuts were then reduced to 2,000 MW by Thursday.
The African country’s economy that officially exited recession in December 2018 after reporting 2.2 percent growth for the third quarter of the year might just be on its journey back to recession if the power cuts resume. This power crisis stirred the state of activities within the economy as the rand fell more than 1.4 percent against the dollar, which is its weakest in six weeks. Businesses were also affected as production could not be efficiently carried out.
“If the power goes off for more than six hours and we have to run the generators for that long it’s going to be very expensive. We’re not going to be able to afford the diesel,” said Arno Steenkamp, a manager at a Johannesburg restaurant.
“If we can’t make coffee and food it’s going to hit our sales and we might have to close,” he added.
There was also traffic gridlock in major cities as traffic lights stopped working. The average South African was struggling with activities like cooking.
The South African president has proffered that the power company needs to be restructured. But while this may solve a percentage of the problem, it may not provide a lasting solution. Instead, it may be time for South African to reduce dependence on the state-owned power company while investing in alternative sources of power.
Also, competition stirs up efficiency. Perhaps the energy market should be opened up so that independent power producers can compete with each other.