I am pissed off. No, not because it happens to be Monday or because some client ripped me off or because my computer got stolen or because a client refuses to pay me or because I have forgotten about a deadline. I am pissed off because this coming Friday (1 April 2011) the electricity price in South Africa is set to increase again, this time by a whooping 25,8%.
Yay! Another extra expense, over and above rent increases, inflation increases, interest increases, food price increases, and petrol price increases. While I am able to cough an extra R100 per month to keep my lights on, other people in South Africa – where half of the population lives off $1.25 a day – are not so lucky.
For my foreign readers who are not 100% clued up on what is going on in the Rainbow Nation: According to the government, which is led by president Jacob Zuma, these power price increases are a necessary evil to ensure that South Africa’s electricity producer Eskom is able to expand the country’s power grid, by so securing our future electricity supply.
“Well, yeah-dúh!!?”, I can hear you think. “South Africa is an expanding economy, and expanding economies need electricity to keep going and more importantly, to grow. Especially in the case of an economy that, to a large extend, relies on the mining industry and energy intensive sectors. And I have heard South Africa under pressure electricity wise, so these plans should be applauded. There is no reason to be pissed off.”
Sure, I could not agree more. In order to ensure an economy runs smoothly and in order to stimulate further growth, a stable electricity supply is key. We also need to take into account South Africa’s population growth (the more people, the greater the electricity demand) and the fact that more and more people are moving away from the countryside to cities. Urbanization is the biggest driver behind a growing electricity demand. Thát – expanding the grid and that it costs money and that the consumer also needs to come to the table is NOT what I am debating here.
What I am angry about is that Eskom seems to be nothing more than a bottomless, cash-gobbling money pit. No matter how many rands, dollars, and euros the public (people like you and I), the government, the World Bank and other financial institutions pour into this parastatal – Eskom always always ALWAYS seems to be short of cash and therefore always seems to be a need for yet another loan.
An overview of the loans Eskom received so far (please advise me if I have forgotten one):
- In July 2008, South Africa’s National Treasure agreed to loan Eskom R60 billion. The amount would be disbursed over a period of five years (R10 billion for 2008/2009 / R30 billion for 2009/2010 / R20 billion for 2010/11).
- In November 2008, Eskom secured a loan provided by the African Development Bank (AfDB). Worth R5.08 billion it will be used “to fund a capital expansion programme that seeks to increase South Africa’s electricity generation capacity and strengthen the country’s transmission and distribution grid.” At that point, it was the largest ever granted by the AfDB’s private sector operations division.
- In November 2009, the AfDB agreed to loan Eskom an amount of around and about R20 billion. In October 2010, the AfDB said it would investigate this particular loan, due to corruption rumors.
- In December 2009, Eskom concluded Export Credit Agency (ECA) covered financing arrangements for approximately R7.8 billion with 3 South African banks and 4 International banks.
- In April 2010, Eskom received a loan worth $3,75 billion (R25 billion) from The World Bank.
- In April 2010, electricity went up by 25,6%
- In August 2010, Eskom secures loans worth R1,6 billion with Deutsche Bank and Credit Agricol to fund both its Ingula pump storage scheme and the construction of the controversial Medupi power station.
- In 4 November 2010, Eskom received a loan worth R15 billion from the Development Bank of Southern Africa (DBSA) to fund new power projects.
- In March 2011, despite the rumours of corruption and its plans to investigate the R20 billion loan it issued in November 2009, the AfDB said it was contemplating to loan Eskom R370 million, to fund its renewable energy strategy.
- In June 2011, the World Bank’s Clean Technology Fund is expected to take a decision on a $350 million (R2.4 billion) loan to Eskom.
Again, in case I have not made myself clear: I really do understand that South Africa needs more power and that expanding the grid costs billions of bucks (around R343 billion, 2008 reports state). The problem to me is that the money (Eskom’s ‘loan balance’, including the last two loans that have not been agreed upon, stands at ± R137 billion) seems to be disappearing in a bottomless, cash-gobbling money pit.
Take the Medupi power plant, which will be one of the biggest coal fired powerplants in the world. What should have cost R80 billion now costs R120-billion. Oops. Or take the occasional fuck-up, such as last month’s explosion at the Duvha Power Station outside Witbank, of which the damage is estimated at R3 billion.
Back to me being pissed and the looming electricity price increase. I am not a loan specialist, but I am sure that this week’s price hike will not be the last – and neither will next year’s (even though government says it will be the last one).
The problem with borrowing heaps of money is that you not only have to pay back the sum you owe – you will have to pay interest. In the case of Eskom, it will be HEAPS of interest. To give you an idea: the interest rate the World Bank is charging South Africa for last year’s R25 billion-loan is apparently set at 9.6%. It is unclear to me what the agreement is with regards to the repayment structure* but the a simple calculation show that the annual interest over the total sum equals ± R2.6 billion. Yup, this excludes the installments – and the interest / installments of the other loans Eskom has signed up for over the past years.
I am just saying … South Africa is a country with lots of needs (education, housing, health, transport, etc), a country with a lot of people who depend on state support and with just 5,9 million tax payers. I seriously hope the government has thought of how they will pay back what they owe without compromising on the well-being of the people.
* When does South Africa have to start paying back the loan? Is interest charged form the very first beginning or does it kick in a year or two? Until when does the government have before it has to start paying back the loan? What are the penalties for not being able to pay back the installments?