Loadshedding: BEE and AA to blame… Yeah whatever.

Loadshedding (n): Describing the state of being load-shed. Rolling blackouts, beurtkrag (directly translated: turn-power). Also commonly referred to as “An economy-crippling, job-destroying nightmare of galactic proportions initially thought to be only due to government and Eskom’s short-sightedness regarding the retention of skills.”

I say “initially” because Carte Blanche has opened a nice big, juicy can of worms tonight with their insert entitled “Eskom’s darkest hour.” For those not in the know, Eskom is South Africa’s only electricity-providing utility.

Now to be fair, I don’t regard Carte Blanche as a shining star of investigative journalism. Sometimes they’re just another hype machine, but sometimes they deliver blogworthy stuff ;-D.

My stance today is that while there is likely a major skill-shortage in Eskom (and various other businesses/sectors in South Africa), that is not what has lead us to the point where rolling blackouts are an every day occurance. Once again it’s profiteering gluttony. Capitalism gone mad. Now don’t get me wrong:

1. Capitalism is not necessarily bad; and
2. The skill-shortage caused by government’s aggressive affirmative action (AA) and Black Economic Empowerment (BEE) policies was an attempt to force change too fast that blew up in their face.

That said, dear reader, please hear me out.

Carte Blanche showed tonight how aggressive affirmative action policies caused a major skills defecit at Eskom. All Seffricans (or Saffers, or whatever we’re called/call ourselves nowadays) know by now that this resulted in not being able to bring mothballed power stations back online in good time as well as not being able to exact repairs on Koeberg’s reactors. In fact, I believe that the CEO of ESKOM went so far as to say that the lack of expertise causes delays in repair to normal power stations and substations as well.

But beyond all that, they showed the empty coal stockpiles of two of our coal power plants. One was at Majuba and the other was near it (but the name eludes me, see [1] for a list).

So regardless of skills shortages and all the blame so liberally piled on BEE and AA by the White population (as always, I feel that I am only qualified to generalise with regard to whites), there simply isn’t enough coal to power at least two of our plants. So what are we going to run the 3 coal plants on that are being re-commissioned?

Carte Blanche drew attention to the fact that Eskom has been blaming the recent continual rainfalls for making the coal wet [2] and hence causing a coal shortage. It seems that, in fact, that was a cover story for not having coal at all [3] [4].

Two men in the coal transport industry (both white, to racialise things) who operate(d) a BEE compliant company outlined how Eskom wasn’t willing to pay enough money for the transport of coal. Evidently Eskom paid middle-men R0.46 per tonne per kilometre and the middle-men in turn paid their sub-contractors R0.40/T/km. Besides the fact that these prices made for an unattractive business venture, they were not adjusted to take rising fuel prices. Coal transporters went from showing small profits to not even covering their overheads.

So here’s my take on it. We all know the stories of Eskom’s top management getting fat bonuses [4]. Few of us know that the cost of coal has increased thanks to the increased demand [5] [6]. This is so much so that the actions of the Chinese government to prevent an increase in electricty costs has caused a similar electricity crisis in China to the one we have in South Africa.

There is a rule in business that states that a cent saved is worth more than a cent earned. This is because savings basically have a 100% gross margin whereas earnings have to cover the costs of generating those earnings first. Essentially Eskom mothballed a few power stations which allowed a greater downsizing of their staff because it was running “inefficiently.” This obviously saves on overhead cost which increases profits. Furthermore it’s a little known fact that the two greatest costs of operating a coal power plant is the coal (shock, horror) and the labour. Evidently the fuel (coal) is the greatest cost driver of the two. So in order to save on overheads, Eskom let the stockpiles deminish (probably with the intention of keeping them at some optimal level) and refused to pay contractors more than R0.46/T/km to transport the coal.

Since top-management performance bonuses are dependant on profits while grunt performance bonuses are dependant on operations, management gets R20m+ or so in bonuses per year while the non-executive employees see less than 7% of the total money spent on bonuses (though there should obviously more non-execs than execs).

And so the basic rules of business (buy low, sell high) have screwed us, die gepeupel (the plebs/man-on-the-street), just as it did with Telkom.

Our deputy president is also given some of the blame for her short-sightedness in not allowing Eskom to build additional plants many moons ago. But I can imagine (and this is pure speculation) how the deputy president (then minister of energy) and her advisors looked at the proposal and asked “why?” With 3 plants mothballed and the rest not operating at optimal generating capacity (evidently running a plant at 100% constantly isn’t good for it, so let’s assume 60-80% of capacity is optimal), why would Eskom need to build new ones?

Perhaps this whole crisis is Eskom trying to force government’s hand into letting Eskom move the core of South Africa’s generating capacity to a more cost-effectiven technology. Like maybe something nuclear. And maybe it is just a consequence of the short-sightedness and greed of a few who are now going to pay for the damage they have wrought. Our mines are not producing, the dairy industry will have lost roughly R200m this month.

Yep, if executive heads don’t roll over this one I wouldn’t be surprised if an angry mob invites Madame L’Guillotine to a party outside Eskom’s offices…

[1] Eskom #List of power stations, WikiPedia [Accessed: 27 January 2008].

[2] Wet coal threatens Eskom power output, BusinessReport, Justin Brown. 24 January 2008 [Accessed: 27 January 2008].

[3] Eskom running out of coal?, MyADSL & MyBroadband forums, Syndyre. 25 January 2008 [Accessed 27 January 2008].

[4] Eskom’s bloated gravy train, MoneyWeb, Barry Sergeant. 23 January 2008 [Accessed: 27 January 2008].

[5] More coal price increases on the way, says senior analyst, Mining Weekly Online, Leandi Rostoll. 25 January 2008 [Accessed: 27 January 2008].

[6] China experience it’s share of power shortages, SABC news, Reuters. 27 January 2008 [Accessed: 27 January 2008].

[7] No jokes about Eskom, please, The Sunday Independent @ iol.co.za, Karen Bliksem. 27 January 2008 [Accessed: 27 January 2008].