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How the government could repair the energy company Eskim

The government will announce within a month how it plans to repair Esk, which supplies more than 90% of the nation. There are no simple medicines.

The company is in charge of R419 billion, loses cash, has more staff than it needs, and aging and poorly maintained factories can not always produce enough energy to meet the decline in demand – which is known in the industry as a spiral of death.

Although money injection would help, relief would probably only be temporary and deeper structural reforms needed to turn into sustainable business.

Eskom is a "super-shattered machine" whose business strategy is not in line with market reality, said Iraj Abedian, Pan-African Investments and Research Services Head of State, who advised the government on economic policy,

"He served South Africa in the twentieth century, but he can not serve South Africa in the 21st century," he said on the phone. "There will be short-term pain, no doubt, and the utility will not look like a monopoly as it is now. Eskim will play a role, but it will be a completely different role than it has played historically."

These are some of the possibilities for Eskoma's return to the path:

Reducing staff numbers

Eskom has more than 48,000 workers on the payroll, and the World Bank study has shown that it has 66% over-employment. But job cutting is politically problematic, more so as President Cyril Ramaphos is a former work leader whose rise to power has been supported by the largest work organization in the country.

Trade unions representing more than half of Eskom's workers are guilty of financial problems due to the high prices of coal and the fact that it is necessary to buy renewable energy from independent producers.

"We do not think that Eskim needs to cut costs, we think that Eskim needs to get higher costs," Paris Mashego, Energy Sector Coordinator for the National Union of Miners, warned that he would strike and close the national if there are restrictions.

Disconnection of the company

Founded in 1923, Eskom grew into a whitewash that almost controlled the entire power industry. The government considers distribution to production, transmission and distribution companies.

They could potentially be more efficient and easier to manage and help facilitate the entry of more private producers into the energy industry by giving them access to the national network and making it easier for them to sell their production. Trade unions have voiced opposition to reorganization on the grounds that this could lead to job losses.

Selling herbs

Eskom could privatize some of its facilities and enter into purchasing power agreements.

While the new charcoal facilities in Medusa and Kusila are likely to attract the interest of the investor, their construction is lagging behind and is still far from being completed. Their combined costs also rose to R292.5bn, which is roughly twice the initial estimate.

It is unlikely that this investment will be offset if the plants are sold, and their discount removal would require impairment that would further weaken the fragile Balance of Eskoma.

Another option would be for the government to have a stake in Eskom itself, a sale that could be supported by state lenders, such as the South African Industrial Development Corporation and the South African Development Bank. Trade unions are also opposed to any form of privatization.

State aid

Eskom wants the government to assume about 100 billion debt – which is the option Ramaphos and Finance Minister Tito Mboweni are not fond of.

The state could alternatively inject cash directly into a utility company, but it would have to blame the budget deficit and spending-limit targets to provide support that needed usefulness. This in turn could cost the nation a unique credit rating.

A massive rise in prices

The National Electricity Regulator from South Africa sets tariffs for electricity, taking into account the costs of the manufacturer and the required return on the property. While the regulator routinely allocates Eskom to lower increases than it requires – arguing it has not done enough to reduce costs and become more efficient – prices have risen more than double the rate of inflation over the past decade.

The government could in theory modify the law to force even higher tariffs, but would face the resistance of consumers and businesses, and would risk fueling inflation and fading economic growth.

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