south africa: February 15, 2008

Electric service reliability started to tumble, slowly in 2007 and then catastrophically in 2008. The one question that remains unanswered is why so suddenly and extensively this year? In our opinion, the major item propping up supply previous to this year was interruptible supply agreements in which Eskom had the right to interrupt supply to certain large customers in return for more cost-effective pricing.

Prior to 2007, interruptible agreements were seldom invoked. However, with national demand outpacing supply over recent years, Eskom has been enforcing these agreements. Major users (many of which have consumption greater than a large town) began to see that cheaper interruptible electricity was not worth lost production and they began to disassociate themselves from these interruptible agreements. With that loss in a ready pool of willing interruptible clientele, Eskom has been forced to shed generation to entire towns thus exposing us to the true nature of the crisis.

Poor decision making in 1994/1995 by the Government and by the Ministers of Minerals, Energy and Public Enterprises in 1998/1999 have largely led us to this monumental economic gaffe. While historical analysis will not help our current crisis, it is important to review thus hopefully avoiding future similar decisions.

Considering the fact that Eskom has been aware of this situation for some time and its impact on the nation’s economy, we feel the current rush to deal with the problem by patching together hasty plans smacks of poor planning.