Why Eskom’s Power Crisis Is South Africa’s Top Risk

A perennial crisis at South Africa’s monolithic electricity supplier, Eskom Holdings SOC Ltd., jeopardizes the nation’s entire economy. The state-owned utility can’t cover its costs and make interest payments on its mountain of debt, leaving it reliant on a series of government bailouts to stay afloat. The country has suffered intermittent power cuts since 2005 because dilapidated power plants can’t keep pace with demand. Now the government is splitting Eskom into three entities in the hope of reviving its fortunes.

South Africa was able to produce more electricity than it needed when white-minority rule ended in 1994, but the government didn’t foresee how sharply demand would surge as the economy expanded and previously neglected areas were connected to the grid. Eskom announced a series of multibillion-dollar investments after the authorities awoke to the severity of the problem in the mid-2000s, but the projects came too late and took too long to build. The Medupi and Kusile coal-fired plants, two of the world’s biggest, were supposed to be completed in 2015, but still aren’t operating at full capacity and have run way over budget. Eskom’s other plants are on average more than four decades old.