South African SOE Electricity Supplier In Death Spiral

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Eskom the South African State Owned Enterprise is on a downward trend that is hard to see a positive outcome long term. The figures for the last 10 years tell you where this SOE is heading and it is not painting a pretty picture. Corruption, greed and very poor management have got them to where they are today and this is all self inflicted.

If we look at what has happened since 2016 till now it becomes evident this SOE is in dire straits. The continuous price increases from R1.08 per kWh in 2016 to R2.53 in 2025 along with load shedding has forced their customers to seek alternative energy. Eskom argues that their prices are still too low when we all know the workforce they have is too large for the services provided to be profitable. That workforce is receiving salary increase way over inflation so the electricity price increase have to also be over the inflation rate. This is the problem of any government run company as in most cases no one is accountable for the budgets. If you are losing revenue you reduce your operating costs accordingly.

Over the last 10 years Eskom's revenue has increased by 111% which is telling as the price has increased by over 150%. The electricity sales have dropped by 11.5% so those good customers who were paying their bills are leaving. This is a gold fish bowl scenario that never works as you cannot keep the same revenue if you are losing customers because all this does is increase the rate of lost customers.

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The 11.5% lost sales which has happened only in the last few years is a new trend and one that is likely to continue growing as the prices rise. This is why the SOE is anti solar and any other type of renewable energy because this represents lost revenue. This is why they are so desperate to impose any sort of penalty to those who are off the grid or semi off the grid.

The business model of increasing prices will only hasten the decline of lost customers because this model has no other type of ending. One has to also understand this SOE has no other competitors because the government has protected the supply of electricity from privatisation.

A couple of years ago one wealthy businessman (Anton Rupert) constructed a small hydro electric plant to help farmers in his area bypass load shedding. Anton was not allowed to sell that electricity so instead he gave it away for free. Experts believe that the smartest solution is to open this sector up to privatisation and let the market decide the right prices. If this happens Eskom will be finished within 5 years. Prices will tumble because one thing SA has and that is plenty of sunshine.

The biggest issue is that a few pay for everyone as a large portion of the population receive free electricity. The unemployed and those that live below the bread line has grown over the last decade which is unfair on those paying their electricity bills each month. This is unfair to expect those paying their bills to subsidies those who are receiving their electricity for free. There is only so much you can push the minority for paying all the bills and why they have had enough and are becoming self sufficient looking for alternative energy resources.

Posted Using INLEO