New probe finds that an Eskom re-structure is needed to curb $8bn leak

South Africa’s struggling state power utility, Eskom Holdings SOC Ltd., faces urgent reforms, according to a report by consultants commissioned by the government. The convoluted management structure, contributing to annual losses of $7.9 billion, hampers plant output. The probe identified breakdown-prone coal-fired plants operating at half capacity. Decentralisation, empowering plant managers, and faster procurement processes were recommended. Eskom battles corruption, crime, and workforce issues, demanding immediate intervention to avert an escalating crisis, warned the report. The government-appointed German-based technical association, vgbe energy e.V., conducted the five-month investigation.

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By Paul Burkhardt

South Africa’s state power utility needs to simplify its convoluted management structure, which is stifling output from its plants and contributing to 152 billion rand ($7.9 billion) in annual losses due to unavailable generation capacity, a consultants’ investigation found.

Record nationwide electricity outages imposed by Eskom Holdings SOC Ltd. have hobbled the economy and prompted the government to appoint a group headed by vgbe energy e.V., a German-based technical association of energy-plant operators, to conduct an independent assessment of the utility’s operations.

The almost five-month probe that started in February last year focused on both new and old coal-fired plants that are so prone to breakdowns that as little as half of their capacity has been available to produce power.

“The current crisis can only be overcome in the power plants,” the group wrote in its report published by the National Treasury on Friday. “Changes within generation’s organizational structure are urgently needed in order to stabilize and improve the coal fleet’s operational performance.”

Decentralizing the chain of command and empowering the general manager of each electricity plant to be responsible and accountable for its full budget would help resolve the issues, along with a fast-tracking of procurement processes, the group said.

In addition to its operational issues, Eskom has been plagued by corruption and crime, including coal theft and contractors sabotaging equipment to secure the work to fix the units.

The group also found that workers aren’t adequately rewarded for good personal performance.

“The impact of the current situation on the workforce was clear to see: low morale, lack of motivation, heavy workload with long working hours in a demanding working atmosphere, as well as the deferral or interruption of training programs,” it said.

While the consultants highlighted the dirty state of some equipment, they also found some positives. Eskom’s transmission system is proportionately old, but overall remains “in excellent condition” because of intensive maintenance and upkeep, they said.

They encouraged Eskom to maintain an external team of experts to oversee its operations and report directly to the Treasury, while warning that reforms at the utility were urgently needed,

“Unless there is immediate intervention, the situation will continue to escalate,” the group wrote.