Eskom Ramps Up Power Outages, Risking a South African Recession

(Bloomberg) --

South Africa’s state power company intensified rolling blackouts to a record, signaling a deepening crisis at the debt-ridden utility and raising the risk of a second recession in as many years.

Eskom Holdings SOC Ltd. said on Monday it will move to stage 6 load-shedding, which means it will cut 6,000 megawatts from the national grid after a technical problem at the Medupi power station that affected generation supply. That is the biggest cut yet.

The utility is cutting power for a fifth straight day as it struggles with unplanned breakdowns at its plants. It was previously cutting 4,000 megawatts after at least 14,200 megawatts of unplanned breakdowns. The blackouts have a debilitating effect on the economy by curtailing mining activity and factory output and causing crippling traffic delays.

The latest round of load-shedding started two days after the statistics office announced that gross domestic product shrank an annualized 0.6% in the three months through September. Power cuts already hit the economy in the first quarter, when it contracted the most in a decade, lead by a drop in manufacturing, mining and agriculture output.

This “throws the gauntlet to the government to rise to the occasion and stop pretending that Eskom can be fixed,” Iraj Abedian, chief executive officer of Pan-African Investments and Research Services, said by phone. “In the meantime, it does mean that the economy is heading for a recession. There’s no way that hot on the heels of the previous quarter’s negative growth in GDP with this type of humongous and material disruption to the continuity of business that the economy can register positive growth.”

Eskom said on Twitter stage 8, under which 8,000 megawatts would be cut, will result in customers having power for only half of the day.

The one thing that could prevent GDP from dipping as deep as it did in the first quarter is the fact that many businesses are winding down as the Christmas holidays approach.

December is the “least damaging time to have load-shedding” because the economy is geared more toward the services industry, with construction work and factory activity set to slow for the holiday break, said Dawie Roodt, chief economist at the Efficient Group.

Mining companies say they are probably bearing the full brunt of load-shedding because they are among the heaviest users of electricity.

The world’s biggest platinum-group metals producers prioritize electricity allocation to underground mines and ensure workers’ safety while reducing power to smelters. Still, production may suffer as companies stockpile ore for processing later when there is sufficient power, Jana Marais, spokeswoman for Anglo American Platinum Ltd., said. Cutting power to smelters also adds to costs because the plants are designed to run continuously, she said.

Sibanye Gold Ltd., the country’s biggest private employer, has to reduce power use by 20% during load-shedding, said spokesman James Wellsted.

“It’s concerning and if it continues for a long time it will impact on production and the entire industry, not to mention the economy,” Wellsted said.

Weak economic growth could lead to a further deterioration in public finances and heighten the risk of South Africa losing its last investment-grade credit rating with Moody’s Investors Service. The company cut the outlook of the nation’s Baa3 assessments to negative last month.

©2019 Bloomberg L.P.

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