Electricity pylons carry power from Cape Town's Koeberg nuclear power plant
Electricity pylons carry power from Cape Town's Koeberg nuclear power plant (Reuters/Mike Hutchings)

One of the key things that economic and social development in sub-Saharan Africa hinges upon into the future is the robustness of its energy sector.


But as the IEA's chief economist Faith Birol explains: "The pay-off [of getting it right] can be huge, with each additional dollar invested in the power sector boosting the overall economy by $15."


For instance, despite the damage to the economy caused by rolling blackouts across the country earlier in 2014, the National Energy Regulator has caused outrage by approving a tariff increase of an average 13% until 31 March 2016, up from a previously agreed 8%.

The figure is more than twice this year's average inflation rate of 6.2% and fears are that it will put a damper on an already struggling economy that only missed going into recession last quarter by the skin of its teeth.


The issue is that the company, which supplies 95% of the country's power, faces a further funding shortfall of ZAR225 billion for the five years to March 2018.

As a result, it is currently unable to come up with enough money to service the debt required to pay for the completion of two new, and very necessary power stations in order to tackle the country's chronic power shortages.

Last month, the government announced it would put together a financial rescue package, the details of which are due to be announced on 22 October. Ratings agency Standard & Poor's will then decide whether Eskom's debt situation warrants its bonds being downgraded to junk status.

construction site at the Medupi power station in south africa
Construction site at the Medupi power station in Lephalele April 11, 2013. South African power utility Eskom said it will do its utmost to have the Medupi coal power plant generate electricity by the end of 2013, but admitted it will be a "huge challenge". Construction was suspended for several weeks in 2013 because of a violent strike and labour protests. Medupi is now expected to be operational by mid-2015. (Reuters/Siphiwe Sibeko)

Powerful Economic Impact


But the worry is that this situation will make South Africa increasingly uncompetitive in world markets. It certainly won't help inflation or manufacturers already hit by rising labour costs and low demand for their products.

Or consumers for that matter, who are struggling with rising food and fuel costs, high levels of personal debt, and unemployment rates of around 25%.

So the situation is not good by anyone's standards - and doesn't get any better for reading the US Central Intelligence Agency's World Factbook either, which would appear to back up the IEA's report.

The Factbook indicates that South Africa's economy will be unable to grow at more than 3% until Eskom's new power stations come online, one by mid-2015 and the other in 2017, which is obviously a while yet.

Jasper Solar Power Project
The Jasper Solar Power Project will produce 182,000 megawatt-hours of energy annually for South African residents, enough to power approximately 80,000 homes. (SolarReserve)


Another contentious issue, meanwhile, is how the country's electricity is to be generated in the first place.


But after getting a bad name for itself as the continent's worst polluter and as one of the world's top 20 carbon emitters, it pledged to take action, submitting reduction targets to the Copenhagen Accord in January 2010.



South Africa's Energy Mix

So while renewable energy accounted for less than 1% of the country's energy mix in 2012, it is expected to hit a much more healthy 12% by 2020, jumping to 17% by 2030.


But it seems that President Jacob Zuma also has a controversial personal interest in nuclear. After promising to purchase a fleet of power stations in his opening address to Parliament in June 2014, following similar statements in his State of the Nation speech in February, he made a mysterious visit to see President Vladimir Putin in Moscow in September.

Russia's President Vladimir Putin (R) talks with his South African counterpart Jacob Zuma during their meeting at the Novo-Ogaryovo state residence outside Moscow, August 28, 2014. (Reuters/Sergei Karpukhin)


The pact was based on a "build now, pay later" vendor-financed arrangement that would see Eskom buying back energy at high predetermined rates for up to 20 years.

But the move led to an outcry, with concerns being voiced over everything from corrupt and opaque procurement processes to the sheer cost of the proposals, which some feared could cripple the country as tariffs skyrocketed.


The government has since confirmed that Eskom will not act as the owner and operator of the new power stations. This process will instead be led by the Cabinet's energy security subcommittee, which is chaired by no less than Zuma himself – a man said to regard a nuclear power project as part of his legacy.

A businessman with historically close ties to Zuma has also intimated to South Africa's Mail & Guardian newspaper that the decision to award the contract to Russia has already been taken, essentially making it a done deal.
