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The plunge in international oil prices has a potential upside for South Africa’s debt-stricken state power utility.
Eskom can’t generate enough power from its coal-fired power stations to meet demand, and burnt through diesel worth R6.5 billion at its open-cycle gas turbines in its last financial year to try and avert or limit power cuts. With the utility expecting supply constraints to persist for at least 18 months, a prolonged fuel price slump will go some way to helping contain its primary energy costs.
Read: Bloodbath on the JSE as markets plunge around the world
The price of oil plummeted as much as 32% in rand terms on Monday, and was 23% lower in early afternoon in Johannesburg, after talks between the Organisation of Petroleum Exporting Countries and Russia collapsed and Saudi Arabia initiated a price war. The price of crude in rand terms - which determines South Africa’s gasoline prices, which are regulated by the state - has plunged 19% in the past two trading sessions.
Eskom supplies about 95% of the electricity used in Africa’s most industrialized economy, has amassed R454 billion worth of debt and isn’t generating enough income to cover its operating and debt-servicing costs.
