South Africa’s Shoot Outs

South Africa’s Shoot Outs

South Africa’s Shoot Outs

South Africa’s citizens can only watch in wonder, bemusement, anger, frustration, as the criminals that have been running the government’s state owned enterprises (SOE’s) shoot themselves and each other.

The collateral damage that the country is facing is huge and the after effects will be felt for years, if not decades to come.

Friday 29th September 2017 saw an emergency bail out of South African Airways (SAA) again. The significance was not the amount of R5 billion, but if SAA had not been bailed out, the default to Citibank would have triggered debt finance triggers on multiple other loans from banks to SOE’s and Eskom in particular.

It is a harsh reality that South Africa is walking on knife edge, with government downplaying the fears of running out of money.

To support the government’s spend, tax revenues are needed and with an estimated R13 billion shortfall (expected to be announced by Minister Gigaba in his October budget), the additional burdens incurred as a result of SABC (R3 billion needed), The Post Office (R1 billion needed), Petro SA (up to R6 Billion), SAA (R5 billion – a default would have triggered loan repayments of R16,9 billion), the pressure is on. SAA’s bail out came from the National Reserve Fund (NRF) funded by taxes and reserved for earthquakes and other unforeseen emergencies.

The question is where are all the funds going to come from? The sale of government’s 39,3% stake in Telkom worth approx. R12,3 billion has been denied. Raiding government pension funds is also denied.

With the estimated R100 billion that has been lost to corruption from all sectors of government and SOE’s, with the most publicised being within Eskom, (the Gupta’s, Trillian, Mckinsey, KPMG, Optimum, etc) the collateral damage would suggest that it is only a question of time before the cupboard is completely bare. What’s more we know that the position with SAA and Eskom and others will happen again within a few months.

Inevitably, as government money is spent on these mismanaged businesses, those areas that really need it like education, healthcare and socio economic uplift housing will suffer. Private sector businesses that have in good faith entered into government contracts for infrastructure and services will face increasing cash flow pressures, and with their suppliers crying out for money, the daisy chain reaction will inevitably result in companies going to the wall.

As this blog is focussed towards clean energy, renewables, environmental issues and climate change, the current state of affairs, (which in our opinion will get worse rather than better), will have significant impacts directly and indirectly on consumers.

In the case of government’s long term plan for renewables and meeting obligations from international lenders on Medupi and Kusile for carbon reductions, the large scale renewable program has stalled. 2 years after the Department of Energy (DOE) entered into agreements with preferred suppliers with Round 4 REIPPPP’s, (wind power, solar PV etc) the DOE have said that they intend to get these agreements signed by the end of October. We shall see, but having changed the terms to a maximum of R0,77 per kWh paid, no doubt a number of them will fall out.

On a more positive note, certainly for the environmentalists at least, fracking in the Karoo would appear to be becoming a ‘non starter’ as estimates of the amount of gas that could be extracted may have been overstated by as much as 95%. It has been determined that shale deposits are ‘over mature’ (in other words the gas has already disappeared). A ‘game changer’ would at this time appear to be a busted flush, and not fracking would help alleviate the increasing pressure on South Africa’s water supply.

Nuclear also seems to have gone quiet for the time being. Highly contentious and political, Eskom’s current surplus of some 4,000MW would suggest that there is little need to accelerate the nuclear program, and until the IRP is published in February 2018 (it will probably be delayed) little will be done other than more spending on consultancy reports. Further, it is known from all the previous work, and current, that SA’s need for nuclear will not be needed before 2037, and the latest renewables outlook suggest that they will continue to get cheaper. The governments intended nuclear program, although not dead, may go the way of the fracking programs.

For Eskom and municipal resellers the game is on, with OUTA trying to stop the requested increases of 19% plus claw back of some R60 billion by Eskom. Nersa will probably at the end of the day grant a compromise figure, but Eskom needs cash urgently unless it is going to be go bust, or government does further bail outs and that cupboard is near empty.

Consequently, significant electricity price increases are inevitable (up to 37% in 2018) and all consumers should look at saving money and electricity by investing in solar water heaters, and in the future solar electric home generation.

As in Reservoir Dogs, (see the picture above), with every government department and government owned business, blaming each other, sooner or later the shoot out where they all end up wounded or dead, will happen.

For us, the consumer, we can only watch, almost powerless, but we can go renewable.


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