• The past 2 weeks have been rather volatile as sentiment has swung around. Inflation over in the US has eased slightly leading to speculation that the FED may pivot (stop raising rates) slightly sooner  than originally anticipated.

• This has resulted in the rand gaining some lost ground from well above 18.00 not so long ago, to just above 17.00 at one point.

• Enter Eskom.

• Loadshedding has become a constant theme for South Africans leading to immense frustration. But the broader impact is so much more serious than simple frustration. 

• And news on the weekend that Eskom has been burning diesel at unprecedented rates in order to keep the lights on has highlighted the serious precarious nature  of the power utilities generation capacity.

• Eskom may as well change their head office’s name from “Megawatt Park” to “kilowatt park’ or simply just “afew watts park.”

• Because now the utility has run out of Diesel, and money to procure more diesel.

• The tanks have literally run dry. This is either a monumental failure to plan, or a monumental failure of finance management. Or both.

• If the Government does not step in with emergency finance to acquire new diesel, then the first time that Eskom will be able to turn on these diesel generators will be APRIL 2023.

• And the reason that they have to burn such large quantities of diesel is because of the failure of their new coal burning pants at Kusile and Madupe. Design faults, poor management and the odd occurrence of sabotage has rendered these plants all but useless.  

• Over the years – 15 of them to be precise – South Africans have been promised that a solution is around the corner. It is now evident that there is NO solution. 

• Where  citizens had to be used to stage 2 shedding , with occasional bouts of 4 or 6...we are about to find out that stage 4 will be the norm with more frequent bouts of 6 or even 8 being the new normal.

• The knock on effects for the economy will mean even higher unemployment, lower growth, less tax revenue and more business closures.

• I am not being dramatic when I say that D day for Eskom, and thus for the country as a whole has arrived.

• Years of mismanagement, poor planning, theft and graft has brought us to this point.

• So what does this mean for the currency?

• It means that in “risk on” times – times when we have favorable market conditions – the Rand should underperform it EM peers.

• And in ‘risk off” times the rand will be super vulnerable. 

• Manufacturing, mining, retail, hospitality, tourism – any sector that consumes energy will be impacted.

• More jobs will be lost as small business cannot survive. 

• To be sure...Government will be forced to stump up a few more billions in order to procure the diesel. But even when they do step up to the plate, it simply means that governments balance sheet deteriorates further even as revenues are negatively impacted. 

• But this is like trying to fix a heart attack with a band aid. You can’t keep burning the most expensive form of energy in order to plug the gaps left by the failing generation capacity.

• The real problem lies with traditional generation. Our older coal fired plants, like old fish, have reached the end of their usefulness.

• The newer super expensive, supersize plants, like our politicians,  are dysfunctional and will take years to fix.

• In fact Eskom should name the head office “whatsenergy”?

• On that crisis note I wish you all a great week.

• Dr. Doom drops mike – but the mike doesn’t work in any case, because you know, mikes require energy to make any difference.