1 00:00:01,760 --> 00:00:05,240 Speaker 1: Welcome to Crash Course, a podcast about business, political, and 2 00:00:05,280 --> 00:00:08,520 Speaker 1: social disruption and what we can learn from it. I'm 3 00:00:08,560 --> 00:00:13,200 Speaker 1: Tim O'Brien. Today's Crash Course. What happens when the lights 4 00:00:13,240 --> 00:00:16,800 Speaker 1: go out? We all take for granted that nifty little 5 00:00:16,800 --> 00:00:18,840 Speaker 1: miracle that happens when we flip a switch on our 6 00:00:18,880 --> 00:00:22,720 Speaker 1: walls or lamps, the lights go on. Electricity is a 7 00:00:22,760 --> 00:00:25,680 Speaker 1: modern marvel. It's the juice that fuels most so what 8 00:00:25,720 --> 00:00:30,000 Speaker 1: people mean when they talk about civilization. Roads are illuminated, 9 00:00:30,400 --> 00:00:33,280 Speaker 1: Kids can do their homework at night, food gets preserved 10 00:00:33,320 --> 00:00:37,680 Speaker 1: in the fridge, Computers boot up, elevators move, et cetera, 11 00:00:37,960 --> 00:00:41,640 Speaker 1: et cetera. Coal fired power plants also have a major 12 00:00:41,680 --> 00:00:47,600 Speaker 1: downside pollution and environmental degradation. When we lose access to electricity, 13 00:00:47,680 --> 00:00:51,600 Speaker 1: we feel the pain immediately. What we're used to doing 14 00:00:51,680 --> 00:00:55,040 Speaker 1: collides with what we can suddenly not do. Millions of 15 00:00:55,080 --> 00:00:57,520 Speaker 1: people in Texas lost power for days when the grid 16 00:00:57,560 --> 00:01:00,880 Speaker 1: there sees In early twenty twenty one, Puerto Rico went 17 00:01:00,880 --> 00:01:04,600 Speaker 1: through weeks and then months of rolling blackouts following devastating 18 00:01:04,640 --> 00:01:09,200 Speaker 1: hurricanes several years ago. Now, consider South Africa, the second 19 00:01:09,319 --> 00:01:12,080 Speaker 1: largest economy on the African continent. And home to sixty 20 00:01:12,080 --> 00:01:16,240 Speaker 1: one million people. The entire country has faced rolling blackouts 21 00:01:16,319 --> 00:01:19,240 Speaker 1: for about fifteen years. How can that be? 22 00:01:20,000 --> 00:01:20,160 Speaker 2: Then? 23 00:01:20,160 --> 00:01:22,319 Speaker 1: What is the present and future hold for a country 24 00:01:22,319 --> 00:01:25,800 Speaker 1: that doesn't have a reliable source of electricity? I'm in 25 00:01:25,840 --> 00:01:28,039 Speaker 1: South Africa. Then, joining me to discuss all of this 26 00:01:28,120 --> 00:01:31,000 Speaker 1: is Paul Burkhart, an energy reporter with Bloomberg News in 27 00:01:31,040 --> 00:01:35,400 Speaker 1: Cape Town, and Olga Constantatos, the South African investor who 28 00:01:35,440 --> 00:01:39,840 Speaker 1: has spent years watching the power crisis escalate in her country. Paul, 29 00:01:40,160 --> 00:01:42,319 Speaker 1: let's start with you. Thanks for joining us. 30 00:01:42,560 --> 00:01:42,880 Speaker 2: Thank you. 31 00:01:43,400 --> 00:01:45,800 Speaker 1: So let's just start with a little background for everybody 32 00:01:45,840 --> 00:01:49,600 Speaker 1: out there who takes electricity for granted but actually doesn't 33 00:01:49,680 --> 00:01:53,080 Speaker 1: know how electricity is produced. Give us a little primer 34 00:01:53,400 --> 00:01:55,400 Speaker 1: about how the jew sends up in the wires. 35 00:01:56,200 --> 00:02:00,400 Speaker 3: Sure, and I'll use the South African example. Basically, South 36 00:02:00,440 --> 00:02:03,880 Speaker 3: Africa is very rich in coal, so they saw coal 37 00:02:04,000 --> 00:02:07,600 Speaker 3: is really the optimal fuel and what they do is 38 00:02:07,800 --> 00:02:11,680 Speaker 3: the mine the coal that goes straight into the power plant. 39 00:02:11,800 --> 00:02:14,280 Speaker 3: They built the power plants right next to the coal 40 00:02:14,280 --> 00:02:17,520 Speaker 3: mines basically, so they have conveyors that end up running 41 00:02:17,520 --> 00:02:20,680 Speaker 3: for miles as they mine more and more of the coal. 42 00:02:20,720 --> 00:02:25,200 Speaker 3: Out the coal, it's pulverized and then it's burned in 43 00:02:25,280 --> 00:02:28,640 Speaker 3: the boiler. That heats up the steam that powers the 44 00:02:28,680 --> 00:02:32,560 Speaker 3: turbine which powers the generator, and that turns into electricity 45 00:02:32,560 --> 00:02:35,880 Speaker 3: and then it goes through the transmission network. And in 46 00:02:35,919 --> 00:02:40,160 Speaker 3: South Africa, the coal rich area is far away from 47 00:02:40,240 --> 00:02:44,200 Speaker 3: some of the other population centers, so the transmission lines 48 00:02:44,320 --> 00:02:46,800 Speaker 3: run very far in some cases. 49 00:02:46,919 --> 00:02:50,080 Speaker 1: Yeah, and the electricity goes through the wire, then gets 50 00:02:50,120 --> 00:02:53,440 Speaker 1: transformed and ends up in businesses, are in people's homes, 51 00:02:54,080 --> 00:02:58,560 Speaker 1: and in South Africa in particular, all of that essentially 52 00:02:58,680 --> 00:03:04,440 Speaker 1: runs around one company called ESCOM, or the Electricity Supply Commission. 53 00:03:05,040 --> 00:03:07,960 Speaker 1: Tell me a little bit about SCOM, this company that 54 00:03:08,400 --> 00:03:14,240 Speaker 1: occupies a monumental and fundamental position in South African life. 55 00:03:15,240 --> 00:03:18,160 Speaker 3: ESCOM is, well, it's one hundred years old this year. 56 00:03:18,720 --> 00:03:22,400 Speaker 3: And really it came about with the mines in South Africa. 57 00:03:22,919 --> 00:03:26,880 Speaker 3: Obviously needed power to extract the mineral resources here, so 58 00:03:27,320 --> 00:03:30,639 Speaker 3: that was really the need for it. And then as 59 00:03:30,680 --> 00:03:33,239 Speaker 3: it rose, it was basically a monopoly. It was a 60 00:03:33,280 --> 00:03:38,960 Speaker 3: state owned monopoly, and later on really industrialized the country 61 00:03:39,000 --> 00:03:42,400 Speaker 3: even through apartheid, and so South Africa needed to be 62 00:03:42,520 --> 00:03:48,240 Speaker 3: self sufficient in terms of electricity production, fuel production, and 63 00:03:48,280 --> 00:03:51,720 Speaker 3: so ESCOM was one of the really the pillars I 64 00:03:51,720 --> 00:03:53,440 Speaker 3: guess of how it achieved that. 65 00:03:54,040 --> 00:03:57,920 Speaker 1: And sort of a trophy enterprise and state owned, which 66 00:03:57,960 --> 00:04:02,480 Speaker 1: meant it produced electricity pretty much cost So for South 67 00:04:02,520 --> 00:04:05,440 Speaker 1: Africans who had access to that electricity, they were getting 68 00:04:05,920 --> 00:04:08,960 Speaker 1: a really cheap way to electrify their homes and businesses. 69 00:04:09,560 --> 00:04:11,960 Speaker 1: But you've also mentioned that it's a state owned enterprise, 70 00:04:12,160 --> 00:04:17,479 Speaker 1: and inevitably companies that are state owned, their affairs and 71 00:04:17,520 --> 00:04:20,360 Speaker 1: their business gets mingled with politics and what does that 72 00:04:20,400 --> 00:04:21,440 Speaker 1: meant for ESCOM. 73 00:04:21,720 --> 00:04:23,200 Speaker 2: It complicates things quite a bit. 74 00:04:23,680 --> 00:04:27,159 Speaker 3: And it's funny because if you sometimes if you go 75 00:04:27,279 --> 00:04:30,320 Speaker 3: to ESCOM and you ask about something, they say, oh, 76 00:04:30,400 --> 00:04:32,760 Speaker 3: that's really a question for the government. And sometimes if 77 00:04:32,800 --> 00:04:36,520 Speaker 3: you go to the government shareholder, which is the ministry 78 00:04:36,560 --> 00:04:39,920 Speaker 3: in charge of ESCOM is the Department of Public Enterprises, 79 00:04:40,320 --> 00:04:43,280 Speaker 3: if you ask them things about ESCOM, sometimes they'll say, oh, 80 00:04:43,279 --> 00:04:46,560 Speaker 3: that's an ESCOM board question, or that's really for the utility. 81 00:04:46,600 --> 00:04:49,080 Speaker 3: We don't deal with that. But there is a very 82 00:04:49,440 --> 00:04:53,200 Speaker 3: close relationship between the two and I think that's been 83 00:04:53,240 --> 00:04:56,760 Speaker 3: an issue for the leadership of ESCOM sometimes and how 84 00:04:56,800 --> 00:04:59,640 Speaker 3: it runs the company because it really does need to 85 00:04:59,680 --> 00:05:02,960 Speaker 3: do it in a way that's approved by government ultimately. 86 00:05:03,440 --> 00:05:07,120 Speaker 1: Another thing that's interesting to me about scom's history is 87 00:05:07,960 --> 00:05:11,719 Speaker 1: electricity is a precious resource. It powers a society, and 88 00:05:11,760 --> 00:05:15,279 Speaker 1: when ESCOM first came into being, it only had to 89 00:05:15,320 --> 00:05:20,000 Speaker 1: provide electricity to about ten percent of the South African population, 90 00:05:20,680 --> 00:05:25,000 Speaker 1: and then the businesses that population controlled mining and other businesses, 91 00:05:25,400 --> 00:05:29,360 Speaker 1: which meant that ninety percent of South Africans, a significant 92 00:05:29,360 --> 00:05:32,680 Speaker 1: portion of whom we're black, had no access to electricity. 93 00:05:33,600 --> 00:05:38,760 Speaker 1: And over the last century, as apartheid ended, as ESCOM evolved, 94 00:05:38,920 --> 00:05:42,120 Speaker 1: as the South African economy evolved, one of the missions 95 00:05:42,160 --> 00:05:47,599 Speaker 1: for ESCOM came to be providing electricity and power to 96 00:05:47,640 --> 00:05:50,800 Speaker 1: one hundred percent of the population, but from a company 97 00:05:51,120 --> 00:05:54,680 Speaker 1: whose origins were only having to provide electricity to ten 98 00:05:54,720 --> 00:05:58,479 Speaker 1: percent of the population, So it had this mission to 99 00:05:58,520 --> 00:06:01,600 Speaker 1: give everyone access to power, but had never really been 100 00:06:01,640 --> 00:06:04,039 Speaker 1: built for that mission. Do you see that as almost 101 00:06:04,120 --> 00:06:09,159 Speaker 1: like a deterministic or faded at birth kind of problem 102 00:06:09,240 --> 00:06:14,000 Speaker 1: baked into it that because of apartheid, ESCOM wasn't built 103 00:06:14,080 --> 00:06:17,960 Speaker 1: properly to fulfill the mission people are demanding of it today. 104 00:06:18,920 --> 00:06:21,640 Speaker 3: Well, there are a couple different parts to that. Certainly, 105 00:06:21,760 --> 00:06:24,520 Speaker 3: the domestic demand I think went up quite a bit, 106 00:06:24,680 --> 00:06:28,159 Speaker 3: and then electricity is actually a right in South Africa, 107 00:06:28,800 --> 00:06:32,039 Speaker 3: so that became very important. But on the other hand, 108 00:06:32,279 --> 00:06:36,440 Speaker 3: the democratically elected government since nineteen ninety four, there were 109 00:06:36,520 --> 00:06:39,080 Speaker 3: some bumps in the road in terms of policy, and 110 00:06:39,120 --> 00:06:44,120 Speaker 3: that includes building more capacity for ESCAM, and I think 111 00:06:44,279 --> 00:06:46,520 Speaker 3: it was known that they were going to need more 112 00:06:46,720 --> 00:06:51,520 Speaker 3: with supplying more power to residential areas and also just 113 00:06:51,560 --> 00:06:53,880 Speaker 3: with economic growth for the country, they were going to 114 00:06:53,960 --> 00:06:58,039 Speaker 3: need more power capacity and there were a lot of 115 00:06:58,040 --> 00:07:00,400 Speaker 3: stumbles there and there are a lot of miss aps. 116 00:07:00,440 --> 00:07:05,600 Speaker 3: And for example, to the biggest power stations that ESCOM 117 00:07:05,680 --> 00:07:09,000 Speaker 3: has built and still being finished, they were behind schedule, 118 00:07:09,360 --> 00:07:15,280 Speaker 3: They've become overbudget, they've been delayed by corruption, by labor strikes, 119 00:07:15,520 --> 00:07:19,880 Speaker 3: just a number of different things that sometimes even have 120 00:07:20,000 --> 00:07:25,000 Speaker 3: included bigger companies that we would recognize like ABB McKenzie. 121 00:07:25,800 --> 00:07:28,840 Speaker 3: That's all been part of some of the recent history. 122 00:07:29,280 --> 00:07:32,920 Speaker 3: And so there were just a series of mishaps that 123 00:07:33,440 --> 00:07:36,240 Speaker 3: didn't bring on the extra power when it was supposed to, 124 00:07:36,400 --> 00:07:39,120 Speaker 3: and that's one of the reasons that ESCOM is in 125 00:07:39,120 --> 00:07:39,720 Speaker 3: this situation. 126 00:07:39,880 --> 00:07:40,800 Speaker 2: It's in right now. 127 00:07:41,320 --> 00:07:43,240 Speaker 1: You said an interesting thing a moment ago, when you 128 00:07:43,240 --> 00:07:46,200 Speaker 1: were explaining all this to me, you said that access 129 00:07:46,240 --> 00:07:49,440 Speaker 1: to electricity is a right in South Africa. Let's talk 130 00:07:49,680 --> 00:07:53,080 Speaker 1: a little bit more about that. Access to electricity was 131 00:07:53,160 --> 00:07:57,160 Speaker 1: baked into the legal code. No one could be denied 132 00:07:57,440 --> 00:08:01,160 Speaker 1: in theory or according to the law, access to electricity. 133 00:08:01,240 --> 00:08:03,240 Speaker 1: Why did that get enshrined as such? 134 00:08:04,400 --> 00:08:10,040 Speaker 3: Well, I think that in South Africa, especially after ninety four. 135 00:08:10,920 --> 00:08:14,680 Speaker 3: Obviously South Africa has a very robust constitution. 136 00:08:14,520 --> 00:08:17,239 Speaker 1: And ninety four, for our readers, that's when Nelson Mandela 137 00:08:17,760 --> 00:08:20,680 Speaker 1: comes to power, the great hero of both the pre 138 00:08:20,800 --> 00:08:24,200 Speaker 1: and post apartheid eras the man who sort of bridged 139 00:08:25,360 --> 00:08:29,960 Speaker 1: Africa's troubled, sordid grotesque passed and some of the hopes 140 00:08:30,080 --> 00:08:32,840 Speaker 1: of its future. That era was full of promise in 141 00:08:32,880 --> 00:08:35,560 Speaker 1: nineteen ninety four, and of course es COM and electricity 142 00:08:35,960 --> 00:08:38,160 Speaker 1: were part of a vision for hope and change. 143 00:08:38,280 --> 00:08:42,240 Speaker 3: That's right, and then the party, the African National Congress 144 00:08:42,320 --> 00:08:45,240 Speaker 3: that came to power. With the rise of the African 145 00:08:45,320 --> 00:08:48,520 Speaker 3: National Congress, there was also the hope and the promise 146 00:08:48,960 --> 00:08:51,880 Speaker 3: that things were going to change for everyone, that services 147 00:08:51,880 --> 00:08:55,760 Speaker 3: were going to change for everyone, whether it's sanitation, transportation 148 00:08:56,640 --> 00:09:02,559 Speaker 3: and electricity, and so there's been an increase in electrification 149 00:09:02,760 --> 00:09:04,240 Speaker 3: rates like of the nation. 150 00:09:04,640 --> 00:09:06,920 Speaker 2: But the process isn't done yet. 151 00:09:06,960 --> 00:09:10,280 Speaker 3: But that was just seen as something that needed to 152 00:09:10,320 --> 00:09:14,080 Speaker 3: be really in the quest for equality, especially now that 153 00:09:14,160 --> 00:09:17,719 Speaker 3: there's a democratic government in place, that should be expected 154 00:09:17,840 --> 00:09:20,520 Speaker 3: and it's actually a right for people to have that. 155 00:09:20,840 --> 00:09:23,720 Speaker 1: And I don't think anyone would disagree that a hallmark 156 00:09:23,720 --> 00:09:27,360 Speaker 1: of a civilized society is that people have access to 157 00:09:27,400 --> 00:09:30,199 Speaker 1: the power they need to improve their standard of living 158 00:09:30,480 --> 00:09:34,160 Speaker 1: and increase their access to opportunities. The tricky thing when 159 00:09:34,160 --> 00:09:36,800 Speaker 1: we look at the history of s COM is that 160 00:09:36,800 --> 00:09:42,840 Speaker 1: that's all entwined with both human nature and human frailty 161 00:09:42,880 --> 00:09:47,640 Speaker 1: and the difficulty that any big complex company composed to 162 00:09:47,760 --> 00:09:51,920 Speaker 1: people managing it effectively wherever the country is, whoever's running it. 163 00:09:52,520 --> 00:09:57,360 Speaker 1: But over time in South Africa, s COM really became 164 00:09:57,480 --> 00:09:59,920 Speaker 1: many things. A piggy bank for the people who can 165 00:10:00,120 --> 00:10:04,640 Speaker 1: rolled it, an influenced machine, patronage for jobs for people 166 00:10:04,640 --> 00:10:07,600 Speaker 1: connected to the party in power, a source of hope 167 00:10:08,000 --> 00:10:11,840 Speaker 1: if managed well. But we now know, given what's happened 168 00:10:11,960 --> 00:10:15,839 Speaker 1: for over a decade here, that it is mismanaged and 169 00:10:15,920 --> 00:10:19,199 Speaker 1: it is not modernizing and it's not fulfilling the promise 170 00:10:19,280 --> 00:10:24,560 Speaker 1: of actually giving reliable energy generation to every South African 171 00:10:25,240 --> 00:10:28,560 Speaker 1: How did we get there? Why has ESCOM become this 172 00:10:28,679 --> 00:10:30,320 Speaker 1: slow motion car crash. 173 00:10:31,000 --> 00:10:33,520 Speaker 3: There are a few things that have proved to be 174 00:10:33,600 --> 00:10:37,360 Speaker 3: troublesome for ESCOM and the government for that matter, and 175 00:10:37,400 --> 00:10:40,440 Speaker 3: one is making decisions when they need to make them. 176 00:10:40,480 --> 00:10:45,280 Speaker 3: So actually building the extra capacity that was one issue, 177 00:10:45,640 --> 00:10:48,520 Speaker 3: and that was delayed, and then when it did happen, 178 00:10:49,040 --> 00:10:53,199 Speaker 3: there was no EPC basically a contractor that would oversee 179 00:10:53,200 --> 00:10:56,400 Speaker 3: the other contractors. ESCOM wanted to do it itself as 180 00:10:56,520 --> 00:10:59,360 Speaker 3: kind of a project that could show the world that 181 00:10:59,440 --> 00:11:03,080 Speaker 3: it could build these massive power stations, the biggest in 182 00:11:03,120 --> 00:11:07,360 Speaker 3: the world currently, and it just didn't go well. And 183 00:11:07,480 --> 00:11:09,760 Speaker 3: there was also the graft was starting to show up 184 00:11:10,160 --> 00:11:13,440 Speaker 3: at that point, and labor issues and a number of 185 00:11:13,480 --> 00:11:18,120 Speaker 3: other things. Certainly corruption is something that you could find 186 00:11:18,280 --> 00:11:20,840 Speaker 3: even back in the apartheid era with some of the 187 00:11:20,880 --> 00:11:24,680 Speaker 3: contracts there how those operated, but it did get much 188 00:11:24,720 --> 00:11:28,160 Speaker 3: worse in terms of just the scale of it. 189 00:11:28,559 --> 00:11:30,520 Speaker 2: On one hand, I. 190 00:11:30,480 --> 00:11:32,360 Speaker 1: Want to take a break right there, Paul here from 191 00:11:32,400 --> 00:11:34,679 Speaker 1: one of our sponsors, and we'll come back and continue 192 00:11:34,720 --> 00:11:43,000 Speaker 1: this fascinating conversation. We're back with Paul Burkhart, a Bloomberg 193 00:11:43,040 --> 00:11:47,800 Speaker 1: News reporter, and we're talking about South Africa's electricity nightmare. Paul, 194 00:11:47,960 --> 00:11:50,120 Speaker 1: let's discuss what it means on a day to day 195 00:11:50,160 --> 00:11:56,000 Speaker 1: basis when people don't have access to electricity, businesses, homes. 196 00:11:56,559 --> 00:12:00,720 Speaker 1: What are the ramifications of not having a reliable energy source, 197 00:12:00,800 --> 00:12:03,160 Speaker 1: both for people themselves and for an economy. 198 00:12:04,120 --> 00:12:07,560 Speaker 3: Yeah, for one thing, I got home yesterday and the 199 00:12:07,640 --> 00:12:11,120 Speaker 3: lights went out. Load shedding started, which is what South 200 00:12:11,160 --> 00:12:13,080 Speaker 3: Africans call these power cuts. 201 00:12:13,200 --> 00:12:16,000 Speaker 1: They call it load shedding. Where does the term load 202 00:12:16,040 --> 00:12:19,560 Speaker 1: shedding come from? That? Basically, the company itself is finding 203 00:12:19,600 --> 00:12:23,200 Speaker 1: ways to slough off some of the demands that are 204 00:12:23,200 --> 00:12:26,920 Speaker 1: on it to generate electricity so the grid doesn't get overwhelmed, right. 205 00:12:27,040 --> 00:12:28,160 Speaker 2: That's exactly it. 206 00:12:28,160 --> 00:12:31,960 Speaker 3: It's designed to prevent a total collapse of the grid. 207 00:12:32,120 --> 00:12:35,280 Speaker 3: So you know the frequency of the electricity can't drop 208 00:12:35,400 --> 00:12:38,720 Speaker 3: to a certain level, so they want to cut off 209 00:12:38,800 --> 00:12:42,199 Speaker 3: that demand from certain areas. And here they rotate it 210 00:12:42,240 --> 00:12:46,520 Speaker 3: regionally and it'll be in different stages. So each stage 211 00:12:46,960 --> 00:12:50,040 Speaker 3: is one thousand megawatts, So stage one, Stage two we've 212 00:12:50,080 --> 00:12:51,800 Speaker 3: been at stage six quite a bit. 213 00:12:52,200 --> 00:12:53,440 Speaker 2: They try to schedule it. 214 00:12:53,400 --> 00:12:56,960 Speaker 3: But sometimes it comes up quickly. They can't always do that, 215 00:12:57,040 --> 00:13:00,640 Speaker 3: and it really depends on the performance of the power stations, 216 00:13:00,679 --> 00:13:05,240 Speaker 3: and because they're underperforming and they've become so unreliable, it 217 00:13:05,280 --> 00:13:08,800 Speaker 3: happens quite often. And so yesterday when I came home 218 00:13:08,840 --> 00:13:10,640 Speaker 3: and it was just about time to make dinner and 219 00:13:10,679 --> 00:13:13,360 Speaker 3: the lights went off. So that's a very simple way. 220 00:13:13,400 --> 00:13:16,360 Speaker 3: The traffic lights don't work, and then sometimes when the 221 00:13:16,400 --> 00:13:19,000 Speaker 3: power comes back on again, they still don't work. So 222 00:13:19,400 --> 00:13:22,960 Speaker 3: all the electronic items in your house and your appliances 223 00:13:23,000 --> 00:13:26,120 Speaker 3: and the things that stay on normally when they're turned 224 00:13:26,160 --> 00:13:28,400 Speaker 3: on and off too much and they weren't designed to 225 00:13:28,520 --> 00:13:31,160 Speaker 3: do that, eventually they're going to break a lot faster 226 00:13:31,840 --> 00:13:35,200 Speaker 3: than if it was just normal use. I noticed my 227 00:13:35,480 --> 00:13:40,360 Speaker 3: laptop batteries really on the fritz now, So that's another example. 228 00:13:40,400 --> 00:13:43,480 Speaker 3: But on a much more serious side of the scale, 229 00:13:43,840 --> 00:13:48,040 Speaker 3: we've seen it start to creep into water supply and 230 00:13:48,320 --> 00:13:52,240 Speaker 3: sewage treatment. Where the electricity goes off, the pumps don't 231 00:13:52,240 --> 00:13:55,400 Speaker 3: work if there's not a backup, then you know, in 232 00:13:55,480 --> 00:13:58,480 Speaker 3: terms of providing water supply, they can't get pumped up 233 00:13:58,480 --> 00:14:01,600 Speaker 3: to the water can't get pumped up to higher lying area. 234 00:14:02,080 --> 00:14:05,320 Speaker 3: But in terms of sewage, obviously here in Cape Town 235 00:14:05,360 --> 00:14:07,480 Speaker 3: they've closed some of the beaches in the last tourist 236 00:14:07,520 --> 00:14:10,679 Speaker 3: season because there was raw sewage going into the water. 237 00:14:10,920 --> 00:14:15,600 Speaker 3: So that's a problem and obviously very scary, and recently 238 00:14:15,760 --> 00:14:19,920 Speaker 3: with some cholera outbreaks in the country, than the prospect 239 00:14:19,960 --> 00:14:21,440 Speaker 3: of things getting worse, it's there. 240 00:14:21,480 --> 00:14:22,360 Speaker 2: It's very close. 241 00:14:22,560 --> 00:14:24,680 Speaker 3: And in terms of food production too, I think it's 242 00:14:24,720 --> 00:14:29,960 Speaker 3: also has been interesting when a slaughterhouse loses power, it 243 00:14:30,000 --> 00:14:34,479 Speaker 3: can't slaughter food, so you get a backup of chickens 244 00:14:34,680 --> 00:14:36,320 Speaker 3: or whatever, a. 245 00:14:36,240 --> 00:14:39,360 Speaker 1: Backup of rotting chickens if they've been slaughtered. 246 00:14:39,200 --> 00:14:41,800 Speaker 3: Yeah, and which you have to do something with at 247 00:14:41,840 --> 00:14:45,120 Speaker 3: some point. And it just the whole supply chain. Even 248 00:14:45,320 --> 00:14:48,520 Speaker 3: in the grocery store, the food on the shelves sometimes 249 00:14:48,520 --> 00:14:51,600 Speaker 3: there isn't as much of because all through the process 250 00:14:52,000 --> 00:14:56,320 Speaker 3: from the farm to the grocery store, the refrigeration, if 251 00:14:56,320 --> 00:14:59,000 Speaker 3: the power goes out and there isn't a backup, then 252 00:14:59,440 --> 00:15:00,040 Speaker 3: your food. 253 00:14:59,840 --> 00:15:00,920 Speaker 2: Is not going to last as long. 254 00:15:00,960 --> 00:15:03,440 Speaker 3: Then when it makes it into your refrigerator and the 255 00:15:03,480 --> 00:15:05,240 Speaker 3: power goes out quite a bit, you know, you don't 256 00:15:05,240 --> 00:15:07,840 Speaker 3: want to eat chicken. That's been thought a few times, 257 00:15:07,880 --> 00:15:10,680 Speaker 3: so it really creates a lot of health issues too. 258 00:15:11,200 --> 00:15:15,120 Speaker 1: And speaking of health issues, hospitals themselves rely on electricity 259 00:15:15,160 --> 00:15:18,960 Speaker 1: generation in order to treat patients, to examine people, to 260 00:15:19,080 --> 00:15:22,560 Speaker 1: house them safely when they're ill, So the hospital network 261 00:15:22,600 --> 00:15:26,760 Speaker 1: gets threatened. And then what happens on dark streets more crime, 262 00:15:27,320 --> 00:15:29,280 Speaker 1: So those are issues as well. The crime rate has 263 00:15:29,320 --> 00:15:33,160 Speaker 1: been rising in already crime ridden neighborhoods around Cape Town 264 00:15:33,600 --> 00:15:36,880 Speaker 1: and in other cities around South Africa. Are there any 265 00:15:36,960 --> 00:15:39,520 Speaker 1: other ramifications that are front of mind for you when 266 00:15:39,560 --> 00:15:41,280 Speaker 1: people are deprived of electricity? 267 00:15:42,040 --> 00:15:47,000 Speaker 3: Certainly, the prospect of social unrest is something that everyone 268 00:15:47,080 --> 00:15:50,920 Speaker 3: is aware of because there are already demonstrations quite a 269 00:15:50,920 --> 00:15:53,360 Speaker 3: bit in a lot of areas in South Africa where 270 00:15:53,480 --> 00:15:58,040 Speaker 3: really any services haven't been delivered to a satisfactory degree, 271 00:15:58,160 --> 00:16:01,560 Speaker 3: so people protest in the streets. And this would mean 272 00:16:01,800 --> 00:16:04,880 Speaker 3: without power and without it for an extended period of time, 273 00:16:05,120 --> 00:16:08,040 Speaker 3: that would create even more of that type of activity. 274 00:16:08,360 --> 00:16:09,720 Speaker 2: But what you're. 275 00:16:09,560 --> 00:16:14,680 Speaker 3: Seeing is even insurance policies have been rewritten to exclude 276 00:16:14,720 --> 00:16:18,600 Speaker 3: periods of load shedding, and the prospect of that is 277 00:16:18,680 --> 00:16:21,640 Speaker 3: also really scary. Because what are people going to do 278 00:16:21,960 --> 00:16:24,600 Speaker 3: if they're not going to be able to claim insurance 279 00:16:24,640 --> 00:16:28,200 Speaker 3: on things that are taken or destroyed or whatever happens 280 00:16:28,240 --> 00:16:30,600 Speaker 3: when the lights do go out. So we're on the 281 00:16:30,720 --> 00:16:33,120 Speaker 3: verge of something that could get much. 282 00:16:32,960 --> 00:16:36,200 Speaker 1: Worse, something that could get worse, much worse in terms 283 00:16:36,240 --> 00:16:40,000 Speaker 1: of a failed state or just a mounting series of 284 00:16:40,000 --> 00:16:42,360 Speaker 1: social problems that people are going to be challenged to 285 00:16:42,360 --> 00:16:42,800 Speaker 1: deal with. 286 00:16:43,680 --> 00:16:47,040 Speaker 3: Yeah, I think primarily just the obstacles that people have 287 00:16:47,080 --> 00:16:51,120 Speaker 3: to deal with and just growing unrest really and the 288 00:16:51,160 --> 00:16:54,720 Speaker 3: fact that if these power cuts deepen even more and 289 00:16:54,800 --> 00:16:56,920 Speaker 3: you know, there's room for them to before there would 290 00:16:56,920 --> 00:16:59,640 Speaker 3: be a total collapse, it's just going to mean businesses 291 00:16:59,640 --> 00:17:03,360 Speaker 3: are shown for longer, and especially in lower income areas 292 00:17:03,600 --> 00:17:07,440 Speaker 3: like townships. They've found that two thirds of the businesses 293 00:17:07,520 --> 00:17:11,000 Speaker 3: have had to lay people off because of load shedding, 294 00:17:11,040 --> 00:17:14,199 Speaker 3: specifically because they just can't keep those businesses running and 295 00:17:14,240 --> 00:17:16,280 Speaker 3: so they're not able to make enough money. And we 296 00:17:16,320 --> 00:17:19,080 Speaker 3: see a lot of that. So if you take everything together, 297 00:17:19,840 --> 00:17:23,440 Speaker 3: then it's just it ruins business and it really makes 298 00:17:23,440 --> 00:17:25,720 Speaker 3: it impossible kind of to get through the day. And 299 00:17:25,760 --> 00:17:29,280 Speaker 3: I think eventually just that anger rises and doesn't turn 300 00:17:29,280 --> 00:17:30,600 Speaker 3: into anything good. 301 00:17:31,440 --> 00:17:33,719 Speaker 1: One avenue for turning that around would be just to 302 00:17:33,760 --> 00:17:38,280 Speaker 1: effectively manage s COM itself, modernize the grid, get it 303 00:17:38,280 --> 00:17:41,320 Speaker 1: ready for a new era, help with green energy transitions. 304 00:17:41,600 --> 00:17:43,760 Speaker 1: But s COM has been sort of riddled at times 305 00:17:43,760 --> 00:17:48,800 Speaker 1: with almost tragic, comically crazy circumstances. You and I were 306 00:17:48,880 --> 00:17:53,080 Speaker 1: talking recently together about one of the former CEOs claims 307 00:17:53,080 --> 00:17:56,080 Speaker 1: he was poisoned. He was trying to clean He says, 308 00:17:56,240 --> 00:17:58,399 Speaker 1: s come up and get it on a new track, 309 00:17:58,680 --> 00:18:02,880 Speaker 1: and he became subject of threats. He eventually fled the country. 310 00:18:03,400 --> 00:18:06,200 Speaker 1: He got the job after literally I think two dozen 311 00:18:06,240 --> 00:18:09,199 Speaker 1: other people turned it down. In an environment like that, 312 00:18:09,240 --> 00:18:14,080 Speaker 1: where corruption is rampant, where change has resisted to the 313 00:18:14,080 --> 00:18:18,600 Speaker 1: point of threatening people with death or violence, it doesn't 314 00:18:18,720 --> 00:18:23,120 Speaker 1: bode well for getting management into ESCOM that is capable 315 00:18:23,119 --> 00:18:24,479 Speaker 1: and willing to turn things around. 316 00:18:25,680 --> 00:18:26,520 Speaker 2: Yeah, it's difficult. 317 00:18:26,760 --> 00:18:29,280 Speaker 3: I think some people who work at ESCOM feel like 318 00:18:29,359 --> 00:18:30,840 Speaker 3: it's their patriotic duty. 319 00:18:30,960 --> 00:18:32,439 Speaker 2: I think that's what keeps them going. 320 00:18:32,560 --> 00:18:34,480 Speaker 3: So I think there are a lot of things to 321 00:18:34,520 --> 00:18:39,240 Speaker 3: be hopeful about in terms of leadership and people wanting 322 00:18:39,280 --> 00:18:42,359 Speaker 3: to do the right thing, and especially a lot of 323 00:18:42,359 --> 00:18:46,600 Speaker 3: the workers within escammun there are thirty eight thousand employees there, 324 00:18:46,640 --> 00:18:49,679 Speaker 3: so surely most of them have to go to work, 325 00:18:50,160 --> 00:18:53,320 Speaker 3: you know, believing that they're doing good for the country 326 00:18:53,400 --> 00:18:56,520 Speaker 3: and that they want to turn this around. But obviously 327 00:18:56,560 --> 00:19:00,280 Speaker 3: there's a search for a CEO right now, and it's 328 00:19:00,280 --> 00:19:02,560 Speaker 3: hard to imagine who would want to take that job, 329 00:19:02,720 --> 00:19:06,800 Speaker 3: but I'm sure they'll find someone and then they will 330 00:19:06,800 --> 00:19:09,720 Speaker 3: have to face the same issues in terms of really 331 00:19:09,760 --> 00:19:12,880 Speaker 3: their relationship with government and how they get things through. 332 00:19:13,119 --> 00:19:18,199 Speaker 3: And there are so many different figures that participate in 333 00:19:18,240 --> 00:19:21,560 Speaker 3: trying to fix the problem that that becomes a problem 334 00:19:21,600 --> 00:19:22,520 Speaker 3: in and of itself. 335 00:19:22,600 --> 00:19:23,240 Speaker 2: Sometimes. 336 00:19:23,880 --> 00:19:25,840 Speaker 1: How do you think when you look down the road, 337 00:19:25,880 --> 00:19:28,000 Speaker 1: how do you think this problem gets sorted? What is 338 00:19:28,040 --> 00:19:28,520 Speaker 1: the solution. 339 00:19:29,640 --> 00:19:33,359 Speaker 3: One positive thing that we're seeing is certainly there's encouragement 340 00:19:33,400 --> 00:19:37,240 Speaker 3: now even by ESCOM, which hadn't been well. It was 341 00:19:37,280 --> 00:19:39,359 Speaker 3: only in the recent past really that they were trying 342 00:19:39,400 --> 00:19:43,200 Speaker 3: to bring in private companies to generate more power as 343 00:19:43,280 --> 00:19:47,440 Speaker 3: COM typically and there's still a large faction in South 344 00:19:47,480 --> 00:19:51,320 Speaker 3: Africa that would want ESCOM to survive as a behemoth 345 00:19:51,359 --> 00:19:54,479 Speaker 3: and you know, a state owned company. But there's certainly 346 00:19:54,480 --> 00:19:57,520 Speaker 3: the door has opened really out of necessity to bring 347 00:19:57,560 --> 00:20:01,560 Speaker 3: in more private production, so that will work. That's rising, 348 00:20:01,600 --> 00:20:03,920 Speaker 3: and that will work, it's just a matter of time. 349 00:20:03,960 --> 00:20:07,560 Speaker 3: And the problem is that most of the population will 350 00:20:07,600 --> 00:20:12,160 Speaker 3: remain disenfranchised by that. If COM's prices are going up 351 00:20:12,320 --> 00:20:17,840 Speaker 3: for electricity and private power is supplying private business, or 352 00:20:18,080 --> 00:20:20,119 Speaker 3: you're building it if you can, or you're building it 353 00:20:20,160 --> 00:20:22,520 Speaker 3: if you can afford it as a business or as 354 00:20:22,560 --> 00:20:26,720 Speaker 3: a resident, it still leaves out the majority of the 355 00:20:26,760 --> 00:20:30,880 Speaker 3: population that have to rely on ESCOM. So that's where 356 00:20:30,920 --> 00:20:33,920 Speaker 3: the real variable is, and that's where they really need 357 00:20:33,960 --> 00:20:36,840 Speaker 3: to come up with the solution and really get on 358 00:20:36,880 --> 00:20:39,480 Speaker 3: the ball with a lot of initiatives that they've had 359 00:20:39,560 --> 00:20:43,760 Speaker 3: in terms of building more renewables, just bringing in other 360 00:20:43,880 --> 00:20:47,960 Speaker 3: power because the cost of blackouts is so great that 361 00:20:48,920 --> 00:20:51,840 Speaker 3: in almost every case it's going to be cheaper just 362 00:20:51,880 --> 00:20:55,160 Speaker 3: to bring in even the most expensive power supply you can. 363 00:20:56,080 --> 00:20:59,199 Speaker 1: And of course businesses and more affluent residents have the 364 00:20:59,240 --> 00:21:03,240 Speaker 1: option of getting their own generators or buying power from 365 00:21:03,280 --> 00:21:06,719 Speaker 1: other resources. Low income people don't have those options, So, 366 00:21:06,880 --> 00:21:11,080 Speaker 1: as you noted, it simply further deepens these income and 367 00:21:11,200 --> 00:21:14,720 Speaker 1: social chasms that divide the population. You know, Paul I 368 00:21:14,720 --> 00:21:17,439 Speaker 1: always like to ask people during the show what have 369 00:21:17,480 --> 00:21:20,640 Speaker 1: they learned from a collision that we're talking about. 370 00:21:21,240 --> 00:21:22,920 Speaker 2: What do you know now. 371 00:21:23,280 --> 00:21:27,960 Speaker 1: About either the value of electricity or the importance of 372 00:21:28,200 --> 00:21:32,400 Speaker 1: SCOM in South African society that you didn't know those 373 00:21:32,520 --> 00:21:36,480 Speaker 1: many many years ago before you started covering energy and 374 00:21:36,680 --> 00:21:37,680 Speaker 1: SCOM so closely. 375 00:21:38,560 --> 00:21:41,240 Speaker 3: Well, what's kind of funny is you could probably ask 376 00:21:41,400 --> 00:21:44,480 Speaker 3: just about anyone on the street. We could walk out 377 00:21:44,480 --> 00:21:47,119 Speaker 3: of this building and ask just about anybody about ESCOM 378 00:21:47,359 --> 00:21:50,120 Speaker 3: and they'd be able to tell you all about capacity, 379 00:21:50,920 --> 00:21:54,840 Speaker 3: energy availability factor, a lot of technical things. Everyone in 380 00:21:54,920 --> 00:21:57,760 Speaker 3: this country knows what's happening with the power system. So 381 00:21:58,640 --> 00:22:01,600 Speaker 3: everyone here has learned a lot. And I've certainly learned 382 00:22:02,160 --> 00:22:06,800 Speaker 3: just some of the technical things about transmission grids, for example. 383 00:22:06,600 --> 00:22:08,720 Speaker 2: In bringing in more renewable energy. 384 00:22:09,280 --> 00:22:12,159 Speaker 3: One of the issues that South Africa has faced is 385 00:22:12,480 --> 00:22:15,879 Speaker 3: they don't have enough room on the grid in the 386 00:22:15,920 --> 00:22:20,600 Speaker 3: most optimal parts for sun and wind, and so that 387 00:22:20,720 --> 00:22:24,719 Speaker 3: filled up. And you see these issues coming up in 388 00:22:24,840 --> 00:22:28,159 Speaker 3: other countries, in western countries, but you see them here first. 389 00:22:28,480 --> 00:22:30,320 Speaker 3: So if you want to look at a place where 390 00:22:30,359 --> 00:22:33,720 Speaker 3: the extreme has been reached, then you can look at 391 00:22:33,760 --> 00:22:37,560 Speaker 3: this model. And so I think I've realized just a 392 00:22:37,600 --> 00:22:40,760 Speaker 3: lot of the shortcomings of you know, even if you're 393 00:22:40,760 --> 00:22:44,359 Speaker 3: looking at clean energy, which is really positive development, it 394 00:22:44,520 --> 00:22:47,280 Speaker 3: has its limits that you have to admit and that 395 00:22:47,359 --> 00:22:50,359 Speaker 3: you only build so fast or you can only you know, 396 00:22:50,480 --> 00:22:54,000 Speaker 3: use during certain periods, and the reality of that I 397 00:22:54,040 --> 00:22:55,960 Speaker 3: think comes up here quite a bit. 398 00:22:57,440 --> 00:22:59,040 Speaker 1: Paul, We're going to take a break and then I'm 399 00:22:59,080 --> 00:23:01,439 Speaker 1: going to bring another to board to talk about SCOM 400 00:23:01,480 --> 00:23:04,119 Speaker 1: and South Africa's power problem. But thank you for joining 401 00:23:04,200 --> 00:23:04,639 Speaker 1: us today. 402 00:23:04,840 --> 00:23:05,920 Speaker 2: Thanks very much. It was great. 403 00:23:11,560 --> 00:23:15,120 Speaker 1: We're back and we're joined by Olga Constantatos, an investor 404 00:23:15,200 --> 00:23:19,720 Speaker 1: with Future Growth Asset Management in Cape Town. Olga, we've 405 00:23:19,720 --> 00:23:22,840 Speaker 1: been talking about South Africa's years long struggle to provide 406 00:23:22,840 --> 00:23:26,439 Speaker 1: its residents and businesses with electricity, and I wanted you 407 00:23:26,520 --> 00:23:29,240 Speaker 1: to join us for two reasons. One you're the go 408 00:23:29,280 --> 00:23:31,639 Speaker 1: to person when people try to divine the future of 409 00:23:31,640 --> 00:23:35,840 Speaker 1: South Africa's power company s COM, and two you have 410 00:23:35,920 --> 00:23:38,560 Speaker 1: skin in the game. Your firm owns a big chunk 411 00:23:38,560 --> 00:23:42,720 Speaker 1: for the company's debt. Thanks for joining us today. 412 00:23:42,040 --> 00:23:43,520 Speaker 4: Thank you Tim, Thanks for having me. 413 00:23:43,920 --> 00:23:47,280 Speaker 1: You know, I'm fascinated by es COM because it's not 414 00:23:47,440 --> 00:23:49,720 Speaker 1: just a company story or even the story of one 415 00:23:49,760 --> 00:23:54,320 Speaker 1: country struggle to provide electricity. It's about economic development and 416 00:23:54,359 --> 00:23:58,159 Speaker 1: how states and businesses improve everyone's standard of living. And 417 00:23:58,200 --> 00:24:00,960 Speaker 1: that's really not happening right now Africa. 418 00:24:00,640 --> 00:24:00,879 Speaker 2: Is it. 419 00:24:01,800 --> 00:24:02,040 Speaker 4: Well. 420 00:24:02,119 --> 00:24:05,120 Speaker 5: No, the rolling blackouts that you mentioned at the beginning, 421 00:24:05,280 --> 00:24:07,199 Speaker 5: since two thousand and seven, and it's been on an 422 00:24:07,240 --> 00:24:11,760 Speaker 5: off it hasn't been a permanent feature, have really impacted citizens' lives, 423 00:24:11,800 --> 00:24:15,919 Speaker 5: have impacted businesses, have impacted economic growth in our country, 424 00:24:15,960 --> 00:24:18,840 Speaker 5: and certainly the escalation of load shedding in more recent 425 00:24:18,960 --> 00:24:23,439 Speaker 5: history has very negatively impacted our future, our outlook, and 426 00:24:23,720 --> 00:24:27,800 Speaker 5: really everything about the economy. Escom's problems are intertwined with 427 00:24:27,880 --> 00:24:30,639 Speaker 5: the country's problems, and so solving ESCOM really puts us 428 00:24:30,640 --> 00:24:34,199 Speaker 5: on a much more sustainable path to economic growth and prosperity, 429 00:24:34,520 --> 00:24:36,200 Speaker 5: which we as a country desperately need. 430 00:24:37,160 --> 00:24:40,520 Speaker 1: And is that a problem in your mind? That is 431 00:24:40,560 --> 00:24:44,760 Speaker 1: there a solution available to the problem the country faces 432 00:24:44,840 --> 00:24:51,480 Speaker 1: when it's single its only electricity generator is so deeply troubled. 433 00:24:52,359 --> 00:24:53,040 Speaker 4: I think yes. 434 00:24:53,400 --> 00:24:56,680 Speaker 5: The solution to escom's problems doesn't lie with one particular 435 00:24:56,720 --> 00:25:01,320 Speaker 5: intervention or one particular solution. Solutions of multifaceted the problems 436 00:25:01,320 --> 00:25:04,600 Speaker 5: are multifaceted. So escom's problems didn't start last week or 437 00:25:04,680 --> 00:25:07,439 Speaker 5: last year. They started a good few years ago. And 438 00:25:07,480 --> 00:25:11,080 Speaker 5: so the solutions to ESCOM lie in cost reflective tariffs, 439 00:25:11,520 --> 00:25:15,919 Speaker 5: They lie in addressing its unsustainable debt burden that it holds. 440 00:25:16,320 --> 00:25:20,480 Speaker 5: It lies in fixing the very high and unsustainable cost 441 00:25:20,520 --> 00:25:26,520 Speaker 5: base and addressing some of the corruption, maladministration, Malfieson's misspending, 442 00:25:27,240 --> 00:25:27,639 Speaker 5: all of that. 443 00:25:28,160 --> 00:25:30,040 Speaker 1: So so far you've given me four things and they 444 00:25:30,080 --> 00:25:32,919 Speaker 1: all sound huge. Right, So when you talk about tariffs 445 00:25:33,800 --> 00:25:36,440 Speaker 1: for the outside listener, you're talking about price increases to. 446 00:25:36,520 --> 00:25:38,800 Speaker 4: Users, right exactly, that's correct. 447 00:25:38,960 --> 00:25:42,919 Speaker 1: Have there been massive price increases passed along to businesses 448 00:25:43,160 --> 00:25:45,879 Speaker 1: and residents in the country for years, so they have. 449 00:25:46,240 --> 00:25:49,680 Speaker 5: The rate of increase of Escom's tariffs have increased beyond 450 00:25:49,680 --> 00:25:53,200 Speaker 5: what inflation has increased. I think the problem with ESCOM 451 00:25:53,320 --> 00:25:56,560 Speaker 5: is that it's in a classic utility death spiral. So 452 00:25:56,680 --> 00:25:58,919 Speaker 5: the tariffs, even though they have been increasing, are not 453 00:25:59,119 --> 00:26:00,000 Speaker 5: enough to cover. 454 00:26:00,040 --> 00:26:01,720 Speaker 4: But it's very high cost base. 455 00:26:02,240 --> 00:26:04,240 Speaker 5: So the tariff's are one part of the equation, but 456 00:26:04,280 --> 00:26:06,760 Speaker 5: addressing the very high cost base also needs to happen, 457 00:26:06,800 --> 00:26:07,719 Speaker 5: and that hasn't happened. 458 00:26:08,040 --> 00:26:11,240 Speaker 1: You said the scary term death spiral. Do you think 459 00:26:11,280 --> 00:26:14,240 Speaker 1: of that as a financial death spiral? In other words, 460 00:26:14,760 --> 00:26:17,560 Speaker 1: the company is saddled with so much debt and the 461 00:26:17,640 --> 00:26:20,800 Speaker 1: coupons it's paying out on that debt relative to the 462 00:26:20,840 --> 00:26:23,159 Speaker 1: amount of revenue it's bringing in, and there are no 463 00:26:23,680 --> 00:26:28,440 Speaker 1: easily replenishable or other sources of revenue that can make 464 00:26:28,520 --> 00:26:30,800 Speaker 1: up for that debt burden that it's saddled with. Is 465 00:26:30,800 --> 00:26:32,919 Speaker 1: that when you use the term death spiral, is that 466 00:26:32,920 --> 00:26:33,639 Speaker 1: what you're referring to. 467 00:26:34,000 --> 00:26:37,640 Speaker 5: So there's a death spiral at Escom, the utility death spiral, 468 00:26:37,800 --> 00:26:39,640 Speaker 5: and a debt spiral. 469 00:26:39,960 --> 00:26:43,119 Speaker 4: So let's unpack it. The utility death spiral is what 470 00:26:43,160 --> 00:26:43,840 Speaker 4: you talk about. 471 00:26:43,880 --> 00:26:48,680 Speaker 5: Where the revenues are increasing, it then means that users 472 00:26:48,760 --> 00:26:52,080 Speaker 5: then decide they want to go for less expensive alternatives, 473 00:26:52,119 --> 00:26:54,440 Speaker 5: so they then remove themselves from the grid or they 474 00:26:54,680 --> 00:26:58,640 Speaker 5: reduce their consumption from Escom. So as the tariffs go up, 475 00:26:58,920 --> 00:27:02,840 Speaker 5: so more people are parting from Escom making other alternatives, 476 00:27:03,240 --> 00:27:06,680 Speaker 5: and that means then that you need to recover your 477 00:27:06,760 --> 00:27:09,639 Speaker 5: costs from a smaller user base, which means higher and 478 00:27:09,720 --> 00:27:10,440 Speaker 5: higher tariffs. 479 00:27:10,440 --> 00:27:11,640 Speaker 4: And it becomes the spiral. 480 00:27:11,680 --> 00:27:14,440 Speaker 5: As the tariffs get even higher than more people then 481 00:27:14,680 --> 00:27:17,439 Speaker 5: those that can find alternatives, You then have to recover 482 00:27:17,480 --> 00:27:20,600 Speaker 5: the cost base from a smaller pool each time. 483 00:27:20,640 --> 00:27:22,240 Speaker 4: That's the utility death spiral. 484 00:27:22,600 --> 00:27:26,199 Speaker 5: The debt spiral is similar but different in that ESCOM 485 00:27:26,280 --> 00:27:28,879 Speaker 5: isn't generating enough cash flow to service its debt, and 486 00:27:28,920 --> 00:27:31,480 Speaker 5: so the capital structure of ESCOM is just not fit 487 00:27:31,520 --> 00:27:35,320 Speaker 5: for purpose, and so it is unable to service its 488 00:27:35,359 --> 00:27:39,200 Speaker 5: debt meet its debt obligations without significant intervention from its shareholder. 489 00:27:39,440 --> 00:27:42,040 Speaker 4: That's the debt spiral. So it's the two together. 490 00:27:42,720 --> 00:27:44,600 Speaker 1: And I have to think to myself, what's a nice 491 00:27:44,640 --> 00:27:46,920 Speaker 1: woman like you doing in a place like this, because 492 00:27:47,320 --> 00:27:51,000 Speaker 1: you own some of that debt and you're shrewd, you're smart, 493 00:27:51,119 --> 00:27:55,400 Speaker 1: you're informed, you're experienced, you've been around the block, and 494 00:27:56,240 --> 00:27:59,600 Speaker 1: you're hanging in there as a debt holder and as 495 00:27:59,600 --> 00:28:01,920 Speaker 1: someone who is much less sophisticated than you are about 496 00:28:01,960 --> 00:28:03,879 Speaker 1: these things. And I don't know the history of the 497 00:28:03,880 --> 00:28:06,240 Speaker 1: company as well as you do. I'm not familiar with 498 00:28:06,240 --> 00:28:09,919 Speaker 1: the management, and I'm sure you're steeped in an understanding 499 00:28:09,920 --> 00:28:13,480 Speaker 1: of the management there. Why are you hanging in Tell 500 00:28:13,520 --> 00:28:16,560 Speaker 1: me about how your firm first became an investor in 501 00:28:16,600 --> 00:28:19,640 Speaker 1: ASCOM and why you sort of hung in there over 502 00:28:19,680 --> 00:28:20,080 Speaker 1: the years. 503 00:28:21,080 --> 00:28:23,080 Speaker 5: I think it's important to remember that from a South 504 00:28:23,119 --> 00:28:26,640 Speaker 5: African debt perspective, the overwhelming majority actually of escom's debate 505 00:28:26,680 --> 00:28:30,200 Speaker 5: is government guaranteed. And so what that means is that 506 00:28:30,560 --> 00:28:32,800 Speaker 5: ESCOM takes on the debt, but there's a government backstop. 507 00:28:32,840 --> 00:28:35,760 Speaker 5: So to the extent ESCOM is unable to pay on 508 00:28:35,840 --> 00:28:39,240 Speaker 5: a scheduled coupon or principal date, the government will step 509 00:28:39,240 --> 00:28:41,960 Speaker 5: in and meet that payment. So the credit risk of 510 00:28:42,120 --> 00:28:45,080 Speaker 5: ESCOMB is a little bit I don't want to use 511 00:28:45,080 --> 00:28:48,920 Speaker 5: the word less important, but it's standalone credit is very weak, absolutely, 512 00:28:49,160 --> 00:28:52,000 Speaker 5: but it is buttressed by a government guarantee. And so 513 00:28:52,120 --> 00:28:54,040 Speaker 5: the bulk of the South African debt, or that the 514 00:28:54,120 --> 00:28:57,320 Speaker 5: issues in South African rand is government guaranteed, and so investors, 515 00:28:57,720 --> 00:29:00,280 Speaker 5: there's a lens that one can look at ESCOM as 516 00:29:00,320 --> 00:29:03,800 Speaker 5: being almost a department of government. So instead of buying 517 00:29:03,840 --> 00:29:07,120 Speaker 5: government bonds, you then buy an s COM bond, which 518 00:29:07,360 --> 00:29:10,720 Speaker 5: comes at a significant yield enhancement relative to government bond. 519 00:29:11,680 --> 00:29:14,360 Speaker 1: It's almost a chicken and an egg thing, right, because 520 00:29:14,560 --> 00:29:18,120 Speaker 1: SCOM can't thrive without economic growth, and the economy can't 521 00:29:18,160 --> 00:29:22,880 Speaker 1: thrive unless SCOM is thriving. Okay, So if there is 522 00:29:23,000 --> 00:29:25,560 Speaker 1: this what's the wordy sort of the yin and yang 523 00:29:25,600 --> 00:29:28,800 Speaker 1: relationship between the economy and Escom, they both need one 524 00:29:28,800 --> 00:29:32,760 Speaker 1: another essentially, And the problems facing s COM are both 525 00:29:33,720 --> 00:29:38,160 Speaker 1: its own financial management, its corporate management, and then the 526 00:29:38,280 --> 00:29:41,440 Speaker 1: nature of the beast itself. It needs to modernize, It 527 00:29:41,480 --> 00:29:45,440 Speaker 1: has outdated power plants, it's taking some plants offline. The 528 00:29:45,440 --> 00:29:47,640 Speaker 1: company is trying to break itself up, or I guess 529 00:29:47,680 --> 00:29:52,320 Speaker 1: it's already is broken up now into three different parts, generation, transmission, 530 00:29:52,360 --> 00:29:57,680 Speaker 1: and distribution. How do you see a good manager of 531 00:29:57,960 --> 00:30:02,920 Speaker 1: s COM making ASCOM a more thriving and vital company 532 00:30:02,920 --> 00:30:03,280 Speaker 1: than it. 533 00:30:03,240 --> 00:30:03,800 Speaker 4: Is right now? 534 00:30:04,880 --> 00:30:08,240 Speaker 1: Wow? How long do you have get going? But think 535 00:30:09,240 --> 00:30:13,160 Speaker 1: if you could wave your magic wand across as Com 536 00:30:13,280 --> 00:30:16,520 Speaker 1: and everything would change tomorrow, what would it look like 537 00:30:16,600 --> 00:30:18,479 Speaker 1: tomorrow compared to what it looks like today? 538 00:30:19,440 --> 00:30:21,160 Speaker 5: So I think when you look at this, you can 539 00:30:21,200 --> 00:30:23,160 Speaker 5: look at it at two levels. One is what can 540 00:30:23,320 --> 00:30:28,600 Speaker 5: Escom itself and management at ESCOM do? And two what 541 00:30:28,720 --> 00:30:30,880 Speaker 5: must the shareholder be doing? Because some of the actions 542 00:30:30,880 --> 00:30:34,240 Speaker 5: that are needed are arguably not in escom's domain. So 543 00:30:34,320 --> 00:30:36,720 Speaker 5: let me break that down for you. You spoke earlier about 544 00:30:36,840 --> 00:30:41,120 Speaker 5: ESCOM being separated into generation, transmission and distribution. Generation is 545 00:30:41,120 --> 00:30:43,360 Speaker 5: where the power gets made. The cal fight plants. Currently 546 00:30:43,720 --> 00:30:46,520 Speaker 5: es COM's overwhelming fleet at the moment is cal fired plants. 547 00:30:47,000 --> 00:30:50,160 Speaker 5: One of the purposes of deregulating and splitting ESCOM up 548 00:30:50,200 --> 00:30:53,480 Speaker 5: into three is to open up the generation market and 549 00:30:53,520 --> 00:30:56,920 Speaker 5: to allow for other people, not necessarily ESCOM, to. 550 00:30:56,920 --> 00:30:57,800 Speaker 4: Produce the power. 551 00:30:58,080 --> 00:31:01,520 Speaker 5: And that's actually the government policy that has been rather successful, 552 00:31:01,640 --> 00:31:04,680 Speaker 5: arguably could have been more successful. And what I'm talking 553 00:31:04,680 --> 00:31:08,160 Speaker 5: about here is the Renewable Energy Independent Power Program, where 554 00:31:08,200 --> 00:31:13,080 Speaker 5: government asked for solar and wind and other renewable energy 555 00:31:13,120 --> 00:31:16,440 Speaker 5: source producers to put up wind farms and solar farms, 556 00:31:16,440 --> 00:31:19,720 Speaker 5: and ESCOM would buy or does buy that energy from 557 00:31:19,800 --> 00:31:22,320 Speaker 5: those power producers, and that energy gets fed into the grid. 558 00:31:22,360 --> 00:31:24,080 Speaker 1: But let me interrupt you from it on that point. 559 00:31:24,200 --> 00:31:27,320 Speaker 1: One of the hurdles there, however, is that solar and 560 00:31:27,440 --> 00:31:30,640 Speaker 1: wind will only provide a small portion of the country's 561 00:31:30,720 --> 00:31:33,880 Speaker 1: energy needs right now. We're talking maybe a decade or 562 00:31:33,920 --> 00:31:37,760 Speaker 1: more from now where that actually becomes a meaningful replacement 563 00:31:37,840 --> 00:31:41,200 Speaker 1: from electricity that is generated by coal fired plants. Is 564 00:31:41,240 --> 00:31:44,040 Speaker 1: that correct or correct me if I'm wrong, Well, I. 565 00:31:44,040 --> 00:31:46,640 Speaker 5: Think it depends the pace at which one executes on 566 00:31:46,680 --> 00:31:48,680 Speaker 5: the renewable energy program. So if we go back, the 567 00:31:48,720 --> 00:31:51,880 Speaker 5: renewable energy program really started at about twenty eleven twenty twelve, 568 00:31:51,880 --> 00:31:54,400 Speaker 5: so it's been ten years in the making, and the 569 00:31:54,440 --> 00:31:56,720 Speaker 5: way the plan was meant to work, they were arguably 570 00:31:56,720 --> 00:31:59,080 Speaker 5: meant to have been very many more megawatts added to 571 00:31:59,080 --> 00:32:00,760 Speaker 5: the grid than have current been added. 572 00:32:01,200 --> 00:32:03,360 Speaker 4: So currently there've been six. 573 00:32:03,160 --> 00:32:07,560 Speaker 5: Thousand megawatts of new energy added to the grid from 574 00:32:07,640 --> 00:32:10,360 Speaker 5: the renewable energy sources. That could have been a lot 575 00:32:10,400 --> 00:32:14,440 Speaker 5: more had the program been accelerated, had it not been 576 00:32:14,640 --> 00:32:18,560 Speaker 5: deliberately we think stalled in the kind of height of 577 00:32:18,600 --> 00:32:21,719 Speaker 5: state capture years the twenty fifteen twenty sixteen years, and 578 00:32:21,800 --> 00:32:24,360 Speaker 5: so yes, it is currently a small portion, but it 579 00:32:24,360 --> 00:32:27,200 Speaker 5: could be a very big portion. We've got abundant solar resources, 580 00:32:27,240 --> 00:32:29,400 Speaker 5: we've got abundant wind resources, and if you place them 581 00:32:29,400 --> 00:32:32,160 Speaker 5: in the right places over the country, they can become 582 00:32:32,200 --> 00:32:35,280 Speaker 5: a significant source of power. At the moment, the hurdle 583 00:32:35,360 --> 00:32:38,760 Speaker 5: to that is the transmission grid. So in theory, one 584 00:32:38,800 --> 00:32:42,560 Speaker 5: could add infinite amounts of solar and wind energy. But 585 00:32:42,640 --> 00:32:45,200 Speaker 5: the practical roadblock one's going to come up against is 586 00:32:45,440 --> 00:32:47,959 Speaker 5: actually plugging. I kind of think of it as plugging, 587 00:32:48,160 --> 00:32:50,600 Speaker 5: plugging that into the grid so those electrons can move 588 00:32:51,000 --> 00:32:52,240 Speaker 5: to my home and yours. 589 00:32:52,680 --> 00:32:55,400 Speaker 1: And when we talk about transmission, we're essentially talking about wires, 590 00:32:55,880 --> 00:33:01,160 Speaker 1: wires from the generators to transformers and then into people's homes. 591 00:33:01,760 --> 00:33:05,600 Speaker 1: So I guess the fact that the organization and implementation 592 00:33:05,800 --> 00:33:09,320 Speaker 1: of the transmission plan just sitting on the minister's desk 593 00:33:09,440 --> 00:33:11,760 Speaker 1: suggests that the minister doesn't care if people's food is 594 00:33:11,840 --> 00:33:14,080 Speaker 1: riding in their fridge or that the kids can't do 595 00:33:14,120 --> 00:33:16,920 Speaker 1: their homework at night. Why isn't there a greater sense 596 00:33:16,920 --> 00:33:20,840 Speaker 1: of urgency on the part of the government to address 597 00:33:20,880 --> 00:33:25,600 Speaker 1: this foundational and substantial problem. 598 00:33:25,920 --> 00:33:27,440 Speaker 4: I can't speak for the minister. 599 00:33:27,600 --> 00:33:30,280 Speaker 5: I think that the points that are made from the 600 00:33:30,280 --> 00:33:32,640 Speaker 5: government side is that they are addressing it was urgency. 601 00:33:32,680 --> 00:33:36,920 Speaker 5: They've established multiple task forces and teams, and there's various 602 00:33:37,160 --> 00:33:41,320 Speaker 5: interventions at interministerial level that are looking at this problem. 603 00:33:41,680 --> 00:33:44,920 Speaker 5: And so there is a plan. There's a plan that 604 00:33:45,040 --> 00:33:47,440 Speaker 5: was released in July last year which is to address 605 00:33:47,440 --> 00:33:48,160 Speaker 5: the electricity. 606 00:33:48,600 --> 00:33:50,000 Speaker 4: So there is arguably a plan. 607 00:33:50,080 --> 00:33:54,400 Speaker 5: I think the question comes into are the interventions enough. 608 00:33:54,680 --> 00:33:57,560 Speaker 5: Is the timing of the intervention urgent enough? 609 00:33:58,000 --> 00:34:01,080 Speaker 1: So from your perspective, they are moving with some alacrity 610 00:34:01,120 --> 00:34:03,520 Speaker 1: around this. It's not just stuck in the bureaucracy, and 611 00:34:03,520 --> 00:34:06,040 Speaker 1: it's not just people passing it down the line and 612 00:34:06,080 --> 00:34:09,319 Speaker 1: not getting the job done. There are meaningful steps being 613 00:34:09,400 --> 00:34:11,399 Speaker 1: taken to sort this out. 614 00:34:12,680 --> 00:34:14,960 Speaker 5: Yes, I know, I think there are meaningful steps. I 615 00:34:15,000 --> 00:34:18,680 Speaker 5: think the urgency of the crisis is finally being highlighted. 616 00:34:18,960 --> 00:34:21,719 Speaker 5: I think what's concerning I guess for us is that 617 00:34:21,960 --> 00:34:25,040 Speaker 5: the lam bell has been rung on ESCOM for quite 618 00:34:25,040 --> 00:34:27,440 Speaker 5: some years now. So we knew way back in the 619 00:34:27,480 --> 00:34:30,200 Speaker 5: mid two thousands that we would run out of generation capacity. 620 00:34:30,560 --> 00:34:33,359 Speaker 5: Not a lot was expedited to address that problem. We've 621 00:34:33,400 --> 00:34:35,799 Speaker 5: known for quite some time that escom's debt was at 622 00:34:35,800 --> 00:34:39,040 Speaker 5: an unsustainable level. That's only been started to address as 623 00:34:39,080 --> 00:34:41,680 Speaker 5: of February with the Finance Minister's announcement in the budget 624 00:34:41,719 --> 00:34:44,399 Speaker 5: of the debt relief this year. You know, we've known 625 00:34:44,440 --> 00:34:47,040 Speaker 5: about the need for unbundling. In fact, unbundling has been 626 00:34:47,080 --> 00:34:49,359 Speaker 5: part of I think es COM's white paper as far 627 00:34:49,400 --> 00:34:50,320 Speaker 5: back as the late. 628 00:34:50,320 --> 00:34:52,200 Speaker 4: Nineties to unbundle ESCOM. 629 00:34:52,200 --> 00:34:54,200 Speaker 5: It's been part of the plan, but the action is 630 00:34:54,320 --> 00:34:56,480 Speaker 5: kind of happening at the you know, really when the 631 00:34:56,520 --> 00:34:59,440 Speaker 5: emergency becomes very dire, and so I guess the question 632 00:35:00,000 --> 00:35:02,560 Speaker 5: what we would have is in terms of the forward 633 00:35:02,640 --> 00:35:05,560 Speaker 5: looking view and what needs to be done crisis management 634 00:35:05,600 --> 00:35:08,759 Speaker 5: and applying the right attention and speed to decisions in 635 00:35:08,800 --> 00:35:11,960 Speaker 5: a crisis, Yes, that is important, but what is also 636 00:35:12,080 --> 00:35:14,960 Speaker 5: important is the looking forward and being able to plan 637 00:35:15,080 --> 00:35:17,360 Speaker 5: to avert a crisis so that we can take steps 638 00:35:17,440 --> 00:35:21,000 Speaker 5: today and tomorrow and this year and next year. And 639 00:35:21,160 --> 00:35:24,120 Speaker 5: using the transmission grid as an example, we know we 640 00:35:24,160 --> 00:35:26,560 Speaker 5: need investment in the transmission grid. We know these projects 641 00:35:26,640 --> 00:35:29,160 Speaker 5: take a long time anyway, they take between seven to 642 00:35:29,160 --> 00:35:31,200 Speaker 5: ten years to get them up and going. So let's 643 00:35:31,200 --> 00:35:33,680 Speaker 5: start now with that, and let's not wait for a crisis. 644 00:35:33,680 --> 00:35:36,439 Speaker 5: I think that's the challenge that we find is that 645 00:35:37,080 --> 00:35:41,239 Speaker 5: crisis management sometimes doesn't lead to optimal outcomes, and it 646 00:35:41,280 --> 00:35:42,520 Speaker 5: can What. 647 00:35:42,440 --> 00:35:44,400 Speaker 1: Am I trying to say, You're trying to say that 648 00:35:44,440 --> 00:35:47,839 Speaker 1: sometimes it takes COVID nineteen for people to make good 649 00:35:47,920 --> 00:35:50,520 Speaker 1: public health decisions that they've been putting off for a 650 00:35:50,560 --> 00:35:53,400 Speaker 1: long time, and then they wait till the crisis arrives 651 00:35:53,800 --> 00:35:56,480 Speaker 1: before they take measures they might have taken years before. 652 00:35:56,920 --> 00:36:01,200 Speaker 1: And perhaps you're saying right now that South Africa has 653 00:36:01,280 --> 00:36:06,239 Speaker 1: an existential power generation crisis, and maybe it's taking a 654 00:36:06,320 --> 00:36:09,680 Speaker 1: crisis to force both the government and the private sector 655 00:36:09,719 --> 00:36:12,680 Speaker 1: to take the steps needed to resolve the problem. 656 00:36:13,120 --> 00:36:14,120 Speaker 4: Yes, I think that's right. 657 00:36:14,520 --> 00:36:16,799 Speaker 5: I think also the nature of the crisis and the 658 00:36:16,880 --> 00:36:19,279 Speaker 5: length of time it's taken us to get here, the 659 00:36:19,320 --> 00:36:22,120 Speaker 5: interventions need to be so much greater, and they need 660 00:36:22,200 --> 00:36:26,440 Speaker 5: to be done with utmost speed and precision. And I 661 00:36:26,480 --> 00:36:30,560 Speaker 5: think part of the challenge also is there can be 662 00:36:30,640 --> 00:36:33,600 Speaker 5: a tendency to wait for the perfect plan and to 663 00:36:33,760 --> 00:36:37,360 Speaker 5: formulate the perfect plan, And perhaps what might be needed 664 00:36:37,440 --> 00:36:39,799 Speaker 5: is a little bit more nimbleness in adapting to a 665 00:36:39,840 --> 00:36:44,800 Speaker 5: plan and to start executing and adapting as circumstances change. 666 00:36:44,800 --> 00:36:46,319 Speaker 5: So it might be that you try one thing but 667 00:36:46,360 --> 00:36:48,239 Speaker 5: it doesn't necessarily work. You can tweak it here, or 668 00:36:48,280 --> 00:36:50,440 Speaker 5: they're much better to do that at least there's some 669 00:36:50,520 --> 00:36:54,080 Speaker 5: food momentum that creates energy of its own accord upon 670 00:36:54,239 --> 00:36:56,799 Speaker 5: the pun. But yeah, so I think a certain level 671 00:36:56,800 --> 00:36:59,839 Speaker 5: of nimbleness and adaptability is also probably needed. What we've 672 00:36:59,840 --> 00:37:02,520 Speaker 5: been very good at, I think is diagnosing the problem, 673 00:37:02,800 --> 00:37:06,080 Speaker 5: identifying the problem, solving for the problem in a plan, 674 00:37:06,320 --> 00:37:09,400 Speaker 5: on a document, on a PowerPoint, at presentations, et cetera. 675 00:37:09,680 --> 00:37:11,480 Speaker 5: Where we've been less adaptable, I guess is in the 676 00:37:11,520 --> 00:37:14,560 Speaker 5: execution of the plan and in really sometimes making some 677 00:37:14,600 --> 00:37:16,600 Speaker 5: of the hard trade offs that are needed in executing 678 00:37:16,640 --> 00:37:18,520 Speaker 5: a plan. We're never going to make everybody happy all 679 00:37:18,520 --> 00:37:21,080 Speaker 5: of the time, and I think that's maybe the benefit 680 00:37:21,120 --> 00:37:24,440 Speaker 5: of a crisis is it does focus one's attention very 681 00:37:24,920 --> 00:37:27,960 Speaker 5: laser like on the immediate problem, which is the lack 682 00:37:28,000 --> 00:37:30,440 Speaker 5: of generation capacity that we have right now, and solving 683 00:37:30,480 --> 00:37:33,160 Speaker 5: load shedding, which is going to take years. It's not 684 00:37:33,239 --> 00:37:34,200 Speaker 5: a tomorrow solution. 685 00:37:35,160 --> 00:37:37,799 Speaker 1: You're hanging in there as a debt holder. You're not abandoning. 686 00:37:37,920 --> 00:37:40,719 Speaker 1: Shep What are you optimistic about and what are you 687 00:37:40,800 --> 00:37:43,799 Speaker 1: pessimistic about when you look at the landscape right now? 688 00:37:45,000 --> 00:37:45,600 Speaker 4: So I guess. 689 00:37:45,640 --> 00:37:48,880 Speaker 5: Look, I'm a bond investor, and so we live in 690 00:37:48,920 --> 00:37:50,960 Speaker 5: the world of fear and on the world of hope. 691 00:37:51,160 --> 00:37:54,000 Speaker 5: So I'm much better at answering what I'm pessimistic about 692 00:37:54,000 --> 00:37:55,040 Speaker 5: than what I'm hopeful about. 693 00:37:55,120 --> 00:37:55,959 Speaker 4: But let me try. 694 00:37:56,440 --> 00:37:59,719 Speaker 5: So I think I think what we're seeing now is 695 00:37:59,760 --> 00:38:02,880 Speaker 5: the elevation of the crisis. It is receiving attention at 696 00:38:02,920 --> 00:38:05,839 Speaker 5: the very highest levels. That is a good thing. And 697 00:38:05,880 --> 00:38:10,000 Speaker 5: I think the link I guess between COM's the solving 698 00:38:10,040 --> 00:38:13,000 Speaker 5: of escom's problems and the solving our economic growth problems, 699 00:38:13,040 --> 00:38:15,320 Speaker 5: that is very clear. We've seen it in the numbers, 700 00:38:15,719 --> 00:38:18,160 Speaker 5: and so that is providing a level of clarity I 701 00:38:18,200 --> 00:38:20,120 Speaker 5: think to some of the decisions that are being made, 702 00:38:21,040 --> 00:38:21,840 Speaker 5: and so I think that's. 703 00:38:21,719 --> 00:38:22,239 Speaker 4: All very good. 704 00:38:22,280 --> 00:38:25,840 Speaker 5: I'm also very encouraged by and it comes out in 705 00:38:25,880 --> 00:38:29,920 Speaker 5: different forums, but certainly the increasing tilt to renewables are 706 00:38:30,000 --> 00:38:33,319 Speaker 5: moved to cleaner energy, you know, just energy transition. These 707 00:38:33,320 --> 00:38:35,480 Speaker 5: things are all important for us to manage as in economy, 708 00:38:35,600 --> 00:38:37,880 Speaker 5: actually as a planet we need to do. This is 709 00:38:37,880 --> 00:38:41,560 Speaker 5: one of the biggest emitters. And so the tilt to renewables, 710 00:38:41,560 --> 00:38:44,399 Speaker 5: the tilt to cleaner forms of energy is something I'm 711 00:38:44,440 --> 00:38:47,719 Speaker 5: personally and certainly Future Growth is very encouraging of and 712 00:38:47,840 --> 00:38:51,440 Speaker 5: very optimistic about. It is actually the solution to our 713 00:38:51,560 --> 00:38:54,920 Speaker 5: energy problems. So all of that very optimistic about. I 714 00:38:54,960 --> 00:38:58,600 Speaker 5: guess where I get pessimistic is in the lack of 715 00:38:58,600 --> 00:39:01,239 Speaker 5: the hard decisions that are needed to be made. And 716 00:39:01,280 --> 00:39:05,759 Speaker 5: I think where I get pessimistic is in the magnitude 717 00:39:05,840 --> 00:39:09,000 Speaker 5: of the problem. And so while it may have been 718 00:39:09,080 --> 00:39:11,120 Speaker 5: and one you know, can't look back, one must look forward. 719 00:39:11,719 --> 00:39:14,960 Speaker 5: Might have been few interventions a few years ago, the 720 00:39:15,000 --> 00:39:17,719 Speaker 5: magnitude of those interventions are so much bigger now, and 721 00:39:17,760 --> 00:39:21,880 Speaker 5: I think the challenge lies a lot in who actually 722 00:39:21,920 --> 00:39:26,400 Speaker 5: is responsible for delivering on the solutions. What we not 723 00:39:26,440 --> 00:39:29,480 Speaker 5: always clear on is what are the priorities. Does everybody 724 00:39:29,520 --> 00:39:32,719 Speaker 5: agree on the priorities and on the implementation of those priorities, 725 00:39:32,719 --> 00:39:34,960 Speaker 5: I think we can get a little bit muddled. One 726 00:39:35,000 --> 00:39:38,560 Speaker 5: department might have particular priorities that might not necessarily be 727 00:39:38,600 --> 00:39:39,880 Speaker 5: shared by another department. 728 00:39:40,480 --> 00:39:43,880 Speaker 1: It sounds like South Africa needs and energies are given 729 00:39:44,320 --> 00:39:50,520 Speaker 1: the real authority to implement radical, speedy and thoughtful decisions. 730 00:39:51,200 --> 00:39:54,160 Speaker 5: Well arguably that's the purpose of the new Electricity Minister 731 00:39:54,200 --> 00:39:57,879 Speaker 5: that was appointed by the President a few months ago, and. 732 00:39:57,800 --> 00:39:59,480 Speaker 4: Again it's a part solution. 733 00:40:00,200 --> 00:40:03,680 Speaker 5: His powers were only determined a week ago, I think, 734 00:40:04,120 --> 00:40:06,799 Speaker 5: And so given the urgency of the crisis, this was 735 00:40:06,840 --> 00:40:09,880 Speaker 5: announced in February, if I recall, and so two or 736 00:40:09,920 --> 00:40:13,960 Speaker 5: three months have gone by without the minister himself actually 737 00:40:14,000 --> 00:40:16,920 Speaker 5: knowing what his powers are to be. And so I 738 00:40:16,920 --> 00:40:19,480 Speaker 5: think that's the challenge, is that we know what needs 739 00:40:19,520 --> 00:40:22,600 Speaker 5: to be done, we kind of put a little plaster 740 00:40:22,680 --> 00:40:25,520 Speaker 5: on it and wait a few months, and then put 741 00:40:25,520 --> 00:40:27,399 Speaker 5: another little plaster on it and then wait a few months. 742 00:40:27,440 --> 00:40:29,760 Speaker 4: And that's not really a way to address a crisis. 743 00:40:30,200 --> 00:40:33,000 Speaker 1: We don't let people escape the show. I'll go without 744 00:40:33,239 --> 00:40:36,920 Speaker 1: sharing what they've learned. Crash courses about learning moments. So 745 00:40:37,400 --> 00:40:40,400 Speaker 1: you have been watchingscom for years, You've been watching this 746 00:40:40,600 --> 00:40:44,640 Speaker 1: problem for years. What do you know now that you 747 00:40:44,840 --> 00:40:49,680 Speaker 1: didn't know when you first began overseeing your investments in 748 00:40:49,840 --> 00:40:50,279 Speaker 1: as COOM. 749 00:40:51,440 --> 00:40:52,920 Speaker 4: That's a very interesting question, Tim. 750 00:40:53,080 --> 00:40:56,000 Speaker 5: So I think what is reinforced I guess for us, 751 00:40:56,040 --> 00:41:00,080 Speaker 5: certainly as investors, is that non financial risk factors, So 752 00:41:00,160 --> 00:41:03,760 Speaker 5: the ESG, environmental, social and governance risk factors are becoming 753 00:41:03,760 --> 00:41:07,560 Speaker 5: buzzwords now, but they actually translate into very real financial 754 00:41:07,719 --> 00:41:10,600 Speaker 5: impact and financial loss, and so you don't see it immediately. 755 00:41:10,840 --> 00:41:13,120 Speaker 5: And certainly in twenty sixteen, s COM's financial state was 756 00:41:13,160 --> 00:41:15,239 Speaker 5: not great, but it definitely wasn't what it is now, 757 00:41:15,239 --> 00:41:16,080 Speaker 5: which is way worse. 758 00:41:16,600 --> 00:41:17,880 Speaker 4: And so I think that the real. 759 00:41:17,760 --> 00:41:21,160 Speaker 5: Lesson has been that not paying attention to those non 760 00:41:21,160 --> 00:41:23,600 Speaker 5: financial factors, and the environment is another one, by the way, 761 00:41:23,800 --> 00:41:27,040 Speaker 5: the environmental costs and has a big role to play 762 00:41:27,080 --> 00:41:28,879 Speaker 5: in solving that for us as a country as well. 763 00:41:29,320 --> 00:41:33,200 Speaker 5: Not paying attention to those non financial risks do actually 764 00:41:33,200 --> 00:41:37,120 Speaker 5: translate into hard income statement, balance sheet and cash flow impact, 765 00:41:37,280 --> 00:41:40,440 Speaker 5: negative impact over time. And so I think the lesson, 766 00:41:40,520 --> 00:41:43,439 Speaker 5: certainly from an investment point of view, is that yes, 767 00:41:43,600 --> 00:41:45,560 Speaker 5: numbers must stuck up, but if you're going to be 768 00:41:45,640 --> 00:41:47,279 Speaker 5: taking and that is what we are asked to do, 769 00:41:47,400 --> 00:41:49,560 Speaker 5: is to take a forward looking view on a company 770 00:41:49,560 --> 00:41:52,239 Speaker 5: in this case es COM, one has to factor in 771 00:41:52,520 --> 00:41:55,279 Speaker 5: those elements, and particularly on the governance side, is to 772 00:41:55,280 --> 00:41:57,800 Speaker 5: look at, well, how's the company being run? Are the 773 00:41:57,880 --> 00:42:00,440 Speaker 5: right people in place, are they making the right decisions 774 00:42:00,480 --> 00:42:02,840 Speaker 5: and the best interest of the company. How's internal control 775 00:42:02,880 --> 00:42:06,200 Speaker 5: framework stacking up? How is risk being managed within the entity? 776 00:42:06,640 --> 00:42:09,799 Speaker 5: You know, all these seemingly boring questions but actually have 777 00:42:09,960 --> 00:42:14,920 Speaker 5: real financial impact that outlive I guess, political cycles, outlive 778 00:42:15,040 --> 00:42:19,880 Speaker 5: management contracts, outlive boards, tenure, and so there is very 779 00:42:19,960 --> 00:42:22,359 Speaker 5: much a need to focus on that if we are 780 00:42:22,400 --> 00:42:25,319 Speaker 5: going to be investing sustainably into the future with all 781 00:42:25,360 --> 00:42:26,799 Speaker 5: the risks that we are facing. 782 00:42:27,239 --> 00:42:28,439 Speaker 2: Algo, we've run out of time. 783 00:42:28,800 --> 00:42:31,000 Speaker 1: I wish I had more time with you. Thank you 784 00:42:31,040 --> 00:42:32,239 Speaker 1: for joining us today. 785 00:42:32,640 --> 00:42:34,160 Speaker 4: Thank you Tim, and thank you very much for having 786 00:42:34,160 --> 00:42:34,720 Speaker 4: me on the show. 787 00:42:35,840 --> 00:42:39,360 Speaker 1: Olga Contentatos is the head of credit at Future Growth 788 00:42:39,400 --> 00:42:43,600 Speaker 1: Asset Management. You can find her on Twitter at olg 789 00:42:44,680 --> 00:42:48,880 Speaker 1: so five two. Paul Burkhart, who also joined us today, 790 00:42:49,160 --> 00:42:51,560 Speaker 1: is a reporter with the Bloomberg News. You can read 791 00:42:51,600 --> 00:42:55,399 Speaker 1: his work on Bloomberg's website, the Bloomberg Terminal and on 792 00:42:55,440 --> 00:43:00,760 Speaker 1: Twitter at p Burkhart. Here at crash Course, we believe 793 00:43:00,800 --> 00:43:07,160 Speaker 1: that collisions can be messy, impressive, challenging, surprising and always instructive. 794 00:43:07,800 --> 00:43:11,120 Speaker 1: In today's Crash Course, I learned that all of the 795 00:43:11,160 --> 00:43:16,000 Speaker 1: horrors facing South Africa because it doesn't have reliable electricity 796 00:43:16,080 --> 00:43:19,759 Speaker 1: generation may be visited in other countries as well that 797 00:43:19,880 --> 00:43:24,040 Speaker 1: don't pay attention to how South Africa got here? What 798 00:43:24,120 --> 00:43:26,960 Speaker 1: did you learn? We'd love to hear from you. You 799 00:43:27,000 --> 00:43:30,440 Speaker 1: can tweet at the Bloomberg Opinion handle at Opinion or 800 00:43:30,520 --> 00:43:34,600 Speaker 1: me at Tim O'Brien using the hashtag Bloomberg Crash Course. 801 00:43:35,120 --> 00:43:37,520 Speaker 1: You can also subscribe to our show wherever you're listening 802 00:43:37,560 --> 00:43:40,359 Speaker 1: right now and leave us a review. It helps more 803 00:43:40,360 --> 00:43:43,759 Speaker 1: people find the show. This episode was produced by the 804 00:43:43,760 --> 00:43:49,480 Speaker 1: indispensable Anamasarakas, Moses Ondam and Me. Our supervising producer is 805 00:43:49,520 --> 00:43:53,840 Speaker 1: Magnets Henrickson, and we had editing help from Sagebauman, Katie Boys, 806 00:43:53,920 --> 00:43:58,600 Speaker 1: Jeff Grocott, Mike Nize and Christine Vanden Bilart. Blake Naples 807 00:43:58,600 --> 00:44:01,520 Speaker 1: does our sound engineering and an original theme song was 808 00:44:01,560 --> 00:44:05,680 Speaker 1: composed by Luis Gera. I'm Tim O'Brien. We'll be back 809 00:44:05,760 --> 00:44:07,520 Speaker 1: next week with another crash course.