The world’s ‘most polluting power company’ has a bold net-zero strategy: tap foreign donors

The “most polluting” tag comes courtesy of the Centre for Research on Energy and Clean Air (CREA), which said Tuesday that its data analysis showed Eskom had become “the largest emitter of health-harming sulfur dioxide in the world, surpassing the entire power sector emissions of any country in the world, except for India.”

Indeed, according to CREA’s analysis, Eskom emits more sulfur dioxide (SO2) than the U.S.’s and China’s power sectors, combined. This is largely because it had fitted pollution abatement equipment to only one of its 15 coal-fired plants, the international organization, which says air pollution is causing 2,200 deaths a year in South Africa, told Bloomberg. Eskom relies on coal for around 90% of its electricity generation.

“As most other regions with large power sector air pollutant emissions have made rapid progress in reducing emissions, Eskom has been stuck in place, lobbying against even the most rudimentary requirements to curb its SO2 pollution,” CREA said in a statement.

Corruption and cash flow

Apart from being the world’s biggest SO2 emitter, Eskom—which did not respond to Fortune’s request for comment—is also facing a series of challenges that would make any of its international rivals blanch.

The utility is nearly $27 billion in the red, largely thanks to the chronic corruption and mismanagement that has blighted most South African state-owned enterprises in recent years. It paid more than $2 billion to service that debt in the last financial year, leading to a net after-tax loss of $1.25 billion. Eskom’s survival is wholly due to around $15 billion in government bailouts over the last 13 years.

Meanwhile, Eskom’s network is so creaky that scheduled blackouts are a regular fact of life in South Africa. Analysts at PwC said earlier this year that this “load shedding” was halving the country’s GDP growth. André de Ruyter, who became Eskom’s CEO at the start of 2020, said last month that the advanced age of the firm’s coal-fired power stations—41 years on average—meant they could not be expected to perform at more than 75% of capacity.

That has led to the extraordinary situation of the incumbent utility actively encouraging private-sector competition. “We are pleased that today everyone acknowledges the solutions to South Africa’s electricity deficit cannot be left to Eskom and the government alone,” de Ruyter said in a September interview.

And then there’s the coal-to-renewables transition that everyone, Eskom included, sees as necessary. Eskom says the switch will create up to 300,000 much-needed jobs, but the transition, which targets net zero by 2050, will cost as much as $10 billion. So, given its parlous financial state, how will the company pay for it?

International aid

By pointing out to potential sources of funding—the World Bank, the African Development Bank, rich countries—that helping to wean South Africa off coal will pay global dividends on the emissions-reduction front.

“It’s a lot of money, so what we are putting on the table is to say to funders: South Africa can offer you the biggest point source of carbon emissions reduction in the world,” Mandy Rambharos, general manager at Eskom’s Just Energy Transition office, said in June.

Last week, Bloomberg reported that delegates from the U.S., U.K., Germany, France, and the EU had met with South African ministers to discuss “almost $5 billion” in loans and grants. The South African environment department said it needs the agreement to be signed at the COP26 summit last month, as “we need certainty and predictability of the quantum of financing available to us, to accelerate this transition.”

In South Africa and Eskom’s favor: a growing realization that the global energy transition will involve richer countries helping poorer countries to finance the shift. For example, the EU’s upcoming “carbon border adjustment mechanism” levy on heavy industrial imports will generate revenues that some have proposed should fund decarbonization in developing nations.

The question now is whether Eskom can convince its potential funders that it has cleaned up its management act. And with reports suggesting it awarded over $11.5 billion in corruption-tainted contracts over the past decade, then tried repeatedly to block scrutiny, de Ruyter and his team have their work cut out for them.

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