Answer to Question #103520 in Microeconomics for NOLUBABALO

Question #103520
How will Eskom's interventions of covering up for all the debts and coal shortages impact on consumers.
Expert's answer

Energy plays a vital role in economic growth since it is essential when it comes to production. Eskom being a monopoly, a significant number of people in South Africa, if not all, depend on the firm to generate and supply electricity to areas such as industries, homes and mining. However, the decision to cover up the debt will lead to the company increasing its debt since it cannot find a strategic investor and this will lead to the firm being unable to meet its financial obligation. Additionally, shortage of coal will hinder stations from generating enough electricity. Eventually, all the operations of the company will come to a halt therefore electricity will not be generated. 

Industries, homes and mining areas depend on energy hence inefficiencies in supply of electricity will influence the operations of the sectors and eventually consumers will be affected. For example, with the lack of electricity in industries, production of essential products will stall leading to an increase in prices due to the law of demand and supply. This indicates that the intervention of covering up the debt and coal shortage limits Eskom from considering other solutions such as green energy as a way of generating sufficient electricity therefore protect consumers from high prices. 

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