BarnOwl Info Sharing Recording: Never Mind a National Grid Failure, but What About the Effect of Continued Load Shedding on Organisations? with Michael Davies

BarnOwl Info Sharing Insight: – Never mind a national grid failure, but what about the effect of continued severe load shedding on organisations? Presented by Michael Davies, CEO, Pax Resilience

Introduction

Thank you very much Michael for your most informative presentation on ‘the effect of continued severe load shedding on organisations’ at the BarnOwl info-sharing event held on 23rd November 2023. Thank you too, to all those who attended the session. According to Eskom, there is an “extremely low likelihood” of a total grid collapse. However, if it was to happen, it would be an unprecedented national catastrophe that would result in devastating social and economic consequences and the collapse of municipal infrastructure and services, food shortages, and water problems. Even though there is only an “extremely low likelihood” according to Eskom, various experts in the industry and organisations are considering contingency plans for not only a national grid failure but also the much more likely situations of continued severe load shedding for stages 4 and beyond. In addition, NERSA have proposed to increase the existing 8 stages of load shedding to 16 stages, how will this affect us going forward? The situation is complex and evolving and therefore the solutions will be complex and should evolve too. Some of the risk categories affected by severe load shedding, that one should consider, include:

1. People (Security, safety and well-being)
2. Infrastructure (buildings, remote working etc.)
3. Provision of utilities (failure of municipal services)
4. Communications and alternative back-ups
5. Operations
6. Technology (Safe haven – keeping data outside of the country?)
7. Cyber Security
8. Supply chain
9. Financial markets
10. Societal behaviour (e.g. social unrest)
11. Diesel availability

Load shedding

Sadly, stages one and two have become a way of life and we’ve essentially normalised it. However, stages one and two lull us into a false sense of security and it’s only when we hit stage 4 and above that we really get concerned again. As I write this article, load shedding is at its worst ever and Eskom has slipped into stage 4, 5 and 6 with most of us being load shedded for up to 12 hours of every 24 hours. In some cases load shedding itself then creates outages as power does not come back on schedule as there are malfunctions, theft or vandalisation requiring fixes to the sub-stations, meaning that individuals and businesses find themselves without power for longer periods than expected. The IRMSA risk report 2023 talks about a poly crisis. A poly crisis occurs when more than one of the significant risks materialises at the same time resulting in the aggregate negative consequences being greater than the sum of the individual risks. One could argue that South Africa is already feeling the consequences of this. Load shedding has and continues to damage the economy and the country. Whilst, most of us don’t believe we will experience a total blackout, the impact of worsening load shedding is having huge consequences on every aspect of the ‘National Development Plan’, the economy and on the lives of ordinary citizens and putting small businesses out of business.

The impact of continued severe load shedding

The following impacts should be considered with continued severe load shedding: Telecommunications: Vodacom and MTN have publicly said that telecom towers stop operating within 8 hours of no power, which will make it almost impossible for us and our organisations to communicate. Businesses have considered alternatives, such as satellite phones, using Starlink and the like, but the reality in a case of a National Grid failure / continued severe load shedding is that we will have close to zero communication capability. Water: Another scary element of the scenario of a National Grid failure / continued severe load shedding is the provision of water because reservoirs need power to feed water into gravity fed towers such that the water can then be distributed to communities and to businesses. In addition, power is required to treat water to make it potable. Waste Water: Another major aspect of water is the treatment plants for sewage wastewater. They too need power and whilst they have contingency plans such as generators there is limited capacity to continue. Health issues: Our water system is in a fragile state already without adding load shedding let alone National Grid failure. There have already been diseases (e.g. Cholera) which broke out in various areas largely due to polluted water. Financial systems and markets: Continued severe load shedding will affect equities and the Stock Exchange as well as all financial institutions. And what about you as an individual? Imagine trying to pay for a trolley load of food, but when you get to the end point / till there is no connectivity. It won’t be possible if the towers and connectivity to banks isn’t working. Imagine if there is run of cash on the bank because people are now are concerned about not being able to transact electronically. Cyber security: The more vulnerable the state, the more exposed it is to cyber-crime. Supply chain: The more stressed your suppliers are because of load shedding exacerbated by a non-functional logistics network (i.e the collapse of Transnet and our ports) the more the supply chain problems. Whatever is happening to you is highly likely happening to your suppliers as well. And if you really want to go to the n’th degree, what about your third party supply chain too. Food security: Imagine trying to run a commercial farm with extreme load shedding and not being able to operate machinery and pump water. The economy: Big corporates are the largest contributors to the economy and pay a huge amount in corporate tax based on their ability to sustain and make profits. Big corporates are the biggest providers of employment as well as create the market for SMMEs to do business with. Imagine the impact of trying to run a mine or manufacturing plant with limited power. In addition, imagine how difficult it is to attract foreign investors, given South Africa’s unfriendly business environment with its shortage of power, onerous policies and an unfriendly labour market. Social grants: There are now nearly 19 million South Africans surviving on social grants. Cumulatively, this costs the taxpayer more than R200 billion. According to an EY report, there were only 5.2 million individual taxpayers in 2020. These 5.2 million individuals, (representing approximately 9% of the population), contribute 40% of South Africa’s total tax revenue. Breaking it down further, about 20% individual taxpayers contributed 75% of all personal income tax revenue in 2020. This tax base is shrinking. Service delivery: Municipalities are not going to be able to provide the services they normally provide which leads to a very high degree of disconnect and discontent in communities. Social unrest: A failing economy and service delivery problems, lead to social unrest and disobedience, including the opportunistic element of looting, violence and striking.

Scenario planning

It is a good idea to take two extremes. One extreme, being that we have 100% provision of power all day, every day and life is good. We can understand and relate to how we operate in that environment. It is also good to consider the other extreme as to what happens if there’s a national grid failure and our plans would be in this situation. With continued load shedding, we know that it’s somewhere in between these two that we have to prepare ourselves for. The slide below illustrates a scenario of escalating failures over the course of time in the case of a national grid failure.

Survey / Poll

Michael posed the following three questions to our audience of about 50 attendees, who voted as follows: Question 1: Rank the following 5 risk categories in order of priority for your organisation Question 2: How long will your organisation last without power from Eskom? Our poll shows that if there’s a National Grid failure and it takes 17 days to restore the grid, 70% of the organisations will be out of business. Question 3: Capture one Word which best describes the biggest impact to your organisation of load shedding The more a Word is mentioned, the larger the Word is in the slide above. Our poll shows that ‘Productivity’ is impacted the most during load shedding.

Building Resilience

I’m always amazed at how many times I hear; sorry we can’t meet today because of load shedding. Load shedding in an office environment can no longer be an excuse for not being able to work. If you are working from home, either make a plan with inverters, generators or solar etc. or go to an environment such as an office which provides backup power. I’ve had a number of companies say to me, we have generators, we have a large amount of diesel supply and we’ve got a preferred agreement with a supply of diesel. But imagine if diesel availably dries up. And on a smaller scale, service stations operate on electricity to pump petrol / diesel; if there is no electricity, they can’t pump. Assume that you’re using your generator almost as often as you’re using the power supply. In this case, your generator actually becomes business as usual. What backup do you have for the generator, which used to be the backup, but is now part of business as usual? If there is no power, or if there is a little power, how much will it cost you per day not being able to operate? I’ve seen companies say that if we cannot operate, it’s going to cost the company more than 100 million Rand a day. Collectively you can imagine what that does to the South African economy. Another factor, is not only the lost revenue, but what are the costs involved to operate your business when forced to use alternative methods of power such as generators including the maintenance thereof. So, how much are you willing to spend on resilience? You cannot put all your resources into building resilience but there has to be an appropriate resource allocation for resilience. We have found that business continuity thinking hasn’t caught up. In terms of your thinking around business continuity and resilience, has it changed from 10 years ago? Look at your business risks in the various scenario situations and review your business continuity plans. Make sure that you also look for opportunities. Where there are risks, there are often opportunities. For example, the renewable energy industry such as the solar industry is booming in South Africa. Ultimately if you walk through the scenarios, look at where you can build the resilience and also look for the opportunities. You can build agility within your organisation such that when you identify an opportunity attached to that risk/s, you can pounce upon the opportunity and survive and thrive into the future.

Conclusion

It is obvious that Eskom cannot be relied upon to solve our power issues. This means that as South Africans we are going to have make our own plan/s to keep the lights on and to stay in business.

Necessity is the mother of invention!

Some positives and opportunities:

• Policies which enable the private sector to participate in the rebuilding of the SEOs and the economy as a whole
• Renewable energy is taking off
• The ‘Silicon Cape community’ is taking off which aims to boost tech innovation in Cape Town, by connecting tech entrepreneurs, developers, creatives, angel investors, and VC’s who are passionate about entrepreneurship and the roles we play in the future of South Africa
• Technology enablement in all areas of business such as agriculture, mining, health care, public services making life easier for all
• The possibility of business enabling policies in 2024.
• The possibility of an accountable government in 2024 committed to service delivery and serving its people

Presentation and video links

Please see attached presentation here, and the info sharing recording here.

Related links

https://barnowl.co.za/knowledge-centre/integrated-grc-insights-blog/barnowl-info-sharing-insight-south-africa-risk-profile-2023-2024-focusing-on-converging-crises-reshaping-the-business-agenda-a-wake-up-call-for-better-risk-management-by-christopher-palm/ https://api.barnowl.co.za/uncategorized/barnowl-info-sharing-insight-the-state-of-ai-and-ai-in-corporate-governance-with-michael-judin-and-lionel-moyal/ https://irmsa-risk-report.co.za/2023/ https://barnowl.co.za/knowledge-centre/

Contact us

Cheryl Keller | BarnOwl: cheryl@barnowl.co.za Michael Davies| CEO, Pax Resilience michael@paxresilience.com

Thank you

Once again, thank you Michael for your time and for your informative presentation and thank you to all those who attended our info sharing session. We look forward to seeing you at our next info sharing session. Please keep a look out for our upcoming events at: http://www.barnowl.co.za/events/ Kind regards Jonathan Crisp Director – BarnOwl GRC and Audit software

About BarnOwl:

BarnOwl is a fully integrated governance, risk management, compliance and audit software solution used by over 150 organisations locally and internationally. BarnOwl is a locally developed software solution and is the preferred risk management solution for the South African public sector supporting the National Treasury risk framework. Please see www.barnowl.co.za for more information.

About our guest speaker