ANALYSIS

Nedlac’s framework agreement on Eskom and its implementation schedule are a masterclass in specifics

By Marianne Merten 20 September 2020

(Photo: Rawpixel)

While Nedlac discussions for an economic recovery plan skirted firm deadlines and details, the framework agreement on Eskom and its implementation schedule is a masterclass in specifics. The question remains whether the political will exists to make it happen.

The Eskom social compact discussions at the National Economic Development and Labour Council (Nedlac) have run together with the national economic recovery plan. But given the grimmest economic indicators and the wrenching impact of the Covid-19 hard lockdown, it was the recovery plan that cornered the political space, including presidential presentations like the 16 September 2020 address to the nation.

Yet the Eskom Framework Agreement with its specifics and implementation timelines rises above the perennials of infrastructure, employment and enabling policy of the economic recovery plan that now has moved up by three months the spectrum release to December 2020, rather than March 2021.

What would have focused Nedlac talks is that Eskom is the biggest threat to South Africa’s economy.

Eskom’s debt stood at R488-billion as at end March 2020, up by R48-billion compared to March 2019. And while the power utility is looking to cut costs – R14-billion is this year’s number – Eskom officials told MPs in early September that it’s also looking to a 25% tariff hike.

Eskom confirms load shedding to stay for about two years, looks to 25% tariff hike as debt balloons to R488-billion

That might just be politicking and wishful thinking; given the Covid-19 hard lockdown worsened recession and also slashed some three million jobs, and Eskom’s terse standoff, also in court, with the National Energy Regulator of South Africa (Nersa). And given how municipalities top up by up to 100%, and even more, Eskom’s electricity price to generate their own revenue.

Tariffs, costs, debt and additional power generation are all addressed as immediate pressing issues in the Nedlac Eskom Framework Agreement and its implementation schedule, both seen by Daily Maverick.

“The management of tariffs is seen as critical to ensure affordability, to sustain prudently incurred costs by Eskom and to arrest and reverse a utility death spiral,” says the agreement.

The implementation schedule has Eskom reviewing tariff cost structures within a month after the agreement being signed, given the risk that “revenue shortfalls related to Covid-19, if recovered from tariffs could mean that electricity becomes unaffordable”.

The Framework Agreement, or social compact, also has government committed to reviewing “the adequacy of the free basic electricity grant in light of the high cost of electricity”, as debt recovery is central.

Calls to pay for electricity used date back to the February 2019 State of the Nation Address, but this Nedlac agreement takes a more practical turn with the revival of a national Masakhane campaign, led by the Nedlac community partners within two months of signing the framework agreement.

Masakhane was first launched in 1995 to get residents to pay for municipal services delivered – “With freedom comes responsibility, the responsibility of participation” was how Nelson Mandela put it at the launch on 25 February 1995 – but fizzled out.

Alongside an end to illegal connections, the Nedlac Eskom social compact wants prepaid metres in every home – ticking the box of boosting localised manufacturing as per the economic recovery proposals.

Localised manufacturing is again given practicality on the renewable energy front.

Within two months of signing the framework agreement, updates on “local renewable energy manufacturing”, including masterplans, would lead to reports on usage of locally produced and installed solar energy panels. Joint responsibility for this rests with Trade and Industry, Energy and Mineral Resources and business.

Municipal debt, at around R30-billion, and what to do about it had always been part of the Cooperative Governance portfolio. Until in late July 2020 Cooperative Governance Minister Nkosazana Dlamini Zuma told MPs it was up to National Treasury to deal with this.

Cogta turns its back on municipal financial troubles — handing the hot potato to Treasury

Such intra-Cabinet disjunct makes it more challenging for Energy and Mineral Resources to review Nersa’s capacity and challenges, as stipulated in the Nedlac Eskom Framework Agreement and implementation schedule, alongside a review of the overall electricity regulatory system within four months of signing this agreement.

Alongside tariffs, also on the immediate to-do list are managing the rolling power outages, while getting on-stream additional power through the new renewables bid window and emergency procurement like self-generation projects.

The delays over the new renewable energy bid window and the lack of urgency of finalising the self-generation projects have been a business bugbear.

Now the Nedlac Eskom plan regarding the 2,500MW self-generation that business has pledged to bring online within 18 to 24 months, makes business and Energy and Mineral Resources jointly responsible. The risk identified, aside from Covid-19 triggered downscaling, is “Lack of consensus between government and business plans for self-generation”.

Historically, business and government have clashed, be that over the delayed Integrated Resource Plan (IRP), finally released in October 2019.

IRP2019: coal dominance continues, with nods to renewables – and nuclear

“Government must enable self-generation by finalising all necessary legislation and regulations expeditiously, and removing any barriers to implementation…” the framework agreement stipulates.

That Nedlac Eskom social compact makes the power utility responsible for cutting costs, including what’s described as “bloated management”. Previous attempts, including the 2018 attempt at a zero-percent salary increase, set political tempers alight.

On debt, Eskom and National Treasury must within one month of the Nedlac framework agreement being signed, produce an overall strategy on such debt reduction. Eskom debt runs through from immediate action into long-term targets.

Cost reduction already is a given as Eskom told MPs on 2 September, when it became clear the power utility executives understood no further money would be available from the national purse. Eskom’s R488-billion debt is being serviced from its bailout billions  – the annual R23-billion over 10 years allocated in the February 2019 Budget and the July 2019 Special Appropriation of R56-billion over two years.

Some of the Nedlac Eskom plan actions also are underway.

Communication on the fragile and frequently breaking electricity system is stepped up with detailed explanations why and where the grid has lost capacity as a heads-up to possible rolling power outages.

Also already underway is recouping money from State Capture contracts with, among others, Trillian, Tegeta and Impulse and referring 39 contracts to the power utility’s audit and forensic section to look into “whether they are legally sound”, as the presentation to MPs put it.

Also done was a contract review – 21 deals with seven suppliers – although it failed to generate savings as suppliers looked to change terms and conditions.

Eskom executives and top managers have all done lifestyle audits, as have 90% of employees. Scores of disciplinary proceedings are underway; a handful of executives have resigned, according to the briefing document to MPs in early September.

All that’s in line with the Nedlac Eskom Framework Agreement.

“Labour and Eskom management must report corruption within Eskom to entrench a zero-tolerance culture towards corruption among all employees of Eskom… Members of communities and contractors must equally report corruption within Eskom to entrench a zero-tolerance culture towards corruption among Eskom employees.”

The Nedlac Eskom Framework Agreement, or social compact, and implementation schedule is detailed, setting out required action, who’s responsible and timeframes. 

But that does not mean this effort is beyond worry.

Apprehension exists similar to concerns in some circles that despite the economic recovery plan’s broad agreement, ultimately Cabinet simply would decide what to do.

Similar unilateralism already happened over the Eskom roadmap for the power utility’s unbundling into transmission, generating and distributing entities. Eskom moved back deadlines set in its unbundling and stabilisation roadmap of October 2019 – some eight months after the unbundling was first announced – so that by June 2020 two time frames existed: the roadmap’s, and the significantly more generous Eskom deadlines.

Eskom’s long and winding stop/go road to unbundling 

Right now, Nedlac’s Eskom Framework Agreement, or social compact, with its implementation schedule is about as good as it gets. It would be a shame, if politicking and mendacity would turn it into yet another piece of paper platitudes. DM

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All Comments 8

  • “Lucy, I love your assonance and alliteration – on a more positive note; at least the platitudes are on paper and not floating up like hot air.” Love Charlie Brown

  • Gwede Mantashe has a policy of minimum possible reform over the longest possible timeframe. A collection of recycled half-measures, created by faceless functionaries in Nedlac, is not going to change that. Next we will see local content rules, onerous BEE/AA requirements, endless environmental approval processes etc. Grid neutrality and competition in the generation space did not even get a mention. Masterclass in obfuscation!

  • One of the most important and easiest ways to get the power utility back on it’s feet – the anc must get their voters to all pay for electricity that they have used and use and then what they will be using in future. Unfortunately that may very well have the result of loosing power, so rather let the country go to waste than loosing power. A lot of users that actually pay for their electricity can most likely also afford to go ‘off-grid’ and then what happens to eskom??

  • Thanks for an excellent piece. Eskom is indeed SA’s biggest single economic headache – and tragic story of mismanagement and corruption. 25 years ago it was a world class company.
    But as to energy planning: the delay in ramping up renewables is sad as it only reinforces long dependency on coal. However, as in many other countries, the potential of EE – Energy Efficiency – is neglected; it’s often by far the cheapest “source” of energy – a kilowatt-hour saved is as good as and in fact better than a new kilowatt-hour produced. EE also creates far more jobs.
    However, unbundling often raises a new barrier against energy efficiency since energy companies want to sell more, not less energy. This must be addressed by the energy policies.
    Don’t let nuclear raise its head again. Apart from any possible fears, and environmental concerns, nuclear energy is now simply far too expensive. The renewables are becoming considerably cheaper. As is energy savings.
    And huge savings can be made by energy efficient design of buildings and cities. Is anyone looking seriously at the demand side of energy policy? That’s not Eskom, although it could be part of their work.
    The above is my field – here since February on lockdown from Norway. Any comments?

  • GO Nedlac. All looks goods, but beware of Gwede Mantashe! He is PROCRASTINATION / #+>[head reincarnated in terms of renewable power that is available right now!!

  • Finally news of something substantial emerging from the protracted efforts towards a social compact; not to be sneered at, though a collective announcement would be welcome. In the works for half a year, this needs to be a breakthrough. If we can open the way for investment in our national electricity system (and get on with bringing power to all the people, as the least this economy can deliver by way of essential services) with governance based on participation of all social partners – the crunch issue – then we need to develop the opportunity. This is encouraging… well, looks like it should be encouraging the development of a RE-industrialisation strategy…

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