Opinionista Richard Worthington 15 January 2018

Eishkom and avoidance of intervention

There are many points of entry for addressing the dire situation within our “public enterprise” responsible for electricity supply, particularly within Eskom Generation and the self-serving cabal within this corporate behemoth – a league of unknown extent that I shall refer to as Eishkom.

The ongoing refusal by Eishkom to conclude power purchase agreements (PPAs) that government committed to with renewable energy power producers over two years ago – and thus obstruction of more than R55-billion of investment – is probably even more damaging to the economy (inter alia via investor confidence and credit ratings) than the arbitrage that has been exercised over coal procurement and driven up fuel costs. This merits urgent intervention by the state: an immediate illustration of an ability to cut through capture by vested interests and honour fiduciary commitments made by the state.

The commission of inquiry into State Capture just announced by the president looks unlikely to be a promising point of entry for timely and effective remedial action, particularly if the advice of the public protector is followed, as reported in Greg Nicolson’s article.

Is it not patently absurd to suggest that terms of reference for an inquiry should “ensure that no stone is left unturned … in order to avoid any further allegations of State Capture being lodged with the Office of the Public Protector,”?

Talk about scope creep. How about the possibility of allegations of improper influence being raised regarding the recent deal or agreement with Russia for financing exploration for natural gas in SA territory, with associated consideration of importing their gas? Should the terms of reference seek to avoid such allegations being lodged?

As for Zuma’s call to uncover “… all those who may have rendered our state or parts thereof vulnerable to control by forces other than the public…” – One might as well then combine it with the process of ANC introspection, and indeed a performance (and outcomes) review of all our politicians, as well as state bureaucracy, the financial sector…

The DA apparently wouldn’t mind this being a fishing expedition and doesn’t seem able to drive immediate remedial action, or to be solutions-oriented beyond advocating privatisation. Nersa has failed to insist that Eishkom publicly disclose all the information upon which this monopoly made its application for tariffs, despite requests by many stakeholders, and has yet to publish the reasons for approval of the increase that was granted (far less than requested) late in 2017.

The parliamentary inquiry by the Committee on Public Enterprises was looking rather encouraging in 2017, although a key witness in hearings appears to be targeted for constructive dismissal by Eishkom – Jessica Bezuidenthout reports Company Secretary Suzanne Daniels saying “ the case against her had been “concocted’ and that it may have been a “ruse” to get her out of the way.”

It seems doubtful the committee could force remedial action by the recalcitrant minister.

It is widely agreed that Eskom is on a path to bankruptcy (some say on the brink), primarily due to the management of the generation division, particularly the costs (incl. of delays) of building the two coal behemoths Medupi and Kusile. Coal procurement seems to have become a patronage playground, under the guise of black economic empowerment, but without seriously threatening monopoly capital (and some players off-loading risks in the process).

Various mainstream commentators and industry representatives are flagging the dangers of a utility financial death spiral as electricity sales remain below the 2007 level and costs of operating the existing generation fleet continue to escalate. Is anybody considering scenarios for Eishkom taking down the whole corporate entity, e.g. for Eskom to be put under business rescue, say if Treasury (and the PIC) does not provide another massive bailout?

As important as it is to uncover past wrongdoing, we need to prioritise damage control and solutions and beware of impediments to radical intervention, including judicial processes that may be used to generate legalistic procrastination. The viability of our public energy utility is surely more important and urgent to the credibility of the currently ruling party, not to mention the economy, than ensuring that the scope of any inquiry is exhaustive?

It makes no sense to allow a state-owned entity to sabotage the development of renewable energy industries for the sake of short-term and only partial respite from financial challenges, or to maintain its monopoly regardless of performance. Nor does it make sense for the National Treasury to bail out a self-serving corporation that remains intransigent on investments the same Treasury has underwritten, without first requiring a change of the management that has brought about Eskom’s financial crisis, or perils.

We need a distinct process to address the malaise I’ve called Eishkom (without prejudice to inquiries various, but a focus on remedy rather than blame) to be effective within the time scale of addressing Eskom’s capital shortfall. While the national regulator quite rightly rejected a massive tariff increase, it can refuse to reward, but is not empowered to prevent, wasteful expenditure.

One point of entry could be an interrogation of the merits of the corporatisation process Eskom was subjected to in the 1990s and whether the resultant entity and mandate is fit-for-purpose for electricity supply in the changed and changing context. Such a process could logically be undertaken by the Economic Development Department, since a functional and affordable national electricity supply system is fundamental to economic activity, and the Department of Public Enterprises is conflicted on this issue.

Corporate accountability to a shareholder ministry has clearly failed to serve the public interest, or even a narrow objective of driving economic growth. Organised labour has called for de-corporatisation and return of a stakeholder council, but most unions remain aligned with the fossil-fuelled energy incumbency and in effect supported Eskom’s coal procurement practices (and associated increase in coal trucking) and defiance of government’s procurement of renewable energy.

Could it be that business rescue is the most promising point of entry to tackle the Eishkom malaise? What structure or institutional arrangement could succeed where government’s secretive “War Room” on Eskom achieved only some co-operation on demand management? It would certainly seem that the potential source(s) of capital have the best prospect of forcing changes that cannot await the outcome of comprehensive inquiries. DM

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