Alarms are sounding more widely than ever on the escalating financial risk arising from the corporate monopoly entrusted with our electricity system, under the direction of the state, which is additional to the alarming short-term impacts of recurrent lack of security of supply.

Electricity supply will have to transcend the Eskom mess – forgive such shorthand as we focus on the way forward – or let’s call it a crisis, as it is unfolding in an area of immense and accelerating opportunities. While there are widely divergent propositions for the primary energy supply mix, it is common cause globally that electricity must serve a larger portion of energy use, in all scenarios.

When government previously sought to give effect to policy requiring separation of the electricity transmission system from Eskom Generation – including drafting the ISMO Bill for an Independent System and Market Operator – a key argument against this was that the impact on Eskom’s “balance sheet” would result in a higher cost of capital. This argument has now fallen away.

Serial bailouts continue because the cost of capital has become prohibitive for Eskom as a whole, including the transmission system as long as it remains captive to Eskom Generation. An annual handout from the fiscus of R23-billion only alleviates but does not change this. The situation is now so dire that the Public Investment Corporation is being warned off by public sector pension-holders.

This is not because of a lack of interest in or need for investment in South Africa’s electricity system, but because of a dysfunctional corporate entity that is the epitome of “too big to fail”. If the Eskom debt spiral is not arrested, it threatens to take down “the sovereign” – shorthand for government acceding to prescriptions of the International Monetary Fund as the final recourse to keep the economy afloat. Public sector pension-holders familiar with the fate of Greece – where 60% of the value of pensions was erased in a single stroke – are caught between the proverbial devil and deep blue IMF austerity.

Our electricity transmission system is an utterly indispensable public asset that requires substantial modernisation and offers sustainable employment growth in a decentralising system. As an independent entity owned by society, the governance and “shareholder” structures should be up for discussion, preferably in a more inclusive and transparent forum than NEDLAC – the National Economic Development and Labour Council.

The security of supply of electricity cannot be achieved without a robust, sophisticated and well-managed transmission system – an issue too often ignored in anachronistic insistence that security of supply requires big coal-fired or “baseload” plants. We will depend on Eskom generation for some time, as our highly centralised electricity system will take about two decades to transition to truly sustainable operation, but the rationale for transmission to be subservient to generation, or “vertical integration”, has already fallen away.

As the most urgent priority is to arrest the debt spiral, it needs to be contained as close to source as possible. If some measure of austerity is not applied to Eskom Generation and associated coal value chain, it could lead to much worse austerity on a national scale.

At the same time, to modernise and extend our electricity system we need major investment in “the wires” that will be increasingly important in a sustainable energy system, particularly in achieving equitable access to energy services. This employment and economic growth opportunity deserves dedicated attention and long-term finance, on terms commensurate with long-term social value and low risk such as green bonds, which is not available to Eskom.

The distribution system also requires urgent attention, both physically and in terms of governance. Lack of capacity at local government level needs to be tackled head-on, rather than presented as a reason to “allow the private sector to participate”, which generally equates to letting market pricing determine access to electricity, under the euphemism of liberalisation. With SA’s levels of inequality and poverty, access to adequate energy services must be approached as a right.

Given recent technology development and cost declines, providing universal access to electricity has become one of the most cost-effective opportunities for directly improving the quality of life for millions of South Africans. Such opportunities are all but ignored in contestations over “the energy mix” and ownership or control of existing value chains. Eskom, where it is the distributor, has not even fully implemented the meagre Free Basic Electricity provision to all households, though it would have a relatively trivial impact on costs, with extensive social benefits.

There has been some reasonable anxiety (and some massively inflated guestimates of impacts) that allowing any players into the system that are independent of Eskom will undermine Eskom’s revenue and bankability, but we are so past that now. The impacts of including renewable energy through a dedicated procurement programme have been exhaustively analysed and put in perspective: if it hadn’t happened, or even if it could hypothetically have been done under Eskom, the potential impact on revenue would be but a fraction of Eskom’s on-going revenue shortfall.

It is going to take years rather than months for Eskom to become a going concern and it would be prudent to urgently delink that challenge from the fate of our seriously under-developed national electricity system. Harsh as that description may sound, there’s no point pretending: Medupi and Kusile cannot be counted as a positive development when they are providing the world’s most costly coal-fired power (without proposed pollution abatement or the promised availability) while remaining an unresolved procurement mess hobbling a major growth opportunity.

Preventing the Eskom debt from taking down the sovereign will have to involve some innovative and long-term financial arrangements – presumably something with some arm’s length, that could serve the kind of role (in reducing Eskom’s cost of capital) that some stakeholders had been suggesting for the PIC, before the escalating risks of the prevailing situation became so apparent.

Security of supply alone requires immediate investment in generation capacity that is not contingent on resolving the Eskom mess; likewise for transmission and distribution – in the latter case particularly investment in human capacity (perhaps some Eskom staff could be usefully deployed to municipal distribution). Hopefully, some financial boffins are getting creative on how to curtail and restructure the debt – only a really big deal will suffice – on terms that are considerably more favourable to the majority than waiting until we’ve no option but the IMF. DM