Opinionista Oliver Dickson 17 March 2020

The dark future of Eskom under Ramaphosa

Former presidents Thabo Mbeki and Jacob Zuma noted that load shedding started because the apartheid government built a grid for a select few people in this country, to the exclusion of poor black people. The electricity paradigm we are now entering will inevitably revert back to that.

Rolling blackouts over the years have seen South African businesses lose billions of rands, lay off workers and completely close down in some cases.

South African households, alike, have become increasingly frustrated at load shedding and the inconvenience it causes. This has left the entire country desperate for a solution. Anything! A solution, almost, at any cost.  

If I was a conspiracy theorist, I would argue that this level of desperation for action to be taken at Eskom has perhaps been exactly what any malicious political principal would have wanted as it creates an environment for one to engineer a crisis at Eskom before implementing a solution that they can profit from.

However, I am a fact-based columnist and not a conspiracy theorist and, surely, President Cyril Ramaphosa, with his Colgate smile, lyrical slogans and almost-overused Mandela quotes can’t be such a political principal.

When the President took to the podium in Parliament in February to deliver his State of the Nation Address, Eskom was the elephant in the room and he addressed it, very early on in his speech.

He announced action at Eskom that rendered the EFF mute, drew the praises of the DA and had South Africa business applaud him as though he wasn’t fixing a problem that he and his party hadn’t created themselves.

What are the special solutions that drew so much praise?  Rendering Eskom obsolete is the solution.

Given the fact that the government would never be able to draw enough political support in the broad church of the tripartite alliance to wholesale privatise Eskom at one go, it had to be innovative and patient about it. 

The start of the process was to split Eskom into three parts; generation, transmission and distribution. This was announced very early on into the Ramaphosa presidency and, in July of 2019, as per the request of Finance Minister Tito Mboweni, a chief restructuring officer was appointed to facilitate this process. 

The purpose of the restructuring, as initially outlined, would be to improve reporting and accountability structures. It apparently seemed unclear to the government, and to Eskom itself, which of the three structures were performing well and which were failing.

The purpose of the restructure also included, as outlined, the intention to attract strategic equity partners to any or all of these three structures. The total sale of any of these structures was, at the time and still is, not ruled out.

It remained unclear, if a sale were to happen, whether it would be the generation arm, the transmission arm or the distribution arm that was sold. To this, Ramaphosa recently hinted at an answer. I will get to that shortly.

The restructuring solution, alone, was not convincing enough to the country, the opposition benches or investors. Something more drastic needed to be done. And so came the 2020 SONA.

In it, the President announced a number of additional changes as far as Eskom was concerned.

Firstly there was an action plan to ramp up generation capacity, with Eskom initiating the procurement of emergency power from projects that can deliver electricity into the grid within three to 12 months from approval.

Secondly, he announced regulatory changes that seemed to excite the stakeholders: henceforth, businesses and organisations will be able to produce their own electricity without a licence at up to 1MW and where they seek to produce above 1MW (with no limit), they will now be able to receive a licence within four months.

Municipalities in good financial standing would be able to procure electricity directly from independent power producers (the much-talked-about IPPs).

What does this mean? It means mines, factories, private hospitals and massive office parks will be able to generate their own electricity and no longer buy from Eskom. More than that, Eskom’s biggest client base, municipalities, will now be able to take their money elsewhere.

The City of Cape Town didn’t let the SONA dust settle before they drank from Ramaphosa’s Kool-Aid by announcing it was taking steps to produce its own electricity.

Here is why these actions, unchecked, are dangerous for Eskom and for the country at large:

Eskom had the ears of financing institutions and bankers because it had a monopoly on the market and a guarantee of revenue. Because of its market monopoly, Eskom also had the sympathy of the national energy regulator when praying for a tariff hike to assist with its revenue.

Without all this, Eskom will no longer have this surety at financing institutions because it is no longer guaranteed long-term revenue from mines, factories and municipalities. With an eroded revenue base, it makes Eskom even less of a healthy institution to lend money to.

Essentially, Eskom is rendered obsolete because, once it can’t attract any more loans and bailouts, it dies a slow death as it becomes increasingly more inefficient and unreliable.

Another consequence is that poor South Africans will end up living in darkness.

Municipalities in good financial standing are few and far between, but, more than that, it is often only municipalities where the middle-class and upper-middle-class of South Africa reside, like Cape Town. 

Municipalities too poor to purchase from IPPs are in the places where the poor masses of South Africa live. Those people will have no option but to rely on an increasingly inefficient and unreliable Eskom that has no reasonable prospects of being rescued.

Eskom has a critical social mandate to deliver electricity to the poor and the poorest of the poor.

Four out of every 10 households in South Africa have no form of income and therefore can’t afford electricity, but still require power. It is largely those households which will be left with an unrevivable Eskom.

The President has essentially given financially well-off communities of South Africa a “better” option while leaving the poor to continue a life defined by load shedding and an inevitable total blackout.

Ramaphosa’s actions at Eskom must be seen for what they are, anti-poor.

Eskom on its deathbed becomes an easy case to make for privatisation. So which part will be privatised?

Speaking recently to the South African National Editors’ Forum, Ramaphosa said he was open to the idea of selling some of Eskom’s power stations.

So, answering the earlier question about which of the three arms of Eskom are likely to be sold (privatised), Ramaphosa’s answer seems to be generation.

With the country’s generation capacity almost entirely being taken over by private players, there are hundreds of billions of rands to be made in profit for IPPs. The very same IPPs that the president would like to keep classified. 

IPPs are private institutions under no obligation to care for the poor masses of the country. They will not sell electricity to those who can’t afford it, poor people, who constitute nearly half the population.

Former presidents Thabo Mbeki and Jacob Zuma noted that load shedding started because the apartheid government built a grid for a select few people in this country, to the exclusion of poor black people. 

The electricity paradigm we are now entering in South Africa will inevitably revert back to that. DM

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