I’m sure most of us would rather not talk about Eskom – the 100-year-old carbon-coughing giant, like Godzilla at home, wreaking havoc on the South African economy. However, as imposing as it is, the means of power is impossible to ignore.
The conversation about Eskom’s future has shifted between two broad ideas: on the one hand, it is too big to fail; on the other hand, it is too big of a failure to fix.
Somehow, policy makers, and even some in Eskom, have found themselves almost straddled by both sides – insisting that the electricity utility can be saved, but only as long as it is dismantled so that it can be replaced by some other option. The alternative in this case would be to place the country’s energy transition firmly in the hands of the private sector.
This week, thousands of people will descend on Cape Town to discuss energy policy at the Africa Energy Indaba.
For decades, energy reforms affecting the continent’s power utilities have been driven by access to financing, dictated by the World Bank to corporatize state monopolies. But the ongoing energy crisis has led some to reconsider that view and reaffirm the role of the public sector in ensuring sovereignty. This is too great a lesson for us to ignore.
Last month’s budget was a turning point for Eskom.
If Eskom enters into a treasury debt takeover plan, its future will not be able to directly invest in new generation capacity, including renewable energy. However, its future is in transmission, buying electricity from other entities and selling it.
This is the logical outcome of the long unbundling process, which will separate Eskom’s generation, transmission and distribution businesses. It also signals that the country is giving up on old World Bank prescriptions, which are being reconsidered by international financial institutions.
Three decades ago, the World Bank published a policy paper that would fundamentally change the power sector. A 1993 paper suggested that all power debt would require countries to “aggressively pursue the commercialization and corporatization of, and private sector participation in, the power sector of developing countries”.
This policy shift was confirmed a year later, in the World Development Report, which called for the introduction of competition in the energy market. Unbundling, the report suggested, would improve competition.
But in 2003, a World Bank review of electricity sector reforms found that it underestimated how long it would take. A year later, the institute warned against a one-size-fits-all approach.
At the end of 2019, when André de Ruyter first entered his office at the Eskom Megawatt Park, the World Bank published a new report, this time evaluating some of the shortcomings inherent in the institution’s power policy paradigm.
According to the report, interest in the World Bank-approved approach declined sharply after the beginning of the 2000s and there were about 30 privatization reversals. Although these reversals are only 3% of global transactions, they are 30% in sub-Saharan Africa.
“Regulations,” the report found, “have been widely adopted, but practice often falls short of theory, and cost recovery remains an elusive goal.
“The private sector has financed the expansion of generation capacity. But its contribution to power distribution has been more limited and performance in efficiency can sometimes be matched by well-organized public utilities.
The report also notes that energy market restructuring and liberalization have been beneficial in some larger middle-income countries, but have proven too complex for most countries to implement.
Although there is a possibility that South Africa may eventually fall into the former category, the country’s independent electricity producer program is ill-suited for the future.
There are also minor concerns that liberalization will fail to address economic preconditions in South Africa, where inequality and unemployment are high and which some warn is in danger of losing its middle-income status. If people can’t afford electricity now, the chances of them being able to buy privately generated power are slim.
If privatized power does not promise that we will survive the country’s energy crisis, there is still a case to be made for Eskom to lead our energy transition.
But the question remains whether utility governance can be brought up to scratch. And, considering the sheer scale of corruption and mismanagement – symptoms of political interference – in Eskom, it is almost impossible to imagine that the utility is clean enough to no longer pose a threat to the economy.
Poor governance in the public sector has been a good reason for rejection. This is despite the evidence that, by reducing the share of the country, we will increase inequality. Austerity, after all, has helped get us to the position we are in now, desperately turning to the private sector to provide services. When we have no choice but the private sector, we are in serious trouble.
It seems that we are considering two options that are fraught with uncertainty.
Recent history has taught us that Eskom has a tendency to break down under the weight of its operational and governance failures. So we can’t continue down the path we’re on. But these alternatives do not promise to reach a better destination. And we risk getting worse.
What we do know is this: the energy transition – which, if done right, can be better for people and the economy – is not easy. Having a strong public sector for the benefit of citizens is important. By surrendering to Eskom, and placing its fate in the hands of the private sector, these interests are in serious jeopardy.
If Eskom is to be fixed, it needs genuine political will, which seems to be in short supply these days. However, as felt by the current energy crisis, there is still time to demand that countries make decisions that make us better off 100 years from now.