Tobias Schmitz
CROSSFIRE
There are currently strong signals in the media that the government intends to restructure Eskom into a holding company for a range of power generation, transmission and distribution agents.
Things have changed since the 1960s and 1970s, when parastatals were an uncritically accepted vehicle of service delivery. During that period they were seen as a necessary evil, perhaps inefficient, perhaps not cost-effective, but the source of much-needed public services.
In those days economic growth was associated with the existence of infrastructure. Heavy state investments in infrastructure were legitimised on economic and social grounds. If a government ensured the existence of railroads, electricity, telephones and other such operative necessities, the economy could grow, and basic modern social needs could be met.
And if some financial support from the state was needed in order to ensure the continued provision of such services, then this was simply the price of growth and the bill needed to be footed.
However, the policy climate for parastatals has changed strongly since that time.
The demise of the Soviet Union and the fall of the Berlin Wall dealt a heavy blow to left-wing parties across the world which advocated a strong role of the state in development. The left had to embark upon an ideological journey in which some acceptance of the strengths of the market had to be incorporated into its world view.
This meant that where equity had been its yardstick of development, some room also had to be created for questions of efficiency. Out of this emerged the new social democrat, aimed at harnessing the unruly free market and creating the conditions for it to serve more of humanity than just a small elite.
The appropriate combination of state and market, in this view, needs to be analysed on a case by case basis – there are no more sweeping ideological formulae. But in practice, the uncertainty with regard to the role of the state currently tends to favour wholesale market-based solutions to service provision, even if a stronger leaning towards the state would have been more appropriate.
The current government policy with regard to the electricity sector provides a good example of this. As parastatals go, Eskom is not inefficient. It has among the lowest supply prices in the world, it receives no subsidies from the state, it has exceeded its Reconstruction and Development Programme electrification initiative of delivering to 1,75-million homes from its own pocket, and it registered a profit of R2,17-billion last year. Both from the point of view of equity and from the point of view of efficiency, the record is a good one.
And yet it would appear that current plans are to break the electricity supply sector up into a number of separate supply companies which are to compete with each other on the South African power market.
Because the government has not made a clear policy statement on energy since its 1998 White Paper, it is unclear what breaking up electricity production is intended to achieve apart from enhancing competition.
Perhaps the government sees more room for black empowerment in electricity generation if Eskom is broken up, or it may believe that handing over power generation to private investors will save on future infrastructure investments. Whatever the reasons may be, there are clear risks involved in fixing a working vehicle.
For instance, in environmental terms, South Africa has committed itself to cutting back on greenhouse gas emissions under the Framework Convention on Climate Change.
Taking steps towards greener sources of energy requires substantial investments, and the larger the electricity company, the larger the amount of capital that can be devoted to such a venture.
From this point of view, then, breaking up electricity production serves little purpose. A second example is Eskom’s good record in expanding electrification coverage.
What will happen to the electrification targets of smaller companies, which are in competition with each other and are therefore seeking to reduce their operating costs? At present the government is still in consultation with stakeholders on the issue, but it does appear as though a break-up of electricity production is imminent. In the meantime, for the sake of an informed public debate, it would be useful if the government were to set out what it believes are the advantages of the intended break-up.
Tobias Schmitz is a senior researcher at the Centre for Policy Studies
ENDS