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‘Be bold, take risks’ to fix economy

NEWS ANALYSIS

As the clock to February’s budget ticks away some of Finance Minister Tito Mboweni’s tweets suggest we are about to fall into the economic abyss, while International Affairs Minister Naledi Pandor warned that “politically, economically and on the governance front, our country is probably facing the sternest test since the dawn of the democratic dispensation in 1994”.

Addressing South Africa’s heads of mission to African countries on Tuesday, Pandor said: “We are fighting off the possibility of a credit rating downgrade but also we have the duty to revise — with confidence and a positive attitude — a sluggish economy.”

President Cyril Ramaphosa, in a statement after the ANC’s national executive committee’s (NEC’s) lekgotla this past weekend, spoke of being confronted during the ANC’s January 8 rally in Kimberley in the Northern Cape by conditions of abject poverty and people living in unacceptable squalor, as many as 42 people in shacks in one yard.

“We must also be cognisant of the stark fact that half a million of a population of 1.2-million in this province are grant recipients,” Ramaphosa said, adding the poverty and squalor also mirrored the dire state of the economy, both the result of the legacy of apartheid and “our own inability to restructure and transform the economy over the past 25 years”.

Ramaphosa said the medium-term budget policy statement estimated “we need a R150-billion fiscal adjustment over the next three years”.

“We need to be bold and take risks,” he said. “There is no more time. There are very few options.”

The NEC’s lekgotla statement says urgent action needs to be undertaken to stabilise and restructure state-owned entities (SOEs) so that they can play a more effective role in promoting economic growth and transformation. “Overall, South Africans will need to make hard choices and make short-term sacrifices for long-term gains. There will be pain and risks involved in stabilising and restructuring SOEs.”

The lekgotla statement said it would take time for Eskom to fully recover. “Mechanisms must be sought to reduce Eskom’s debt burden in order to enhance Eskom’s balance sheet. Operational efficiencies must also be improved to reduce the amount of load-shedding that has to be undertaken.”

It said the ANC should have discussions with trade union federation Cosatu and other tripartite alliance partners to develop a pact, or common approach, on how to save Eskom. “Agreement should be pursued on how workers can assist in mobilising funds to invest in the restructuring of Eskom; how jobs can be saved; how on-going public-ownership can be secured; how a just transition can best be advanced; how to ensure market related prices on purchasing inputs for electricity generation; how corruption can be rooted out and how community payment for electricity services can be better mobilised.”

As reported by the Mail & Guardian in December, Cosatu has proposed a radical restructuring plan for Eskom where R200-billion from the pension funds of state workers administered by the Public Investment Corporation (PIC), plus R50-billion from entities such as development finance institutions and the Unemployment Insurance Fund, would be used to take up equity in Eskom. This could include swapping existing bond debt for equity.

Cosatu says its proposal is intended to save both Eskom and the state from runaway debt and credit downgrades. It warns in a document dated January 22 that this social compact to restructure Eskom’s finances should be in place by the February 26 budget is announced. Its full set of proposals, which include the treasury withholding funding from municipalities that owe money to Eskom in favour of treasury paying what is owed directly to the utility, are detailed in a separate report. (See “Cosatu has a plan to save Eskom”)

The M&G asked the Government Employees Pension Fund (GEPF) and the PIC, which administers these funds, for comment. The GEPF’s Matua Molopo said: “The GEPF has not received such a proposal, therefore we cannot comment.” The PIC did not respond to emailed questions.

Cosatu parliamentary officer Matthew Parks says the proposal is being discussed with the president, ministers and ANC first to get in-principle high-level agreement. “After there’s agreement it would have to be walked through government and PIC processes, etc.”

The Democratic Alliance says it will fight the proposal, which it calls an “anti-worker Eskom bailout plan”. The party’s spokesperson on finance, Geordin Hill-Lewis, said this week that it rejects Cosatu’s proposed plan to ask the PIC to put up R254-billion to clear half of Eskom’s debt.

“We will write to the minister of finance, Tito Mboweni, and acting PIC chief executive Vuyani Hako, challenging them to publicly reject the Cosatu proposal, which would result in billions of rands in state employee pension funds being redirected to bail out a collapsing and defunct Eskom.

“It is deeply misleading for Cosatu to claim to fight for the rights of workers when, in essence, it is proposing to use workers’ money to bail out the ANC and reward its mismanagement of SOEs,” Hill-Lewis said. “Workers should not be asked to shoulder a sinking Eskom ship that was looted by political elites and their proxies during the heydays of state capture.”

While the electricity generation shortfall the country faces was quantified at the release of the Integrated Resource Plan in October at 2 000 megawatts, this has subsequently been revised in later official pronouncements to 3 000 and then 5 000 megawatts. The lekgotla document puts the shortfall at 5 000 to 7 000 megawatts.

The lekgotla supported statements by Ramaphosa earlier this year that suggested the deregulation of energy supply is coming. It said that “managing the transition of SA’s energy sector is a separate, albeit related, exercise in the restructuring of Eskom. To conflate the processes of the energy transition and Eskom’s restructuring would result in conflicts of interest and would lead to suboptimal outcomes for the country.

“In the long run SA must attain reliable, lower-cost and lower-carbon energy supply to ensure the competitiveness of the economy and to enable job creation and the development of new industries.

“In the immediate and short run, to alleviate the current shortage of electricity and to reduce the need for load-shedding, regulations should be eased to allow increased levels of self-generation and for municipalities in good financial standing to procure their own power.” It also called for access to the grid to be provided on a non-discriminatory basis to Eskom generation and independent power producers.

Renewable energy is now substantially cheaper than other technologies. In Qatar, for instance, a bid during the past week came in at a third of Eskom’s coal cost, according to one expert. Renewable energy is also much quicker to implement, a considerable advantage given South Africa’s growing electricity shortage and the potential for more disruptive load-shedding.

Despite the political support for deregulation and the urgent need for emergency supply, Mineral and Energy Resources Minister Gwede Mantashe continues to delay using his ministerial powers to free up supply.

The heads of South Africa’s wind and solar industry bodies urged Mantashe on Tuesday to publish, without delay, the ministerial determinations required to unlock the procurement of much-needed electricity capacity in line with the Integrated Resource Plan promulgated in October, Engineering News reported.

South African Wind Energy Association chief executive Ntombifuthi Ntuli and South African Photovoltaic Industry Association chair Wido Schnabel told the Pretoria Press Club that their members had projects that could be implemented on an accelerated basis and in line with the department of mineral and energy resources’ recent call for proposals that could be grid-connected in the “shortest time and at the least possible cost”.

There are also concerns that Eskom’s newly-appointed chief executive, André de Ruyter, appears resistant to government’s decision policy to split Eskom into three parts — generation, transmission and distribution — as a part of a move to modernise electricity provision by setting up a transparent and competitive system to purchase and supply electricity. De Ruyter has indicated that he is no rush to pursue the split, raising concerns that he wants to drag out Eskom’s monopoly position, even though the Roadmap published by the department of public enterprises called for functional unbundling by March this year and legal unbundling by 2021.

Jo Dean, of the Southern African Renewable Energy Council, says De Ruyter’s statements are creating uncertainty, which “is quite serious because it’s going to take 24 months for Eskom even to try stabilise and that leaves no supply for any economic expansion. This creates a huge tizz in the public space and further breaks confidence.”

De Ruyter had also been criticised for raising the grid connection costs for renewable energy, which he put at R18-billion. This is just not an issue; costs are shared on the basis of use, says Dean.

She says the benefits of any grid expansion to accommodate renewables (and other sources such as gas) outweigh the costs quite substantially. “Many are going the route we need to tread” and there are “numerous collective benefits from extending the grid”.

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Kevin Davie

Kevin Davie is M&G's business editor. A journalist for more than 30 years, he has worked in senior positions at most major titles in the country. Davie is a Nieman Fellow (1995-1996) and cyberspace innovator, having co-founded SA's first online-only news portal, Woza, and the first online stockbroking operation. He is a lecturer at Wits Journalism. In his spare time he can be found riding a bicycle, usually somewhere remote.

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