/ 2 February 2023

Eskom turns 100 in March; How many more years does the ailing parastatal have?

The interest costs on Eskom’s debt amounted to R35.8-billion
Photo: (Dean Hutton/Bloomberg/Getty)

A few years before Anglo American reached its centenary, there was a question mark about whether the miner would reach this grand old age because of the financial crash that caused the 2008 global recession.

With commodity prices across its vast portfolio tumbling, the management at the Ernest Oppenheimer founded company embarked on a fire-sale of its assets. Vultures were abundant, ready for a cheap play for the diversified giant, the last of which was Indian billionaire Anil Agarwal. It was any bet if the company would reach its 100-year birthday.

But the winds changed in their favour; commodity prices improved and a weak rand boosted its prospects. The strategy of selling down its assets to only 16 operations was scrapped. Management under chief executive Marc Cutifani got a second wind and was able to configure a new strategy and fend off the vultures. Today, it’s a 106-year old company and may make another decade if the next global recession isn’t deeper than the one we experienced after the Covid-pandemic. They dodged a bullet.

Next month, Eskom, a key cog in the industrialisation of South Africa and powering the country’s strongest growth years in the aftermath of World War II, has its centenary. It has made it this far, despite the past 20 years during which ageing power plants, indecisive policy solutions and corruption both internally and externally have crippled the state-owned entity.

While Anglo’s future was saved by a recovery in some of its main commodities, in the case of Eskom there are no market forces that will miraculously channel it into safer waters. It’s only through critical governance fixes, proper care and maintenance, a funded expansion drive and policy certainty that it may get its second breadth. Without it, another decade seems a journey too far for the power utility.

Without Eskom, and no matter how you feel about the Megawatt Park headquarters company, we leave our entire electricity market in the clutches of the private sector. The rules are different for private players, because shareholder return takes primacy over everything else. One could argue that we would need a stronger independent energy regulator in the National Energy Regulator of South Africa (Nersa) to ensure tariffs don’t rise even faster than they have. 

Nersa has proved susceptible to the political pressures from the governing ANC, the Democratic Alliance and the Economic Freedom Fighters when deliberating the Eskom tariff requests for more than decade, disregarding the maintenance costs of the power utility. A large part of why we are here is Eskom’s revenue shortfall, never mind policy failures of years past.

Imagine how much more susceptible Nersa would be to pressure from private players and the demands from their shareholders for a return on their investment. Look at the case of the  Independent Communications Authority of South Africa (Icasa) and how its integrity buckled under the pressure from mobile operators such as MTN, Vodacom and Naspers, the one-time owner of pay-TV operator DStv.

Icasa’s best and brightest regulators were poached and took jobs relating to government affairs in many of the companies they had previously been regulating. The institution has long been hollowed out and the changing dynamics of the internet age have left the authority so far behind. It won’t catch up anytime soon.

What would a big energy player or players do to Nersa without a functional Eskom, whose mandate is to provide electricity in an efficient and sustainable manner for all spheres of society? They’d simply undermine the regulator in the way Icasa was — the allure of big salaries is near impossible for any frugal state to counter.

This is just one concern about talk of an imminent end to Eskom because of our frustrations with stage six load-shedding. It’s difficult to not jump on the boat and give up on some of the good men and women that still work in that ailing power company, and the policymakers invested in its next 100 years.

Given the developmental needs of South Africa and our historical legacy, a fully privatised electricity grid scares me. Surely, our divisions would only grow.

The difference between Eskom and Anglo is that there are no market forces that would save the power utility and guarantee it another 10 years. Its future is in the hands of policymakers, a new strong management team, an independent regulator not susceptible to political pressure and a multi-billion rand debt solution from its sole shareholder. Without these interventions, its future is as perilous as Anglo’s once was in the aftermath of the 2008 global recession without the salvation of high commodity prices.

We are married to the Eskom problem, I’m afraid.

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