/ 7 March 2023

Fix Eskom, because the energy revolution won’t be privatised

Tutuka Powerstation 4789 Dv
Tutuka power station. (Delwyn Verasamy/M&G)

I’m sure most of us would prefer to no longer have to talk about Eskom — the 100-year old carbon-coughing giant that, like a homegrown Godzilla, has caused havoc in South Africa’s economy. But, as imposing as it is, the power utility is impossible to ignore. 

Conversations about Eskom’s future have moved between two broad ideas: on the one hand, it is too big to fail; on the other, it is too big of a failure to fix. 

Somehow, our policymakers, and even some in Eskom, have found themselves almost straddling these two sides — insisting that the power utility be saved, but for only as long as it takes to dismantle it so it can be replaced by some other option. The alternative in this case will put 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’s insistence that state monopolies be corporatised. But ongoing energy crises have prompted some to reconsider this view and reaffirm the public sector’s role in ensuring their sovereignty. This is a lesson that is too big for us to ignore.

Last month’s budget marked a turning point for Eskom. 

If Eskom signs the treasury’s proposed debt-takeover plan, its future will not be able to invest directly in new generation capacity, including renewable energy. Instead, its future will be about transmission, buying electricity from other entities and selling it on. 

This is the logical outcome of the long-touted unbundling process, which will separate Eskom’s generation, transmission and distribution businesses. It also signals the country’s surrender to old World Bank prescripts, which the international financial institution appears to be rethinking.

Three decades ago, the World Bank published a policy paper that would fundamentally change power sectors. The 1993 paper suggested that all power lending would require that countries “aggressively pursue the commercialisation and corporatisation of, and private sector participation in, developing-country power sectors”.

This policy shift was affirmed a year later, in the World Development Report, which called for the introduction of competition in energy markets. Unbundling, the report suggested, would promote competition.

But by 2003, the World Bank’s review of power sector reforms found it had underestimated how long they would take to implement. A year later, the institution cautioned against a one-size-fits-all approach.

In late 2019, at about the time André de Ruyter first walked into his office at Eskom’s Megawatt Park, the World Bank published a new report, this time evaluating some of the shortcomings implicit in the institution’s power policy paradigm. 

According to the report, interest in the World Bank-approved approach dropped off steeply after the early 2000s and there were about 30 reversals of privatisation. Although these reversals amounted to only 3% of transactions globally, they were 30% in sub-Saharan Africa.

“Regulation,” the report found, “has been widely adopted, but practice often falls well short of theory, and cost recovery remains an elusive goal. 

“The private sector has financed a substantial expansion of generation capacity. Yet its contribution to power distribution has been much more limited and its performance on efficiency can sometimes be matched by well-governed public utilities.”

The report also noted that the restructuring and liberalisation of energy markets have been beneficial in a handful of larger middle-income nations, but have proved too complex for most countries to implement. 

Although there is a chance South Africa could eventually fall into the former category, the country’s flailing independent power producer programme does not exactly bode well for the future. 

There is also the not-insignificant concern that liberalisation will fail to address the economic preconditions in South Africa, where inequality and unemployment are high and which some have warned is in danger of losing its middle-income status. If people cannot afford to pay for electricity now, the chance they will be able to buy privately-generated power is slim.

If privately-generated power does not promise we’ll be saved from the country’s energy crisis, then surely there is still a case to be made for Eskom to lead our energy transition. 

But the question remains whether the utility’s governance can be brought up to scratch. And, considering the sheer scale of corruption and mismanagement — symptomatic of political meddling — at Eskom, it is almost impossible to imagine the utility ever being clean enough to no longer pose a threat to the economy.

Poor governance in the public sector has become a good excuse to disavow it. This is despite evidence that, by diminishing its share in the running of the state, we stand to further deepen 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 will run into some serious trouble.

It seems we are weighing up two options that are both replete with uncertainties. 

Recent history has taught us Eskom has a tendency to break down under the weight of its operational and governance failures. So, we simply cannot keep going down the road we are going. But the alternative does not exactly promise we will reach a better destination. And we risk being much worse off. 

What we do know is this: the energy transition — which, if done right, could be infinitely better for our people and economy — will be far from easy. Having a robust public sector that looks out for the interests of its citizens is vital. By giving up on Eskom, and putting our fate squarely in the hands of the private sector, those interests are put in serious jeopardy.

If Eskom is to be fixed, it will require genuine political will, which seems to be in short supply nowadays. But, as crushing as this energy crisis feels right now, there is still time to demand that the state make decisions that put us in a better position 100 years from now.