South Africa’s treasury is guilty of bad budgeting, and its budgets are criminally incongruous with the vision, policy objectives and goals of the 2012 National Development Plan. (David Harrison/M&G)
Through the considerable debt relief it is extending to Eskom, the treasury has cleverly found a way to take on two formidable threats to South Africa’s economy: the energy crisis and municipalities, which — despite numerous interventions — are in disrepair.
The conditions attached to the R254 billion Eskom bailout, and to the plan to write off historical municipal debt to the ailing power utility, will allow the treasury to finally mould these two economic menaces into its own image.
Regardless of whether we agree with the treasury’s aspirations, one has to applaud it for finding a new way to throw its weight around, even if some of the problems the people in charge of the nation’s coffers are trying to solve may be too far gone. But because some of the changes the treasury hopes to make will ultimately come down on consumers, it does stand to unleash yet another beast — social discontent.
Trying to solve the country’s energy crisis has demanded the attention of a number of organs of state.
Notwithstanding the reported power struggles that have ensued between ministries, it is not in doubt that this threat to the country’s economy requires this type of concerted effort.
Although most of the public’s attention may be on the dark triad that has formed between the public enterprises, mining and electricity ministers, the treasury holds considerable power. It speaks volumes that, while most are split on which minister has the better grasp of the crisis, there was a uniform acceptance that the treasury’s decision to take over a large chunk of Eskom’s debt was a good one.
Despite taking a tough stance against bailouts, Finance Minister Enoch Godongwana said the decision was informed by the treasury’s unwillingness to risk letting Eskom take the country’s economy down with it. What was always going to be more important was how the bailout would work — and ensuring it wouldn’t be money down the drain.
This is where the conditions come in. Without them, the treasury may not have won the blessing of financiers, whose trust the state has had to claw back after failing the impossible task of growing the economy while also shrinking the public sector’s share in it.
Among the conditions attached to the debt relief package is that Eskom concession all power stations deemed viable for resuscitation to the private sector. A concession allows an entity to operate a plant for a defined period, collect revenue through the tariffs, sell to the system operator and maintain the plant according to defined parameters and output.
Although concessioning is relatively common, it comes with the drawback of potentially higher prices, putting more pressure on cash-strapped electricity users. Because private concessionaires will not carry losses for long, they will pass these on to consumers.
Like Eskom’s failing power stations, in a country where many already cannot afford to pay for power, higher costs are a threat to energy security. For this reason, the global trend has been to fight encroaching energy privatisation and — in some cases — undo it.
Last December, for example, the Ugandan government said it would renationalise its energy sector, resolving to do away with its concessionaires, which was the international Umeme consortium and Eskom.
The treasury’s plan to write off municipal debt to Eskom could also come down hard on consumers, given that a key component of its strategy is to encourage “good” behaviours.
More broadly, the debt write-off programme aims to achieve the herculean task of bringing municipal leaders and officials in line. The treasury, the last port of call when municipalities are on the brink of financial collapse, has found that the only way to do this is through the carrot-and-stick method of persuasion.
Although some might still consider this a waste of time, you can’t blame the treasury for trying — especially given how great a threat municipalities pose to the country’s economic health. When municipalities no longer function, and infrastructure and services deteriorate, households and businesses suffer.
Restoring some semblance of financial fortitude at municipalities, and in turn ensuring they are no longer so hostile to investment, is high on Godongwana’s list of priorities. But the problem is a complex and hugely difficult one to tackle.
Often municipalities — which have to deliver services, often to people who cannot pay for them — are saddled with huge debt to Eskom and water boards.
Because they fail to manage revenue properly, sometimes on purpose, municipalities don’t have the money they need to maintain infrastructure, crushing local economies.
When municipalities fail to deliver services, and when the economic conditions deteriorate, ratepayers are even less likely to cough up their hard-earned cash. Add to this a sophisticated network of corrupt politicians, businesspeople and bureaucrats all conspiring to make a quick buck and you have nothing short of poison.
A year ago, then treasury director general Dondo Mogajane told parliament that his department could not cope with the overwhelming number of municipalities (170 of 257) in financial distress.
And so, like the Eskom debt relief, the treasury’s goodwill towards municipalities is conditional.
The most stinging of these conditions, at least insofar as consumers are concerned, is that municipalities must demonstrate that they are cutting off or restricting services to households that fail to pay their water or electricity bills, unless the defaulter is registered as an indigent consumer.
Given the economic conditions and that administered prices, such as electricity and water tariffs, are pushing up inflation — making it even more difficult to afford food and other necessities — this condition could be disastrous.
But the treasury’s work is necessarily diabolical. After all, it does have the unenviable task of browbeating the rest of us into complying with economically crushing austerity. The thing is, our willingness to oblige also comes with conditions. And if the state oversteps, it could — like the rest of us — find itself in an untenable position.