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Ferial Haffajee: Gordhan goes 'Made in China' on Eskom’s future

Oct 30 2019 06:12
Ferial Haffajee
Pravin Gordhan speaks during a conference at the D

Pravin Gordhan speaks during a conference at the Daily Maverick event, The Gathering, on November 23, 2017 in Johannesburg. (GULSHAN KHAN/AFP/Getty Images)

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Minister of Public Enterprises Pravin Gordhan followed the lead of China and Vietnam, both communist states with high growth state capitalist economies, in plotting a future Eskom.

Unveiling his Special Paper on Eskom on Tuesday, Gordhan made clear the electricity utility will not be privatised.  He said in a briefing that Eskom had found the Chinese and Vietnamese models offered greatest resonance for South Africa. “Any talk of privatisation is part of the fake news industry,” said Gordhan. 

But Eskom’s structure will be flattened, in a modernising move away from an old-fashioned vertical. Its transmission division will be hived off into a subsidiary of Eskom with its own board. In addition, the Eskom main board will be strengthened by new appointments.

Eskom Tx will be the power hub of the utility responsible, eventually, for both buying power from a variety of sources (both private and public) and then selling it to the distribution business of Eskom.  It will be run as a Transmission System Market Operator.

Internal competition

Eskom’s generation business, largely its fleet of coal-fired power stations, will be regrouped into different and competitive clusters which Gordhan hopes will bring down the cost of electricity as a market for electricity is created.  At the moment, consumers (both business and residential) are sitting ducks as Eskom is a near-complete monopoly.  Monopolies are self-interested, drive up prices and look out for themselves, said Gordhan. 

He said the internal market model now on the table will work, but it would take time to implement and to be passed through to customers. 

The Eskom master plan follows the release of the Integrated Resource Plan by Mineral Resources and Energy minister Gwede Mantashe last week. 

Like that energy blue-print, the Eskom plan also plots a greener future, with a greater role envisaged for renewable energy part of the Eskom mix too.

Eskom is set to appoint a CEO next week, Gordhan revealed. 

Here is the good, the bad and the ugly in the Eskom plan. 

The good

There is movement and it is considered. While Gordhan could provide no detail on Eskom’s R430bn debt bill, a lot of work has gone into how the utility should be shaped for the future. What the plan provides is a degree of certainty. There is provision for an energy mix which coal lobbyists have pushed against like rock-drillers up against a tough seam. 

The labour movement, extremely strong and well-organised at Eskom, appears to have been placated. The energy mix will be almost immediately altered with 2000 MW of capacity to be procured by the Department of Mineral Resources and Energy.

Eskom's promised energy availability factor is above 70% with a clear plan for the rest of summer which should ensure no further load-shedding. A bout of rotational power cuts in October has angered consumers.

The bad

There is no sell-off of anything other than a non-core Eskom property portfolio - so, no privatisation or even private sector participation. The vision is decidedly state-led and influenced by the Chinese growth model in that way. Except there is not a single South African state-led utility or company which has a history of successfully using the model of internal competition for growth: the Internet giant Naspers is built on internal competition but local examples of using the model in state-owned businesses have been dismal. 

President Cyril Ramaphosa’s earlier pledges of introducing competition through private sector participation in Eskom appear to have been benched. This is not to suggest the private sector is superior to public sector utilities (around the world, privatised utility companies have a terrible reputation) but the markets had been primed for private sector participation.   

The ugly

Eskom’s staff complement of over 43 000 workers will not come down. The utility’s staff bill is an albatross but there will be no cuts, Gordhan confirmed. Government can’t be seen to adding to the unemployment burden which grew to an 11-year high, Stats SA revealed this week.

Still, the utility cannot afford its staff. 

Instead, Gordhan and his team hope cost-savings will come from negotiating down the price of coal from miners and also from pushing for better value deals on large equipment. In addition, the tied mines are going to get an R20bn capital injection likely largely from better coal prices which could neuter any coal cost deals struck with the majors.  The utility can’t bring down the costs of its preferential procurement suppliers. 

Tied mines are those on which power stations were built and were run as part of South Africa’s minerals-energy complex.  

While the Chinese model has worked in China, South Africa does not have the dragon's productivity or efficiency record and neither is Eskom super-skilled to make the model work. 

Much of Eskom’s plan is premised on getting residents and municipalities to pay their electricity bills. “Any culture of non-payment is unacceptable in a democracy,” said Gordhan, referring to how a culture of tax payment had been successfully ingrained by a modernised SARS.  

Getting the majority of South Africans to pay for electricity has bedevilled every president since Nelson Mandela.  

* Views expressed are Haffajee's own. 

eskom  |  pravin gordhan  |  mini budget 2019
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