What to do with Eskom? Going beyond and behind the seemingly obvious solutions

With the headline “ANC NEC finally admits water is wet”, Daily Maverick’s newsletter of 9 July 2022 reported that the "ANC has finally admitted that it needed to look for a power solution beyond Eskom”. Can there really still be anyone who would seriously question this assessment? The answer is: Yes.

Beginning with internationally renowned academic Jason Hickel. Asking the pertinent question, “what would it look like if we treated climate change as an actual emergency?” he notes that it is still possible to keep global warming below 1.5°C. But, he hastens to add, this possibility is conditional on climate change being treated as an actual emergency.

In his words, this “requires us to be honest with ourselves about the reality of what has to change. No fairy tales.

“First, we have to nationalise the fossil fuel industry and the energy companies, bringing them under public control, just like any other essential service or utility. This will allow us to wind down fossil fuel production and use in line with science-based schedules, without having to constantly fight fossil capital and their propaganda. It also allows us to protect against price chaos, and ration energy to where it’s needed most, to keep essential services going.”

Hickel’s nationalisation call is made to the developed world.

In South Africa, Eskom is supposedly already nationalised. Indeed, that is virtually the unanimous understanding of what’s wrong with Eskom, notwithstanding government rhetoric to the contrary. In the US, most electricity is supplied by privately owned utilities. However, many of them have an explicitly public service mandate.

Eskom, by contrast, is publicly owned but with a private company mandate. A brief history of Eskom is required to remind us of how this seemingly bizarre condition came about.

Such a history was recently provided by Pravin Gordhan, Minister of Public Enterprises, at a public meeting at Wits University. Tellingly, Business Day ignored the history and instead reported on him being heckled during the Q&A session that followed his presentation.

Gordhan’s history of Eskom – ignored by the media in general but not by eNCA, which gave live coverage to much of his presentation – began in 1994, with Eskom’s widespread praise for providing the cheapest electricity in the world (albeit it to the white minority only). Indeed, it was this very cheapness that caused Eskom’s descent from world leader to the disaster of today.

The minister reminded his audience that the Energy White Paper of 1998 warned that new electricity power stations were required by 2007. If this did not happen, the White Paper predicted that Eskom would not be able to meet the electricity needs of the expanding South African economy; an expansion that included providing electricity to those excluded by apartheid.

The corporatisation of Eskom followed in 2001 with the Eskom Conversion Act. In terms of this Act, Eskom was converted, in 2002, into a company under the Companies Act, with the ultimate goal of listing on the stock exchange.

Eskom’s intended privatisation was entirely consistent with the government’s ditching of its Reconstruction and Development Plan (RDP) and its embracing of the new macro-economic policy, known as GEAR (Growth, Employment and Redistribution), both of which happened in 1996. Gordhan’s history did not include the Conversion Act or GEAR. Also excluded was the fact that the intended privatisation was spelt out in the aforementioned 1998 Energy White Paper.

What the minister’s history did clearly include was the fact that the expected private investment in the new power stations never materialised. Gordhan explained this was because Eskom’s electricity was far too cheap to be sufficiently profitable for private investors. The disastrous Medupi and Kusile power stations are the government’s belated 2008 response to this unexpected rejection by the private sector of the government’s public invitation.

This rejection has now also become part of the rewrite of this particular history. For instance, DM168 editor Heather Robertson attributes the fatal delay in building new power stations to an “ideological battle in the ANC between those who wanted to privatise Eskom and those who believed it should remain state-owned”. According to her, the battle was won by Jacob Zuma who “charged ahead with supposed state-led development, which turned out to be State Capture”.

The private sector – the so-called Independent Power Producers (IPP) of renewable energy – are again now being courted. This time, however, the government’s invite is endorsed by virtually everyone having experienced the most recent Stage 6 blackouts. But, notwithstanding the enormous increase in the price of electricity, it is still too cheap – yes, too cheap! – to attract capital driven by profit maximisation.

Meridian Economics, the highly regarded energy consultancy, has detailed the enormous range of incentives and other measures required to guarantee the “partnership” with the private sector. For instance, apart from the lucrative 15-year power purchase agreements for what is supposed to be a two-year emergency, Meridian suggests that if those companies that won bids in window 5 are going to bring their bids to finality, they should be awarded an additional 30% increase on the original price they agreed to build their plants.

Unlike the earlier debacle when the private sector failed to be seduced, this time there will be no danger of another rebuff. The National Planning Commission has already endorsed Meridian’s recommendations and has even proposed the revoking of all “red tape”, such as “local content requirements” – meaning jobs for South African workers, and orders for South African companies – that are said to stand in the way of the rapid deployment of IPP generation of electricity.

The cost of these recommendations is enormous. They are merited only because they are dwarfed by the ongoing cost of rolling blackouts. Be that as it may, at least some of these costs will end up with the already unaffordable electricity being even more unaffordable for more people.

Renewable energy is indeed the future, if climate change allows a future. Privatised renewable energy, however, cannot provide either the pace or scale required for a future world still hospitable for human habitation. Australia is the most recent example of the social failure of privatised electricity, with Mexico being an important example of a government attempting to re-socialise electricity as an essential public good. One thing rolling blackouts affirm is the need for electricity. But the electricity has to be affordable for everyone.

Research undertaken by PARI’s Energy and Society Programme has highlighted a number of important issues: Firstly, a significant percentage of South African households cannot afford to pay for even small amounts of electricity without sacrificing expenditure on food and other basic essentials. The effective result is that electricity – rather than being a facilitator of socioeconomic development – is contributing to the impoverishment of households.

Secondly, the Free Basic Electricity (FBE) programme, which was specifically intended to ensure that all households had access to sufficient electricity to improve their lives, has been a dismal failure. The current amount of FBE (50kWh) is far less than that required to meet even the most basic of household requirements.

Even worse, only a fraction of households that should receive the benefit actually do. Approximately 11 million households are funded in the national budget for the package of free basic services, but fewer than 25% of that number actually receive any of these free services. This failure is due in large part to the fact that many local municipalities are not providing free services to the same number of households as are funded in the national budget (and for which the funds are transferred to local government). 

Households supplied by Eskom can receive free units only if their municipality has registered them as indigent and passed that information over to Eskom. Without this official exchange of information, Eskom has no discretion to provide the free units, since the programme is administered by local government.

Eskom bills municipalities for any free units provided, which municipalities should then pay from the FBE allocation received from the national budget. Eskom directly supplies around half of all households and probably supplies a much higher percentage of poor households, as a result of historical township electrification programmes.

However, only around 800,000 households currently receive free electricity units from Eskom, almost certainly because qualifying households are not being registered by municipalities. The result is that millions of households who are customers of Eskom are not receiving the FBE allowance, and Eskom itself is being deprived of billions of rands in revenue as a result.

Increasing the FBE to at least 200kWh would, at once, be hugely beneficial to both millions of South Africans and Eskom. This six-fold increase – suggested more than 12-years ago by research by Earthlife Africa – would be a major state contribution to addressing poverty, with a range of consequential effects on health and education for starters.

Eskom workers would also be beneficiaries of the new FBE. This would mean that the two main trade unions at Eskom – the National Union of Mineworkers (NUM) and the National Union of Metalworkers of South Africa (Numsa) – would support the call for a minimum of 200kWh of FBE. In further support of this expectation is that both unions are already opposed to the privatisation of Eskom, which is heralded by the announced breakup of the utility.

A major reason given for the unbundling of Eskom is its enormous debt. This issue has been extensively covered by the Alternative Information and Development Centre (AIDC), which points out that 20% of Eskom’s debt is to the Government Employees Pension Fund (GEPF), an amount of R82-billion in March 2021. To service this debt, Eskom pays some R8-billion to the GEPF.

However, such is the enormous size of the GEPF’s assets that it does not need this money in order to cover its actual pension obligations. The GEPF has also lent R489-billion to the Treasury, from which it gets some R45-billion in interest income from those loans. This, too, is vastly surplus to the GEPF’s needs as a pension fund.

The funds of the GEPF are currently valued at R2,091-trillion. Capital flowing into the funds from workers’ contributions and interest on investments realises a surplus each year. For example, in 2020/21 inflows totalled R159-billion while payouts to beneficiaries was just R109-billion realising a surplus of R50-billion. Similar surpluses have been realised annually ensuring a ballooning fund, available to address urgent social and national priorities, not least shifting our economy to a low-carbon path.

AIDC has long been suggesting that GEPF’s loans to government and Eskom can be renegotiated in a multitude of ways to meet current public interest needs. After all, the GEPF is a public sector entity “owned” by the state. One simple example would be for Eskom to stop paying any interest to the GEPF for 10 years.

A de-corporatised Eskom with a public good mandate for electricity to be recognised as an essential human need is not only possible but a must if climate change is to be addressed with the appropriate urgency and if the amount of FBE is to be increased to 200kWh.

The private sector does not have to apologise for its imperative of profit maximisation: it is inherent in the way capitalism works. But it needs to be understood that this profit-maximising dynamic accounts for much of why Eskom is in today’s mess. And this is without saying anything about the outsourcing – privatisation – without which there could have been no plundering of Eskom.

All of this – and more – is detailed in the booklet Eskom Transformed – Achieving a Just Energy Transition for South Africa that is based on joint research by AIDC, NUM, Numsa, the New York-based Trade Unions for Energy Democracy and the Amsterdam-based Transnational Institute.

Bringing that booklet up to date by addressing the current, multiple and daily electricity disruptions, are the real alternatives to the rolling blackout crisis. There are sustainable alternatives other than bowing to the profit needs of the IPPs and their financiers.

First, the government can take measures that facilitate the direct procurement of renewable energy generation capacity, bypassing capacity auctions and long-term power purchase agreements. The IPPs prefer power purchase agreements, which are expensive and becoming more expensive, not less. The government need not purchase electricity by way of 15- or 20-year deals that guarantee profits for wind and solar developers. Instead, it can purchase wind turbines and solar panels from global suppliers and take charge of the installation, operation and maintenance itself.

To establish transparency, government can authorise the creation of an “observatory” consisting of representatives of Eskom, municipalities, unions, small businesses, and environmental groups to assist in addressing the crisis of blackouts in ways that are consistent with the need to transition to a low-carbon energy system and to do so with the urgency demanded by climate change.

Let’s not forget the international dimension. The government can insist that the EU, US and the UK immediately honour their commitment to mobilise $8.5-billion of financial assistance to accelerate the transition away from coal. However, this financing must be grant-based and free of privatisation-focused conditionalities. It can be used as a down payment on new wind and solar capacity that can be deployed to address rolling blackouts in ways that are cheaper, faster and fairer than the current approach has turned out to be. But the government must first accept the fact that the private sector is not gnashing at the bit in order to save South Africa from blackouts: its primary, if not only, motivation is to maximise its profits.

It is readily acknowledged that writing about transforming Eskom is considerably easier than actually transforming the power utility – even if one were to be persuaded by the arguments advanced above. But realistic hope is rooted in those arguments.

And, as the late Archbishop Desmond Tutu observed:

“Despair can come from deep grief, but it can also be a defence against the risks of bitter disappointment and shattering heartbreak. Resignation and cynicism are easier, more self-soothing postures that do not require the raw vulnerability and tragic risk of hope. To choose hope is to step firmly forward into the howling wind, baring one’s chest to the elements, knowing that, in time, the storm will pass.” DM

Jeff Rudin is a Research Associate at the Alternative Information and Development Centre (AIDC). Sean Sweeney is the Director of Trade Unions for Energy Democracy and an AIDC Research Associate. Brian Ashley is a member of AIDC and of the Amandla Editorial Collective.