Time to find common ground on Eskom’s future

Given the government’s track record of promising much but delivering little, it would come as no surprise if the announcement of a new electricity pricing policy by electricity & energy minister Kgosientsho Ramokgopa this week was met with a dose of scepticism.

Still, it could not have come too soon, because it is a long-standing consensus that our unsustainably high power prices are acting as a dead weight on the economy while having a deleterious effect on household finances.

Announcing the change, Ramokgopa conceded the negative impact of runaway price escalation, with tariffs having soared more than sixfold above inflation in the period since 2007. The electricity price, he said, was “undermining the competitiveness of our industries” and “eroding the disposable income of households”.

These are sentiments South Africans are familiar with. The difference is that the government seems to have at last taken the problem seriously enough to act on it with some urgency. What the country would like to see is the government going through with the implementation of the new policy.

Business will welcome the proposal for the National Energy Regulator of South Africa to publish a 10-year price forecast, which should provide a measure of predictability when it comes to investment decisions. Also to be commended is the envisaged consumer relief, particularly for poorer families, which raises the allocation of free basic electricity to qualifying households from 50kWh to between 200kWh and 300kWh a month.

Save for the sequencing and speed with which it must be carried out, there seems to exist no fundamental dispute over South Africa’s chosen path to unbundle Eskom’s transmission assets into a separate grid company

In the face of the country’s high unemployment, which affects poorer households’ ability to pay for much-needed electricity, the intervention will go a long way to relieving pressure on that struggling sector. At the same time, the country will have to find a solution to the elephant in the room, the culture of refusing to pay even by those who can afford to do so, and the ability of Eskom, supported by the government, to collect its debt. This is important in a context where previous decisions to write off electricity debt owed by sections of the population have simply begotten more unpaid debt for Eskom.

Of course, any conversation about power tariffs cannot be in isolation from the current and future status of Eskom itself, which continues to enjoy an effective monopoly and remains a key factor in the market. In particular, the decision to relocate Eskom’s transmission assets, which contribute substantially to its revenues, has generated much heat of late, with Business Leadership South Africa CEO Busisiwe Mavuso accusing the Eskom leadership of contriving to stall the utility’s restructuring, which they deny.

Yet save for the sequencing and speed with which it must be carried out, there seems to exist no fundamental dispute over South Africa’s chosen path to unbundle Eskom’s transmission assets into a separate grid company. There appears to be agreement among key stakeholders that the process must take into account several concerns, including:

• the fate of Eskom’s estimated R114bn municipal debt;
• its financial stability; and
• the potential impact on the utility’s creditors.

And while Eskom’s current generation surplus may be viewed positively in the light of recent load-shedding problems, it is in large measure the result of business and household consumers going off the Eskom grid and instead making private supply and generation arrangements, a shift that is bound to have negative consequences for the utility’s revenue base in the medium to long term.

Given these factors, it behoves leaders in government, the private sector and Eskom itself to find common ground on protecting Eskom’s sustainability — and the best and quickest path to making the utility more efficient in playing its key economic role in a fast-changing market environment. This must be done for the good of the economy, the country and its people, rather than narrow sectoral vested interests.

Public bickering among leaders will only help erode confidence in the changes required for Eskom, including its imminent unbundling.