After the severe power cuts in recent weeks, President Cyril Ramaphosa promised an emergency energy plan.

Can a solution to this crisis be expected when the ANC has failed to deal with the problem for the past 15 years?

All along, the ANC has tied itself in knots over Eskom, with frequent new boards doing little about ongoing corruption, and overall poor management. The problem has always been a combination of cadre deployment, a staff complement way over what is required, corruption, bad procurement, and much more.

A free and competitive energy market gives the best hope for a solution to the energy mess. Yet this would put the backs up of the unions and patronage networks who benefit from Eskom as it now stands. What has changed in recent weeks is the sheer severity of the crisis. That could push Ramaphosa to embark on serious reforms, but the odds are against this. The ANC just cannot step away from its ideology and patronage politics, which deliver̶ many Eskom jobs and massive contracts.

As power cuts drag on, the ANC’s chances of falling below 50 percent in the national election in two years’ time rise. Frequent and long power cuts act as a constant reminder that the ANC is unable to deliver. It also contributes to a sense of deep unease and lack of faith in the future in the country. Perhaps there is a lesson the ANC can learn from Cuba. In Cuba, power cuts last year led to the largest anti-government protests since the 1950 revolution brought Fidel Castro to power.

What is the yardstick by which the Ramaphosa emergency energy proposals should be judged? The ultimate test will be the extent to which the private sector is given leeway to invest in generation projects of any size. Another is whether the operation of some Eskom power stations is handed over to private firms.

Solving the crisis requires that responsibility for generation, transmission, and distribution be taken away from Eskom. It is a high-cost operation that is simply not fit for purpose. The private sector must be allowed to build new generation capacity that is not restricted to the present 100MW capacity. There should be special expedited processes to deal with regulatory hurdles, labour disputes, and other key problems.

Rented out

A speedy resolution will also require Eskom’s fleet to be sold off, or at least rented out to independent operators. The frequent need for unplanned maintenance shows it cannot do the job effectively on its own. With a proper incentive, private sector operators have a chance of doing far better than Eskom.

The organised body of big business in the country, Business Unity South Africa (BUSA), stops short of suggesting that Eskom be ultimately disbanded and that the private sector take over entirely. They want it to be a lot easier for the private sector to invest in generation capacity, an end to the 100MW restriction, and a cut in red tape. They also want rapid approval times, a suspension of local content rules, ways to better enable public-private transmission partnerships, and ways for independent producers to easily feed into the grid. And they are insisting that Eskom deal with theft and sabotage, which are rife at its stations.

Reform will have to mean cutting staff at Eskom. For the ANC, this could be one big reason why a plan that will work is unpalatable. Some time ago the World Bank called for the Eskom workforce to be reduced from around 46 000 to a little above 14 000  ̶  a cut of 70 percent.

The Institute of Race Relations has proposed an end to black empowerment conditions for power generation projects. This would cut out middlemen between the original equipment manufacturers and the purchaser, and help reduce costs. And ending empowerment ownership requirements might make it easier to attract investors into the sector.

But reform of the energy sector will be tortuous. It will be costly to the unions and the ANC patronage network, and the ANC will lose face when it sees its statist solutions abandoned.

Second Eskom

Last week, in a bizarre turn before releasing his plan, Ramaphosa came out in favour of creating a second Eskom. The idea behind this is to provide competition for Eskom. Why this competition cannot come from the private sector is unclear. Many countries across the world have highly competitive energy sectors, and cases of market failure are rare.

The idea for Eskom 2.0 was put forward last week by Gwede Mantashe, Minister of Mineral Resources and Energy, in a speech to a South African Communist Party conference. It was later backed by Ramaphosa in his address. This just might be a political sop to the communists and trade unionists, ahead of the ANC elective conference in December. Ramaphosa wants a second term as ANC President and Mantashe wants to be re-elected as Chairman. At face value the proposal is a means of paying off ideologues who do not want to see a diminished state role.

What the proposal does show is that after 28 years in office the ANC has learned nothing from the failure of most of the public enterprises. The entire saga of power cuts in South Africa is a strong argument against state ownership. With Eskom 1.0 and 2.0 probably having to rely on bailouts, this would hardly bring about greater competition in the sector.

Even with an emergency plan, we are likely to face load-shedding for at least the next decade. Eskom says it must invest in 50,000MW of new capacity over the next 13 years. That is in excess of its present rated capacity of a little below 46,500MW. Its power station fleet is over 40 years old and most of its fleet will have to be replaced in the next decade.

Coal- and gas-fired power stations can take around six years to complete and nuclear stations take around seven years to commission, assuming good project management. The banks are not keen on financing coal-fired plants, so new builds of size will have to be either gas-fired or nuclear. Renewable power projects can come on stream far more quickly. A solar farm that can generate up to 100MW takes about 12 months to complete. Installing sufficient battery capacity to ensure that the power is always on is expensive, but a massive investment in renewables could at least help ease our plight.

Narrow the gap

BUSA says it is possible to add about 15 000 MW in new generation and 4 000 MW of battery capacity by the end of 2024. That could help narrow the gap in what is required to avoid load-shedding, but with power stations being forced to shut due to old age and poor maintenance, far more new capacity will be required.

While many homeowners have resorted to solar panels and batteries, it could be far more efficient for neighbourhoods to produce their own power at scale. Sheer desperation could soon push neighbourhoods to make a plan with or without government permission. And the government itself might just turn a blind eye to those who do so without permission.


The views of the writer are not necessarily the views of the Daily Friend or the IRR

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Jonathan Katzenellenbogen is a Johannesburg-based freelance financial journalist. His articles have appeared on DefenceWeb, Politicsweb, as well as in a number of overseas publications. Jonathan has also worked on Business Day and as a TV and radio reporter and newsreader.