Time to stop South Africa’s state-run electricity firm crippling the country

15 Jan 19

South Africa has recently been plagued by controlled power cuts organised by the single, state-owned electricity provider Eskom - a firm integral to the country’s economy but mired in accusations of corruption. Opposition MP Natasha Mazzone argues it should be broken up.

 

The year 2018 was characterised by a sustained financial attack on the pockets of all South Africans.

With increases in petrol tax, VAT, sugar tax, personal income tax, and ‘sin taxes’ – more and more money is being taken away from hard-working South Africans. 

Another costly expense for South Africans has been the increase in electricity prices with Eskom wanting a further 15% increase after the National Energy Regulator of South Africa granted the firm a 4.41% price increase for 2019-20 and approved a 5.23% average price increase that came into effect at the beginning of April this year.

Over the past decade, Eskom’s electricity prices have increased by about 356%, while inflation over the same period was 74%, which means that electricity prices have increased four times faster than inflation over the past 10 years.

This is due to a wide range of factors, with the most systemic cause being a complete lack of competition in the energy sector. Government has a monopoly which breeds inefficiency, rampant corruption and maladministration. This cannot continue any longer.

Moreover, it is not just South African families who are affected by this. Affordable, uninterrupted and reliable electricity access is a bare essential requirement for businesses to operate – especially SMMEs – which are the creators of much-needed jobs for the almost 10 million unemployed South Africans.

Shortly after the economy went into recession, I, as shadow minister of Public Enterprises, announced the Democratic Alliance’s plan to get the economy growing.

Part of this 7-step ‘Agenda for Reform’ is a plan to end Eskom’s monopoly by splitting Eskom into separate power production and distribution businesses, while at the same time allowing cities to purchase directly from Independent Power Producers.

We have formally introduced and unpacked the DA’s private members bill, namely The Independent System and Market Operator Bill – the ‘ISMO Bill’. We believe the ISMO Bill is a key component in our plan to revive our economy, fast-track growth, and open up access to new jobs.  We colloquially call it the “cheaper energy” bill. 

It goes without saying that the only way to keep the cost of electricity down for consumers is to introduce competition in the electricity market. Our ISMO Bill aims to achieve this by legislating the creation of an entity that is:

  • financially sound;
  • has efficient systems management;
  • acts as an electricity trader;
  • guides electricity supply and transmission planning;
  • is responsible for the integrated power system; and
  • will dispatch within this integrated system.

The bill envisages the establishment of an independent body owned by the state tasked with buying electricity from electricity generators.

The operator will function as a wholesaler of electricity that sells electricity to distributors and customers at a wholesale tariff. ISMO will function independently to electricity generation businesses to ensure fairness between generators, encouraging competition and innovation.

ISMO’s functions and capabilities include:

  • buying power from generators including IPPs through a power purchase agreement;
  • its operating cost being factored into the wholesale tariff in line with the regulator’s approval;
  • ensuring that the new electricity produced by generators is incorporated into the national electricity grid and circulated to consumers; and
  • when required, assisting with planning as requested by the minister of energy.

A crucial objective of the bill will be to allow metropolitan municipalities with a proven history of good financial governance and electricity reticulation management to trade with electricity generators directly, buying electricity straight from the source. In the spirit of accountability, the processes involved with such procurement will be required to be transparent, and any agreement concluded will be required to be the result of a competitive bidding process. Metropolitan municipalities that have shown themselves to be capable of good governance will be allowed to manage their energy requirements without being dictated to by national or provincial government.

This is a major boost for consumers, businesses and entrepreneurs in South Africa’s major cities, which aligns with the DA’s “city-led growth” agenda. The DA has refereed the bill to Parliamentary Legal Services and issued a call for public comment to be published in the Government Gazette. Thereafter, ISMO will be tabled in the National Assembly.

The failed ANC government appears to be unwilling to take the tough decisions to fix the current state of Eskom, and electricity generation and distribution in our country. As far back as 1998, in democratic South Africa’s first energy policy, the 1998 Energy White Paper, government agreed that “Eskom will be restructured into separate generation and transmission companies.”

This was followed by a bill to this effect introduced by the ANC in 2012, stalled, withdrawn and then finally binned by the ANC’s National Executive Committee. As recently as last week, finance minister, Tito Mboweni’s, Medium Term Budget Policy Statement made it clear that “Eskom’s weak financial position remains a risk that could lead to a call on guarantees”.

The truth is South Africa does not have another 20 years of parliamentary withdrawals, post-election delays, and reformulations for ISMO to be passed. Eskom is a zombie state owned entity that is so financially precarious that it could pull our entire economy down with it.

Eskom’s most recent coal shortage crisis is so severe that last month’s indication from the utility was that four stations had less than 10 days of coal supply remaining. Corruption, mismanagement of coal contracts and a decision not to invest in coal-plus mines threaten the coal supply of multiple power stations that will ultimately lead to more load shedding and another devastating blow to South Africa’s economy.

The power utility’s plans to take on R212 billion more debt over the next four years from R388 billion to an unprecedented R600 billion while owed over R20 billion by almost 100 municipalities is grossly irresponsible.

The DA’s agenda for reform is in pursuit of a lean and capable state that builds an enabling environment to attract investment in a transparent, market-driven and competitive economy.

Changing failing SOEs like Eskom is the most critical intervention required to create fair access to real and long-term jobs and rapidly speed up the delivery of basic services in South Africa.

The DA’s ISMO bill is one such intervention that is woven into the fabric of our agenda for change to build One South Africa for All, whereby more economic power lies in the hands of South Africans, not a corrupt and failing ANC government.

  • Natasha Mazzone
    Natasha Mazzone

    a Democratic Alliance member of the South Africa Parliament, deputy chair of the DA federal council and shadow minister of public enterprises.

    The DA is the official opposition to South Africa’s current ruling party, the African National Congress.

     

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