Eskom dilemma: Damned if you do doomed if you don't

Fixing Eskom and the electricity sector must be the most important government mission, writes Hlengani Mathebula

It’s a case of politically damned if you do and economically doomed if you don’t.

In short, that’s the government’s dilemma arising from what to do with the electricity sector, at the centre of which is Eskom.

The state-owned utility accounts for close to 90% of electricity currently generated in South Africa.

Given this conflict between politics and economics, government must manage the reform of the electricity sector and the fixing of Eskom with great skill and care.

Failure to navigate the politics will ensure that the reform process is stillborn, with devastating consequences for the economy.

In this regard, the document, Roadmap for Eskom in a Reformed Electricity Supply Industry, released by the department of public enterprises late last month, sheds very little, if any, light on how government will manage the political issue of fixing the economy at the same time as it reforms the electricity industry.

Government has no option but to fix Eskom’s finances and the company’s technical capabilities.

Various studies have pointed to uncertainty about the supply of electricity as one of the key factors holding back the South African economy.

As Minister of Finance Tito Mboweni said when tabling the medium-term budget policy statement in Parliament late last month, South Africa’s pedestrian growth rate is not enough to meet the promises made in the preamble to the country’s Constitution.

You can bet that, with absent clarity about the future supply of electricity, that growth picture isn’t going to change much.

That’s why addressing the Eskom problem must be the priority for government.

The utility is a burden on government finances on two fronts.

First, government has already committed huge resources to support Eskom over the next decade, the bulk of which has to be spent in the early years.

Second, if Eskom were to fail to meet its debt obligations, which is a growing risk in the absence of any radical changes in how it is managed, government would be called on to foot the bill.

But Eskom delivers another blow to government.

That comes through the economy. Eskom’s failure to guarantee a reliable supply of electricity means that appetites for investing in South Africa are dampened.

It also means that existing investors have to think twice about expanding their current operations in South Africa.

When they do, they have to come up with alternative sources of electricity, including generating their own.

The sum total of all this, and other factors, is slower economic growth that translates into lower tax collection, which in turn means government has to borrow more money from local and international markets to close the revenue gap.

Higher debt means higher interest payments, which in turn eats into the slice of the budget available for government’s social programmes.

With that in mind, fixing Eskom and the electricity sector must be the most important government mission. In an ideal world, that would be the case.

But in the world of politics, such ideal worlds don’t exist. Eskom is caught in a sociopolitical nexus.

As if fixing Eskom and reforming the country’s electricity sector were not complicated enough, the sociopolitical nexus makes it even worse.

Hence, South Africa is doomed economically if government does nothing about Eskom and the electricity sector, but damned politically if it implements even a small chunk of what is proposed in the Roadmap for Eskom in a Reformed Electricity Supply Industry.

To better understand this conundrum, one has to look at the actors that have an interest in what happens, or doesn’t happen, to Eskom and the electricity sector.

There are the users of electricity, including households (both rich and poor) and industry.

There are the suppliers to Eskom and the rest of the sector.

There are Eskom’s own employees (and their trade unions) and those who work for suppliers of coal and other goods and services to the utility.

The state sector – political parties, legislators, regulatory bodies, the executive arm of government and the judiciary – has an interest in what happens in Eskom.

Then there are financiers, both domestic and global, civil society groups and other societal pressure groups.

Each of these groups has its own interests and desired outcomes. They have their own ideologies and mental models of how the world works, or ought to work.

Each comes with its own power and ability to influence what happens, or doesn’t happen, to Eskom and the electricity sector in general.

So, to implement the proposed roadmap for Eskom in a reformed electricity sector, government has to ensure a buy-in to what it proposes from these diverse actors.

All of this has to be done within a particular institutional setting and context.

By institutions, one refers to the laws and regulations as well as the informal rules that govern this country.

Context refers to the social, economic and political environment South Africa finds itself in.

For example, trust in government is very low, the economy is weak, South Africans are poorer and unemployment is at its highest.

This context, especially when set against the history of the debate about state capture, will certainly complicate the reform of Eskom and the electricity sector, especially any proposals that are deemed to benefit the private sector.

Despite these challenges, government has no option but to deliver a much more viable (financially and technically) Eskom.

As the document promises, government has to deliver a viable Eskom in a reformed electricity sector.

So, what does this mean in practical terms?

Well, it calls for a much more concerted and more focused engagement by government with all of the actors in the electricity sector – users of electricity, suppliers, investors, legislators and civil society groupings of various shades.

So far, government has done very little.

It’s not clear what its intentions are, that is, in terms of how deeply and widely it intends to engage all actors to get their buy-in on the reform of the electricity sector.

There’s no doubt that engaging all of these actors will be the single biggest engagement that government has had to undertake, certainly since the dawn of democracy in 1994.

For example, it has to convince those who refuse to pay for electricity to do so at the same time as it seeks their buy-in to the roadmap for Eskom and the reformed electricity sector.

Eskom has its own internal dynamics that make its reform complicated.

These include the fact that the state-owned utility has more workers per unit of electricity it generates than its peers.

There are issues about some of its contracts, whether it be the companies it hired to build its newest power stations, Medupi and Kusile, or the companies that supply it with coal.

Government has to woo the energy regulator too. Thus far, the regulator has been a spoiler, depending on who you talk to.

The regulator, on the other hand, wants to be seen to be acting independently, as its mandate demands.

As history often reminds us, regulators that bow down to political pressure find it hard to straighten up and act independently.

In short, government has its work cut out in mobilising support for the proposed electricity reform.

To complicate matters further, there’s a risk, as is always the case in public policymaking, that the envisaged benefits of reform may not be achieved in full.

Yet, leaving things as they are is no option either. Whether government implements the roadmap or not, too much is at stake.

Hence, a delicate management of the political economy of reforming the electricity sector is called for.

Hlengani Mathebula is the former chairperson of the Eskom Pension and Provident Fund and chairperson of the Black Business Executive Circle

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