Nationalise Eskom now!

When the government backed off from selling 30% of Eskom some years ago I was relieved. I knew that the wheel would turn, as it always does, and Eskom would change from being loved to being loathed, as it was in the early 1980s. It emerged a stronger organisation from that time of intense animosity.

Whether it deserved quite the degree of glory or of opprobrium is another question. Anyway, I knew Eskom’s fortunes would fade some day and when that happened we would all be glad that privatisation wouldn’t simplistically be fingered.
Apparently, not. I read in a new magazine Amandla! that privatisation is to blame after all.

And not just privatisation, but “creeping privatisation”, according to researcher and activist Stephen Greenberg. So perhaps we should nationalise Eskom. Oh wait, it’s already owned by the government …

No, I’m not saying I predicted the current (unintentional pun) crisis. I knew capacity would run out, expensive investments would have to be made and the consumer would have to pay for it.

I knew these things becase the organisation of which I was a director, BusinessMap, had in 2001 produced a research study on the electricity-supply industry of the economic and social effects of restructuring. It showed that whatever happened, electricity prices would rise. Whatever degree of deregulation government adopted, or whether it kept things pretty much the same, electricity prices would have to rise because in 2007 electricity generation capacity would run out.

I knew a small but dedicated and vocal number in South Africa would have a God-given scapegoat if any privatisation took place at all.

The ANC had tended to be cautious about privatisation anyway. After a big push to part-privatise Telkom and show that South Africa was open for investment, the privatisation drive fizzled out.

When privatisation as an idea was discarded — though not always in practice — the government was rather proud of some its state-owned entities (SOE), particularly Eskom. Eskom was returning money to the state in dividends.

Eskom, particularly, could be held up as an SOE that worked. It was profitable. It provided reliable and cheap electricity. It was efficient. It practised affirmative procurement and affirmative action.

By contrast, deregulation in California had led to blackouts. We knew what we were doing in South Africa.

All well and good, but a combination of factors somehow seem to have dimmed Eskom’s vision and government’s planning capacity and stopped Eskom investing in time. In part unexpected economic growth may have been a reason for being caught out, though one can ask where was the vision for a future of plentiful and still cheap electricity?

After all, it is not as if the whole country is electrified yet. Also, a lot has been riding on cheap electricity, including the Coega aluminium smelter, which was the rationale for the enormous sums spent on this deepwater port outside Port Elizabeth.

How do you keep prices down except by investing steadily in new capacity so that demand spikes don’t take you by surprise? I don’t see SABMiller having to turn beer drinkers away because of economic growth.

What was Eskom doing when privatisation of 30% was envisaged? Greenberg swallows the line that government prevented Eskom from investing. I don’t remember Eskom making much noise about that. And isn’t that even more reason to favour private-sector involvement in electricity generation (not transmission)? Governments are not as flexible as the private sector in reading market signals.

A plan was announced in about 2004 to have Eskom deliver 70% of required additional generation capacity, with the remaining 30% of required capacity to be provided by Independent Power Producers. The plan was for BEE ownership of about 10% of that private-sector capacity.

Now Greenberg says that depending on the private sector to come in is a problem because they need higher prices to justify investment. The reasoning is that Eskom will somehow be able to afford to spend less on investment than the private sector would. I see the argument: government could run Eskom at break-even, and thus could supply cheaper electricity.

There is one big assumption here, and that is that an organisation that does not have profit goals will necessarily be run efficiently enough not to be a burden on the state. More likely is that the taxpayer ends up funding an inefficient organisation, so instead of Eskom paying tax and dividends to government, government pays our tax money to Eskom and gets no dividends. Electricity would look cheap, but it wouldn’t really be so.

I don’t know how happy Eskom would be if it really got competition from private-sector players who could invest big sums, not just in expensive gas-turbine plants for peak power, but the kind of massive power plants that Eskom puts up.

We should definitely be glad that Eskom was not privatised, however. And I mean privatised fully, or part privatised in the same way as Telkom, where the investors who bought 30% seemed to be actually running the company to take full advantage of its guaranteed monopoly and the majority owner, government, had no say whatsoever.

Privatisation without deregulation and competition is disastrous. By experience we know that a private monopoly is far worse than a state monopoly.

But as we can see, state ownership is no guarantee even of reliable supply, let alone cheap electricity.

As an aside, why did no journalist pick up on these problems before the lights went out?

This is a topic I may take up in my other blog at the Rhodes Journalism School’s New Media Lab site. The site has a lot of interesting writing about journalism and the media in general, especially new media. Take a look.

PS. Thanks to those who left comments on my previous blog about BEE and Fronting. Good to see that I had hit on a topic that pricked up people’s ears.