Unbundling - are the Oligarchs coming for Eskom?
By Hügo Krüger
With the recent appointment of the board of the National Transmission Company of South Africa, the government is continuing its journey toward "liberalising" the electricity market, inviting “private” investors to play a role in new electricity generation.
A propaganda narrative is circulating in the media, asserting that the traditional public utility model is “outdated”. They advocate for “private” sector involvement as the key to the future. There are claims that South Africa trails at “least two decades” behind the global trend in “restructuring” Eskom, all while assuring the public that "Eskom isn't being privatised” or that “the coal fleet is too old” and that they “cannot be maintained”.
Even though these claims are false, they seem to be persuasive to those who are going to benefit from the situation. Why would they stick to the facts if their pocket depend on them not being true?
So, if the path to privatisation isn't openly paved, why are these slogans being repeated? The constant refrain suggests a lack of transparency and a high level of deception, with figures like Minister Kgosientsho "Sputla" Ramokgopa and Minister Pravin Gordhan seemingly running out of people to lie to.
A quick 5-minute dive into the literature of unbundling reveals that it is an obvious first step toward privatizing the public utility. Gordhan's actions to push through these reforms are aligning with the Department of Public Enterprises' original purpose, conceived by President PW Botha toward the end of apartheid, when he sought to introduce 'Bothaomics' after he wanted to implement Margaret Thatcher’s Privatization Reforms in South Africa.
With this history in mind, I hold no dogmatic views against privatisation. I do acknowledge its success in various wholesale markets globally like Texas and Alberta. But I do note that the government of South Africa is falling back on “censorship by omission” as they are trying to push through the unpopular Electricity Regulation Amendment Bill (B23-2023).
Key facts such as these should challenge the official dogmatic claims regarding “unbundling”:
– Claims of 110 countries having an unbundled system overlook the stark reality that 90 countries do not. Unbundled Zimbabwe performs notably worse than fully vertically integrated utilities in Botswana and Namibia.
– Russia's electrical wholesale market, controlled by Oligarchs, should challenge the simplistic notion that privatisation necessarily guarantees success or that we should look towards “the BRICS countries”.
– Vietnam, with a fully nationalized vertically integrated utility, for example, outpaced China in gross domestic product growth per capita over the last decade. Why is this an “outdated” business model?
– The World Bank's 2020 publication titled, Rethinking Power Sector Reform in the Developing World, makes it clear that countries that unbundle do not necessarily enhance their security of supply. If true, why is unbundling going to alleviate load shedding?
– The World Bank further notes that countries that walked back on unbundling, such as Senegal and Odisha in India, are some of the worst-performing utilities in the world.
– How are bankrupt and dysfunctional municipalities going to be able to pull off auction trading? A system so sophisticated that it doesn’t even exist in most of Canada and one third of the US?
Is South Africa gambling on being an exception to this rule in our quest “to solve load shedding”? Are there guardrails against these risks? Load shedding is a problem so simple to solve that it only requires sending out a tender for 5GW of excess capacity where there is grid space available, and a political will to overhaul the coal fleet. Why didn’t the three ministers on top of Eskom figure this out in nearly five years?
Moreover, with nothing preventing Eskom from using power purchase agreements to alleviate load shedding currently, the haste in pushing through the Electricity Regulation Amendment Bill (B23-2023) ahead of the elections should make us all sceptical of the government’s true intentions. Why the rush to bring in the rent-seekers?
South Africa’s biggest investor in the energy market is Patrice Motsepe, the President’s brother-in-law. Motsepe employs Brian Dames, a former CEO of Eskom, who now sits on the World Economic Forum. Dames went to Parliament in 2017 to oppose more “nuclear power” and shortly after Ramaphosa came to power. Is this a coincidence?
Unfortunately, Motsepe is not alone in being a rent-seeker standing ready because the former chief operating officer Jan Oberholzer also recently jumped to “the private sector” and notably works for Mulilo Energy, which is owned by the Oligarch Chris Aberdein.
The Independent Power Producers are not truly independent and should rather be called Eskom’s subcontractors because Eskom acts as a middleman for them with the bids being determined by the Department of Minerals and Energy. They were introduced by Motsepe’s other brother-in-law Jeff Radebe, who described the subcontractors in 2018 as “a milestone following a long period of uncertainty”.
Questions surrounding their procurement costs and contracting nature still linger, especially with 21 out of the last 25 bids, during Bid Window 5, going to one broad-based black economic empowerment company, H1 holdings. The tariffs were so low that even advocates of renewable energy at the University of Cape Town questioned the deals that took place during Bid Window 5. Is this the “private” sector that is supposed to solve the rolling blackouts?
Eskom’s former CEO, André De Ruyter said that “you cannot steal the sun”. Why did De Ruyter appear so uninformed about the rent-seeking at the renewable bids?
As 16GW, nearly one-third of Eskom’s units, face unplanned capability loss, its effective bankruptcy will hamper its ability to compete with the private sector. The concentration of South Africa's coal units in Mpumalanga makes them vulnerable to the potential consequences of bankruptcies.
The fallout that occurred at the Komati Power station might be a precursor to what awaits the entire fleet. Potentially there will be a union backlash as Eskom generation and coal mining communities grapple with the realities of "unbundling" that, in effect, would mean that they would be out of their job.
Ramaphosa's apparent alignment with those “private investors” that are invested in renewable energy only should raise questions about the direction in which Eskom is headed.
While Eskom could be revitalised by simply setting out a tender for new generation capacity and for its leadership to commit in law to fixing the coal fleet, the reluctance to pursue this path suggests ulterior motives.
Are these policies, such as the handsome loans for new transmission lines that will span 60% of the distance around the earth, paving the way forward for the oligarchs to buy Eskom for scrap, as the very institution that once worked efficiently when it was an independent organ of state is deliberately dismantled?
The potential influence of oligarchs on Eskom is a growing concern, with Ramaphosa seemingly aligning the trajectory of South Africa with patterns seen in states like Russia, Zimbabwe, and Lebanon, where a state-mafia dynamic has taken root after their power utilities were “unbundled”.
The blessings of “the private sector” led to a loss of life expectancy during peacetime and women having to go into prostitution to make a living.
Mandela’s rainbow nation vision didn’t intend for both white and black oligarchs to rent-seek in the country with the highest inequality in the world. Yet, unfortunately, our government seems to be keen on taking us on that path as they implement “structural reforms” while maintaining the grand lie that Eskom isn’t being prepared to be sold for scrap.
Hügo Krüger is a YouTube podcaster, writer and civil nuclear engineer who has worked on a variety of energy-related infrastructure projects, ranging from Nuclear Power, LNG and Renewable Technologies. He holds BEng Civil Engineering, MSc Nuclear Civil Engineering.
* The views in this column are independent of Business Report and Independent Media.
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