Three international energy research organisations have worked with Eskom trade unions to compile a report, Eskom Transformed: Achieving a Just Energy Transition for South Africa. This is the second of a three-part series on the analysis contained in the report, as well as proposed strategies for SA’s energy sector. The researchers argue that unbundling Eskom will only intensify its crises.
No one needs reminding that the only thing Eskom seems to excel at is the generation of crises. The utility has become synonymous with regular load shedding, Gauteng’s continual “load reduction”, enormous greenhouse gas emissions, an enormous debt burden, and steadily increasing electricity tariffs.
Guided by the policy prescriptions of big business, the state has devised a solution to these multiple crises – a process of “unbundling” the utility into three separate entities: generation, transmission, and distribution. But rather than addressing the crises of Eskom, unbundling will serve only to intensify them, further entrenching the devastation that has been caused by the corporatisation of the utility. To truly address the crises, the utility must be decorporatised and restructured as a not-for-profit public utility.
While many commentators have applauded the plans for unbundling, no less than the World Bank has recently warned against adopting such measures in countries with circumstances such as those prevailing in South Africa. In a 2020 report on power sector reform in developing countries, the bank found that unbundling is not intrinsically useful in itself, but should only be used as a precursor to a competitive wholesale power market. It shows that unbundling a utility that already suffers from “weak governance and financial fragility” (such as Eskom) is likely only to exacerbate financial and technical difficulties, as well as forfeit the benefits of economies of scope and scale. The unbundling announced in 2019 is therefore unlikely to ease the utility’s financial woes and will operate mainly as a path towards privatisation.
The unbundling of Eskom is not an isolated aberration, it is indicative of a broader tendency in the state’s approach to service delivery.
Eskom’s corporatisation, beginning in the 1980s and culminating in the restructuring undertaken in 2001, is symptomatic of an approach to service delivery that treats public service entities as profitable business enterprises. Initially founded as a “not-for-profit” public utility, Eskom (previously Escom) was once a world-class utility, driving industrialisation and electrification through inexpensive supply. But the late 1980s apartheid government began a process of corporatising the utility, requiring it to raise capital commercially and dropping the not-for-profit imperative. Eskom’s corporatisation was completed in 2001 with the requirement that Eskom pay taxes and dividends, as well as make a profit.
Structured as a state-owned private company, with the state as the sole shareholder, Eskom became a prime site for corruption and mismanagement. Rather than seeing electricity as an essential need requiring subsidisation, the “full cost recovery” model adopted by the corporatised Eskom has continued to pass the burden of financial mismanagement and corruption onto consumers, as evidenced by a 400% tariff increase over 10 years. The corporatisation of Eskom has increased consumer tariffs and massively inflated its debt burden, all the while failing to create a stable, low-carbon electricity supply.
Consistent with global trends in governance at the time, the 1998 White Paper on Energy Policy laid out a new framework for the South African energy sector, with market competition positioned as the basis for improving generation and access to energy. The role of the state was to intervene only in the event of market failures, to “remove distortions and encourage energy prices to be as cost-reflective as possible”. Rather than the public delivery of a basic necessity then, electricity provision was framed as a matter to be left to market forces, with minimal state interference. Lower consumer prices and increasing electrification were to be realised through “enabling competitive pressures”, a result of the inclusion of private enterprises in the electricity sector.
The reliance on market competition as the backbone of service delivery pricing, a paradigm that continues to this day with Eskom’s corporate structure, comes at the expense of equitable access, environmental protection, and labour rights. A service delivery ethos premised on the virtues of the market is driven not by the assurance of the provision of a necessity; it is driven by the profit motive and provision to those who can pay.
Electricity prices determined by “competitive pressures”, rather than equitability and human need, will inevitably be in the best interests of capital and wealthy consumers, not the interests of those who need electricity for their everyday livelihoods. The unbundling of Eskom, and its eventual privatisation, would serve only to deepen these existing inequalities.
It does not need to be this way. Profit-seeking is not the only principle around which public services can operate. Public utilities have operated on non-profit principles since the beginning of their existence and the profit motive is only a recent trend in service delivery. Most utilities that existed before the late 20th century – among them the pre-corporatised Eskom and Britain’s National Health Service – could be cited as examples of public services based on non-profit motives.
Electricity is a basic necessity, an essential enabler of everyday life. It should be treated as such. Removed from the vagaries of the market, it is possible for electrification to proceed in a consistent, planned, equitable, and stable manner. Continuing to treat electricity as a profitable commodity serves capital, but treating electricity as a public good, included in a new commons, serves to provide it to all.
If the purpose of a power utility is to make a profit, it is likely to charge high consumer tariffs, as is evident in South Africa following the 1998 White Paper and the adoption of a full-cost recovery model. Electricity for profit, or even at cost price, is out of reach for the vast majority of the population. In order to provide for all, electricity must be sold below cost price, subsidised in order to be affordable. State subsidisation of electricity is antithetical to the principles of a profitable company, hence the need for immediate decorporatisation. Disconnections for non- or late payment, automatic meters, and the gradual rise in electricity tariffs are symptomatic of Eskom’s market mechanisms-driven approach, and a failure to treat electricity as a human right.
The restructuring of Eskom comes at a time of a global shift to renewable energy. States, civil society, and private investors, despite their various divergences in politics, are faced with the daunting prospect of the climate crisis, necessitating a transition to low carbon energy sources. Doing so has the potential not only to mitigate the worst effects of climate change, but also to drive a new industrialisation. Eskom as it currently exists, as a corporate state-owned enterprise, is reliant on the whims of private investment to drive the shift to renewables. Falling private investment will impede the rollout of renewable energy, regardless of political will. This has already occurred globally, as the falling cost of renewables has made them less profitable, leading to lower investment.
The rollout of socially owned renewable energy can achieve goals beyond stable electricity supply and the mitigation of climate change. South Africa’s unemployment crisis can be alleviated through the manufacturing, installation, and maintenance of a national renewable energy programme. This stable and sustainable electricity generation capacity can lead the development of public transport, sustainable housing, improved sanitation services, and climate-sensitive manufacturing. The country’s manufacturing sector has undergone a brutal process of de-industrialisation, giving rise to a high unemployment rate, and one of the highest youth unemployment rates in the world. A renewable energy industry, driven by the demands of a large-scale Eskom electrification plan and energy transition, could create millions of well-paid, stable, low-carbon jobs.
The enormous number of jobs in carbon-heavy sectors of the economy such as coal mining cannot be allowed to simply disappear. Rather, the necessary decommissioning of coal-fired plants must be meticulously planned nationwide to ensure a re-industrialisation in affected areas. If left to market forces and a corporatised Eskom, significant areas of South Africa that are reliant on fossil fuel jobs will be economically devastated by a shift to renewable energy. The abandonment of communities left behind by the declining gold mining sector demonstrates what could happen to coal mining communities if energy transition is carried out through market mechanisms.
A similar trend of massive pollution, a complete lack of environmental rehabilitation, and a dearth of jobs is likely to follow in the wake of coal mining’s replacement with renewables if the transition is not planned. Profit-seeking enterprises will set up manufacturing where it is most cost-effective and seek to pay the lowest wages possible while acceding to the minimum required under labour legislation. The transition would be entirely dependent on the promise of return on investment, regardless of social or environmental goals.
The significant potential for jobs in manufacturing will not be generated through a market-based energy transition. This is primarily because it is simply cheaper to import the required technology. The fourth round of the Renewable Energy Independent Power Producer Programme (REIPPP), for example, saw not a single South African-produced solar panel, with the independent power producers all importing panels from abroad. This is despite the fact that South African suppliers did have the capacity to produce all of the solar panels in the fourth round. The layoffs of hundreds of manufacturing workers following the failure of the REIPPP to drive local manufacturing is indicative of what is to come if the market-driven approach to service delivery is maintained.
The liberalisation of South Africa’s economy has locked it into dependence on international trade and foreign investment, preventing the intentional localisation of industries. The restrictive rules of the World Trade Organisation, remaining bilateral investment treaties, and even the much-lauded African Continental Free Trade Agreement erode the state’s sovereign policy space. Within the confines of these international agreements, the intentional creation and nurturing of a local renewable energy technology industry is impeded. A decorporatised Eskom has the potential to challenge the strictures of the global trade and investment regime, creating a global commons through public-public partnerships. The competition-based trade regime, regulated by a framework of trade and investment laws, prevents the subsidies, localisation measures, and state planning that are necessary for tackling climate change, securing adequate energy supply, and ensuring that the energy transition is just.
A publicly owned utility has the potential to intentionally drive a large-scale manufacturing sector, producing solar panels, wind turbines, and all of the other equipment necessary for the mass rollout of renewable energy. Manufacturing plants can be planned in areas currently reliant on fossil fuel jobs, ensuring that any jobs lost in fossil fuels will be made up in renewables manufacturing. If electricity is treated as a public good, rather than a profitable commodity, the corner-cutting of private enterprise can be avoided. High paying, decent work can be ensured if the transition to renewables is planned and coordinated by a fully public Eskom, reorganised to serve the people.
South Africa’s crises of inconsistent electricity supply, mass unemployment, and Eskom’s death spiral cannot be solved through market mechanisms. This is to say nothing of the market’s complete inability to meet climate targets. Electricity is treated by corporatised Eskom as a tradeable commodity, not an essential basic good. “Competitive pressure” as the paradigm for pricing electricity serves only capital, but electricity as a public good could ensure a stable supply, the mitigation of climate change, and create enormous numbers of jobs in manufacturing and installation. The unbundling of Eskom would only intensify the commodified electricity paradigm.
Eskom must be dramatically restructured, but rather than unbundling, the utility’s restructuring must take the form of decorporatisation. This will allow it to achieve urgent social and environmental goals through a planned process of energy transition and widespread electrification, a process impossible under the condition of generating profit. DM
See also PART 1: Eskom unbundled: Contradictions in the plan will exacerbate the energy crisis
Jonathan Cannard is a researcher at the Alternative Information & Development Centre (AIDC), focusing on international trade, debt, Eskom, and the climate crisis. AIDC was part of the Eskom Research Reference Group which released a new report on 23 July entitled Eskom Transformed: Achieving a Just Energy Transition for South Africa, arguing that rather than unbundling and privatisation, Eskom’s transformation requires intensive decorporatisation.