Ending Eskom monopoly only way to cheaper energy
The DA has a plan for a "cheaper energy bill" that will ease the burden on ordinary South Africans.
As we well know, Eskom has been embroiled in layers of corruption, inefficiencies, mismanagement, poor governance and state capture.
The first and most severe layer is the corruption/state capture layer. Through a nefarious network of the Gupta family, their lieutenants, hand-picked and influenced managers, executives and board members, Eskom was slowly turned into a cash cow for state capture.
Procurement procedures were bypassed and decisions made that would close down investment into cost-plus mines in order to benefit a Gupta-owned mine for coal supply. Other coal contracts were reduced or cancelled to make way for additional coal from the Gupta mine.
The next layer is the structurally inefficient layer.
Eskom is a bloated dinosaur. It was birthed out of a model where the state would run all major entities including power, water and transport.
While other countries began to disinvest themselves from this inefficient model during the 80s and 90s, SA persisted. We now have a 66% overstaffed energy utility, according to a World Bank study, that just signed a new three-year wage deal that provided for an increase of 7.5% for 2018, and 7% for 2019 and 2020, well above inflation.
As a result, Eskom's finances are in tatters. Eskom secured a R33bn loan from the Chinese Development Bank recently to stem the tide. However this loan, shrouded in secrecy, will not bring long-term financial stability to the power utility. With a R2.3bn loss posted for the 2017/2018 financial year and revenue stagnant, where will Eskom get the income to pay back its loans?
It will need to borrow more to pay off its loans. Finance costs have ballooned from R19.5bn to R25.9bn.
This is unsustainable.
Municipal debt owed to Eskom is rapidly becoming out of control. Almost 100 municipalities owe Eskom more than R20bn. With more than R20bn in irregular expenditure reported in 2017/18, the entity requires urgent intervention.
Eskom is trying to resolve its financial problems in three ways - increase the cost of electricity to the consumer, access more debt and ask for government intervention.
The power utility plans to take on R212bn more debt over the next four years, from R388bn to an unprecedented R600bn in an attempt to borrow its way out of trouble. This will lead to a debt trap as debt will be used to finance interest payments.
The government will have to intervene and increase its guarantee, which now stands at R350bn, to cover this debt. This will place our economy under enormous fiscal strain.
Lastly, Eskom is looking to increase electricity tariffs. Eskom wants a further 15% increase after the National Energy Regulator of South Africa (Nersa) granted it 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%.
Businesses and citizens are already squeezed with VAT hikes, petrol price hikes and tax hikes. They can ill-afford further electricity price increases.
What we need is to overhaul Eskom and the energy sector entirely.
The only way to keep the cost of electricity down for consumers is to introduce competition in the electricity market.
The DA's Independent System Market Operator Bill (Ismo), or "cheaper energy bill", aims to break up Eskom's monopoly.
Through the bill, Eskom's transmission and grid capabilities will be moved to an independent state- owned entity (SOE) that will own and operate the grid.
The remainder of Eskom will be the generation part, which will then compete with other independent power producers (IPPs) on price and reliability for supply to the grid.
Eskom can then be privatised in part or full over time once it has been split up.
- Mazzone is a DA shadow minister of public enterprises.