The major Eskom issue that no one is talking about

Eskom’s monopoly exposes the South African economy to a largely unforeseen risk: a highly concentrated labour force able to effectively turn the lights on or off. 

The concentrated nature of a monopoly is often analysed as a single company, in this case a utility, controlling a sector of the economy. 

What is often missed is that this also means the labour force is concentrated, giving it immense power to demand above-inflation wage increases. 

It can do this by effectively threatening to hold the country to ransom, as withdrawing its labour can shut down the economy. 

Energy analyst and EE Business Intelligence managing director Chris Yelland explained this problem and how the only real solution is to open the electricity sector up to competition and diversify energy supply.

Yelland explained to Cape Talk that Eskom’s labour force has immense power over the utility, with management historically struggling to moderate wage demands to what the business can realistically afford. 

“When you have a monopoly company, where customers do not have the opportunity to move to alternative suppliers, significant problems are created,” Yelland said.

“In the case of Eskom, you have this centralised company and centralised labour force. It is a fact that organised labour has exercised this power in the past.” 

Yelland pointed to the example of three years ago, during a standard wage-negotiation process between Eskom and the National Union of Metalworkers of South Africa (Numsa).

At the time, South Africa was in the midst of a load-shedding crisis, with Eskom struggling to keep the lights on. 

“Numsa threatened to go on a national strike at Eskom. Very quickly, the minister at the time, Pravin Gordhan, stepped in and intervened politically to give the workers what they wanted and avoid a shutdown of Eskom,” Yelland said.

“It is a fact that they can hold the country to ransom, and they have done so in the past to get their way when it comes to wages and bonuses.” 

Yelland said this is one of the main drivers behind Eskom’s very well remunerated labour force, with the average utility employee paid much better than most South Africans. 

This, in turn, contributes to Eskom’s elevated operating costs, which drive up the tariffs the utility charges customers.

Eskom and private competition

The only way to break this ability of a single trade union to hold South Africa to ransom is to diversify the supply of electricity away from Eskom’s sole responsibility. 

By introducing private competition, not only are prices likely to come down, but the outsized influence of a single union will be broken. 

“In this centralised environment, the trade union holds a lot of power. More than they would in a sector that is diversified with multiple sources of supply and companies,” Yelland said. 

“In that situation, you do not get that centralisation of power at a company level, and you do not have the centralisation of labour.” 

The upshot is that Eskom is expected to have significant private competition in the coming years as the government pursues its reform agenda. 

After more than a century of vertically-integrated monopoly control, South Africa is transitioning towards a competitive, multi-market electricity system.

President Cyril Ramaphosa has made it clear that Eskom’s unbundling will continue as planned, with an independent transmission systems operator set to be established. 

“We are restructuring Eskom and establishing a fully independent state-owned transmission entity,” the President said.

“This entity will have ownership and control of transmission assets and be responsible for operating the electricity market.”

In addition, the President announced the establishment of a dedicated task team under the National Energy Crisis Committee.

This committee, he said, would address various issues relating to the restructuring process, including clear timeframes for its phased implementation.

This is despite pushback from the utility itself, which has unveiled different unbundling strategies that extend timelines and minimise the independence of the Transmission System Operator (TSO). 

The new strategy also outlines plans to keep transmission assets inside the newly established National Transmission Company, which would also keep them under Eskom Holdings, thereby creating a separate TSO without asset ownership.

“This deviates significantly from the work to establish an independent TSO that supports a competitive electricity market,” Business Leadership South Africa has said. 

“The new structure means the TSO will be unable to raise capital on its own balance sheet, likely prolonging grid constraints and deterring new renewables rollout.”