Eskom is being privatised through the backdoor

South Africa’s state-owned enterprises (SOEs) are being privatised by stealth, with the private sector taking over their functions. 

The clearest example of this so far is Eskom, which is seeing its monopoly on electricity generation in South Africa disappear in front of its eyes. 

Private households and companies have invested billions in rooftop solar and utility-scale renewable energy infrastructure to reduce their reliance on Eskom. 

Efficient Group chief economist Dawie Roodt said that this is effectively backdoor privatisation, with current trends pointing towards Eskom being outcompeted by private players. 

Roodt explained that this is due to the mismanagement of the utility by the state, which has inadvertently resulted in private alternatives flourishing. 

This mismanagement is not isolated to Eskom, with Transnet, PRASA, and the Post Office being notable examples of collapsed SOEs. 

These entities effectively held monopolies on sectors of the economy, ranging from electricity to passenger rail. 

Now, these monopolies are being broken, and the private sector is playing a much larger role in the South African economy. 

Roodt told the NSN podcast this has resulted in notable improvements so far, with load-shedding coming to an end, freight rail improving, and the Post Office being effectively replaced by private players. 

“Many of those bottlenecks are being addressed. But we cannot forget that the damage was horrible. It was significant, and we are paying a heavy price for the mismanagement by the ANC,” Roodt said. 

“It seems to me as if we have reached the bottom of the cycle and things are certainly improving in key parts of the economy.” 

Roodt said that some credit has to go to the leadership teams at Eskom and Transnet for implementing the reforms laid out by the government. 

These reforms have seen these companies give up their monopoly on these sectors of the economy, with the results speaking for themselves. 

However, he stressed that the improvements cannot be isolated from the destruction of the utilities over the past decade. 

The mismanagement of Eskom and Transnet is the reason why they cannot invest in maintaining and upgrading infrastructure, which has forced the state’s hand with regard to reform. 

Backdoor privatisation 

[image] 

This has resulted in the effective privatisation of Eskom and Transnet by stealth, with the private sector taking over more of their responsibilities. 

Roodt said the clearest example of this is Eskom, with it being more difficult to privatise Transnet given the extent of its infrastructure and how much of it is not economically viable. 

The electricity sector has also been the fastest to deregulate, with significant steps taken to increase private participation relative to other parts of the economy. 

These steps have resulted in significant private-sector investment in electricity generation in South Africa from companies and households alike. 

Eskom estimates that there is 7,878 MW of rooftop solar in South Africa, with about 2,780 MW coming from households alone. 

This excludes Independent Power Producers and other utility-scale private renewable energy generation facilities. 

The amount of rooftop solar has increased by 1,600 MW in the past year and by around 2,400 MW over the past two years. 

Roodt said that this shows the country is cutting its reliance on Eskom to provide electricity, with private players filling the gap. 

“Generally speaking, what is happening is that Eskom’s electricity is very expensive and, at times, unreliable,” Roodt said. 

“The private sector is simply moving away from Eskom. They are putting their own solar panels up. In a weird kind of way, the mismanagement of Eskom has resulted in the private sector taking over its functions.”

“In a way, that is a backdoor way of privatising many of these state assets and will happen with other SOEs in the future.” 

One of the clearest examples of this is the Post Office, whose functions have been effectively replaced by courier services and private mailing companies. 

The company itself was not taken over by private individuals or owners, but the industry is effectively dominated by private players. 

A similar situation has played out with South African Airways, with private operators such as FlySafair, CemAir, Airlink, and Lift replacing it within the airline industry.