Eskom unbundling is ‘reckless’ privatisation

Truth and Energy civil nuclear engineer Hugo Kruger said Eskom’s unbundling is reckless, and claims that it will not privatise generation in South Africa are lies.

Kruger told Newzroom Afrika that he has been opposed to Eskom’s unbundling since the idea was first proposed.

“I even went to the Parliamentary Portfolio Committee to oppose it, but it seems the government has just got group think around it, and they will continue,” he said.

His comments come after Eskom appointed the board of directors of the National Transmission Company of South Africa (NTCSA), a key milestone in the power utility’s legal separation into three entities.

Kruger explained that unbundling means Eskom accepts private-sector participation in the country’s energy sector. 

While South Africa has had an independent power producer programme for years now, unbundling the state power utility opens it up to competition for transmission, generation and distribution – and Eskom would not be able to compete.

Kruger said there are many examples from across the world where unbundling failed, and countries had to “rebundle” their state power companies. 

“I have not seen anyone from the government – not from Pravin Gordhan, or from Minister Mantashe, or from the Minister of Electricity’s office – citing how they are going to create guardrails against what failed in other countries,” he said.

“I regard this as a highly reckless move. Zimbabwe unbundled once, they had to rebundle after it was run into the ground. Lebanon did the same thing, and Russia in the 1990s – there are so many failed examples of unbundling.”

In particular, Kruger said the World Bank has found that no country has successfully unbundled its state-owned power utility while struggling with energy security, as South Africa currently is.

“The literature tells you countries that unbundled during load-shedding caused chaos, and yet we are going full-steam ahead with this thing. It does not make sense to me,” he said.

Kruger said he is not opposed to privatisation or increased competition in the energy sector in principle.

However, he said introducing competition while nearly a third of Eskom’s fleet is broken down will lead to the utility’s bankruptcy and a fully privatised energy sector.

While this model has worked well in other parts of the world, Kruger said the World Bank conducted a study comparing private and public utilities.

“And they found something incredible, which is that public utilities, under the right conditions, actually have lower tariffs to end-users than the private sector,” he said. 

“So anyone who says to you the private sector is necessarily better is making those statements in contradiction to what is written in the peer-review literature.”

Complete privatisation could, therefore, not only lead to higher tariffs but also major job losses across the country.

Former Eskom CEO Andre de Ruyter

Former Eskom CEO Andre de Ruyter recently said South Africans should let go of their nostalgia for the “Eskom of old” as the utility will continue to shrink and transform into a transmission business.

He said the only logical outcome of Eskom’s reform and restructuring is that the company will be unbundled into three divisions – generation, transmission and distribution.

He said the utility will continue to generate electricity for a considerable time. However, it will inevitably become smaller as coal power stations reach the end of their lifespan and are decommissioned.

“Mechanical equipment has a limited lifespan, and the new generation capacity will increasingly be provided by the private sector – that is a well-established fact,” he said.

De Ruyter said Eskom’s transmission business would handle the high-voltage supply between power generation and consumption points – a role that Eskom will still largely play going forward.

He recommended that the cheap financing the country gets from the EU and the US should primarily be used for expanding South Africa’s transmission network because it is a natural monopoly and should mostly be owned by the state.

On the other hand, the role of distribution will increasingly be fulfilled by local authorities like municipalities.

This is because “the closer the service delivery is to the client, the better”, he explained.