Eskom “back-door” privatisation plan

Many economists said the conditions attached to Eskom’s debt relief would result in the power utility’s privatisation. However, Ministers disagreed, saying they want to create a competitive electricity market.

In his budget speech, finance minister Enoch Godongwana outlined the conditions for Eskom to receive its R254 billion debt relief.

• Eskom must prioritise capital expenditure in transmission and distribution.
• Eskom must focus on the maintenance of its existing generation fleet to increase energy availability.
• The relief is only to be used to settle debt and interest payments.
• Eskom must implement the recommendations from an independent assessment of its operations commissioned by the Treasury.

In the full Budget Review tabled to Parliament, two further conditions are stated:  

1. Eskom, the National Treasury, and the Department of Public Enterprises have agreed to design a mechanism for building new transmission infrastructure that will allow for extensive private sector participation in the development of the transmission network.
2. Eskom is required to implement the operational recommendations emanating from the independent assessment. This will include a determination of which plants can be resuscitated to the original equipment manufacturer’s standards, following which Eskom must concession all these power stations with clear targets for the electricity availability factor and operations. 

These conditions spell out the privatisation of Eskom, according to experts. 

Private sector taking over from the government 

The chief economist of the Efficient Group, Dawie Roodt, says that this is a “back-door kind of privatisation” with the Treasury forcing Eskom to privatise its distribution network and partially privatise its generation fleet. 

However, this “is not privatisation as policy”. Roodt said the state is simply collapsing, and the private sector is merely taking over state functions. 

Hugo Pienaar, the chief economist at the Bureau of Economic Research (BER), said that the conditions linked to Eskom’s debt relief would result in Treasury playing a bigger role in the electricity sector. 

This is a positive step, with the Treasury imposing fiscal discipline on Eskom while encouraging the private generation of electricity. 

Roodt and Pienaar agree that this is not the end of the matter as Treasury still has not dealt with the causes of Eskom’s failing but is merely treating the symptoms.

The government is “starting to do the right things”, Pienaar said, but it is yet to seriously grapple with municipal debt and systemic underperformance. 

The process of privatisation is going to continue, but they warn that it will take 18 to 24 months before significant changes will be seen. 

In the long term, electricity generation will be private, with Eskom merely distributing electricity with the utility being relegated to buying electricity from other entities and selling it on, said Roodt. 

What the government says 

The ministry of finance explicitly said that “the government has no intention to privatise Eskom”.

Deputy finance minister David Masondo clarified Treasury’s position by saying that Eskom’s strategic assets will not be privatised.

However, he added that the Treasury does not support a state monopoly in the energy sector and that they are not only going to rely on Eskom to generate energy.

Masondo’s comments were echoed by Gwede Mantashe, Minister of Mineral Resources and Energy at Absa’s Post-Budget Analysis. 

Mantashe said the government’s “intention is to reform electricity supply from a monopolistic industry to a competitive one” per the 1998 White Paper of Energy Policy. 

The government aims to diversify electricity generation sources and it “remains resolute in ensuring that such an electricity market structure comes to fruition”. 

However, Mantashe added that it would be a mistake to “totally remove the public sector” from electricity generation. 

The government must continue to “ensure the energy sector supplies reliable and efficient energy at competitive rates that are socially equitable”, he said.