Amidst South Africa’s worsening electricity crisis, Eskom teeters on the brink of collapse, leaving citizens shivering in the dark. The government’s attempts to address the crisis have faltered, with mounting debts and political interference. Nicholas Woode-Smith argues that the solution lies in privatisation – breaking the government monopoly, decentralising the grid, and eliminating political meddling. Only by embracing the private sector’s efficiency and innovation can South Africa hope to power its future and avoid a perpetual blackout.
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Privatisation: The only sustainable way out of the electricity crisis
By Nicholas Woode-Smith*
Eskom continues to collapse, leaving South Africans in the dark and the cold, even as winter slowly fades to the past.
2023 holds the record for the most days of loadshedding, and 2024 may equal or exceed that – barring the ANC madly pulling unsustainable purse strings to run the back-up generators on max in anticipation for the election. Eskom is currently in debt for R420 billion, with the government only able to take on between R150 to R160 billion.
Municipalities owe Eskom in the excess of R63.2 billion but have no real ways of enforcing this debt. And as this all happens, more and more people are making Eskom irrelevant by going off the grid. The consequence is that Eskom is losing more and more customers that it needs to pay off its hefty loans.
Eskom is going to die. That is inevitable. All we can hope for is that the grid doesn’t go with it.
Attempts to address our electricity crisis have been repeatedly bungled by the government. The Electricity Regulation Act Amendment Bill failed to be tabled, raising uncertainty that it will become law before the end of the year.
This will prevent the creation of a Transmission System Operator to manage the grid and procure electricity from a competitive electricity market. This fumbling could be due to simple incompetence or ideological sabotage, as the ANC genuinely despises the idea of the private sector producing electricity. It’s probably a bit of both.
Virtual Wheeling has been presented as a saving grace for Eskom, allowing private producers to sell electricity to Eskom. A good step, but nowhere near sufficient to solve Eskom’s myriad of problems.
Even if the Electricity Regulation Act Amendment had been passed and implemented, with private producers being able to sell into the grid, I fear that still would not be good enough.
Politics is the problem
The root of Eskom’s problems, and our electricity crisis as a whole, is politics.
Not just petty politicking, but the fact that Eskom is beholden to political interests, government appointments, morally and intellectually bankrupt ideologies, and most of all, the fact that it is a government mandated monopoly.
Eskom has no inherent incentive to do well. As a tool of the state, it is made up of political deployees serving political whims.
Ex-Eskom CEO Andre de Ruyter lamented that the ANC is full of ideological Marxists, who have no grip on economics or reality.
This is why we have incompetent cadres running power plants into the ground, corrupt procurement officers paying R238,000 for a mop, and rolling blackouts for two decades.
The foundations of Eskom’s failure were set down in 1923 when it was founded, and subsequently used to nationalise and destroy South Africa’s flourishing private sector electricity industry. Eskom (then called Escom) was used a political tool to serve the needs of the government. And in doing so, it created a flawed price structure that undervalued the true cost of electricity, while preventing the rational expansion of generation.
After 1994, we had the chance to address this mistake by privatising Eskom. But ideological pressure from the communists in government, and selfish trade unionists driven only by misguided ideology, prevented this
We could have avoided loadshedding entirely if privatisation was achieved in the 1990s. But it still isn’t too late to recover: the technology exists, the capital exists, the skills exist.
But half-baked solutions won’t help anyone. More political positions, handing out arbitrary licenses that require BEE credentials, and capping producers when every watt is needed, will not solve anything.
The only true way to solve our electricity crisis is to de-bundle Eskom’s assets as much as possible, eliminating Eskom as an entity. These assets must then be sold or transferred to private, profit-making companies that have the incentive to produce and sell electricity efficiently and consistently.
Not only power plants must be privatised. Transmission and the grid must be decentralised and put under control by either responsible local government, or private companies that are incentivised to behave and perform through profit.
This privatisation must be put alongside a drastic deregulation of the electricity industry. Politics must factor as little into the generation of electricity as possible. Eliminate licensing. Prevent political connections and bribery factoring into who can produce electricity as much as possible. If there must be any gatekeeping, it should be a simple safety inspection.
Allow private producers to sell directly into the grid without political oversight. This will prevent corruption and political favouritism.
When you give politicians control over an industry, they will stifle it and exploit it until it dries up and dies. We must not allow this to happen to keep being the case with electricity.
Privatisation will also go a long way to solve the problem of non-payers and indebted municipalities. Currently, municipalities don’t want to punish non-payers due to a fear of reprisals at the ballot box. Further, Eskom is legally forbidden from switching off a municipality because this will punish the many innocent, responsible payers who live in those localities.
A private company isn’t rewarded with votes. It is rewarded with money for delivering a product. If they are not receiving this money, they are within their right to deny service. As non-payers have their lights switched off, they will be truly incentivised to pay for the product they’re using.
Unfortunately, “privatisation” is a dirty word for the ruling party and their communist and trade unionist allies. They would rather see South Africa plunged into eternal darkness than give a meaningful inch towards real free-market reforms.
So, as South Africans, we must make them as irrelevant as possible. If you can afford it, go off grid. If you are a private company, build your own generative capacity. Become self-sufficient. And if the market does deregulate, you can even use that new generator to diversify your income by selling electricity.
There is a solution to the electricity crisis. We just need the government to step out of the way. But until such time that that happens, we are on our own.
Read also:
Nicholas Woode-Smith on BRICS: Unmasking SA’s supposed ‘non-alignment’ and neutrality
Nicholas Woode-Smith: The ANC’s deliberate failures – South Africa’s path to collapse
Nicholas Woode-Smith on the EFF’s dangerous influence: A threat to South African politics
*Nicholas Woode-Smith, an author, economic historian and political analyst, is a contributing author for the Free Market Foundation. He writes in his personal capacity. The views expressed in the article are the author’s and not necessarily shared by the members of the Foundation.
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