The privatisation of Eskom is increasingly probable under the present government, but the utility is mired in vested interests that favour the status quo, say critics. But is privatising the continent’s biggest state utility really in the best interests of the voter?
Cadiz Corporate Solutions mining and resources division head Peter Major says while privatisation is not the answer for every state entity, it may be time for the ANC to ease the burden and allow for private equity, as several former state-owned entities (SOE) have done.
“There was a time when the state could handle it, but now privatisation could bring much-needed relief.”
Necessitated by increasing demand for cheap, reliable electricity for the booming gold mining sector during the 1920s, the establishment of Eskom was under starkly different socioeconomic conditions and instrumental in the economic boom which pre-dated the sanctions of the apartheid era.
“It was a national imperative at the time to build an efficient, cheap power source for the deep gold mining activity that was fuelling the economy,” said Major.
“At the time, South Africa was able to build a utility from scratch and it was the most economical, most reliable electricity in the world.
“But now it is heavily indebted, it is not efficient and under these circumstances, privatisation makes the most sense.”
Supporting the argument was energy expert Chris Yelland, who suggested SA had efficiently opened up many former SOEs for private equity, with favourable results for the economy, job creation and the fiscus.
“South Africa has had several great state-owned enterprises from the era of the National Party and even before that, with Jan Smuts. Some, like Iscor, Sasol, Telkom and Eskom, all came from that era and then it was seen as a way towards serving the needs of a sovereign country,” says Yelland.
“Iscor today doesn’t exist as it used to… It was a state entity. It used to have three divisions [steel, coal and iron ore], just like Eskom and it was a vertically integrated monopoly. Today is it broken up into three listed companies on the Johannesburg Stock Exchange.”
Political parties are divided on the Eskom issue, he said. Within the ruling party, it is clear that while President Cyril Ramaphosa and others appear more open and in support of privatising Eskom, an equally powerful sect is staunchly against it.
Tripartite alliance partner the Congress of South African Trade Unions changed its tune about two weeks ago, saying “it was not against the unbundling of Eskom as long as it was not privatisation”.
This was after it threatened to march against the unbundling, which was announced earlier this year, because this was seen as a step closer to privatisation.
Liberal parties such as the Democratic Alliance (DA) supports a change in the status quo, while the more conservative Congress of the People (Cope) wants the utility to stay in government hands, just under a “better” governance.
“There is nothing wrong with Eskom,” says Cope spokesperson Dennis Bloom. “We cannot privatise Eskom; it must remain in the hands of government. That place was run properly until this government came and Zuma started to capture the state with the Guptas.”
DA spokesperson Solly Malatsi argued privatisation would open doors for more players in the industry. “We want emphasis on making sure that we open up the energy sector for independent power producers because with the current status quo that is not possible.
“We need diversity in the energy sector in terms of energy generation and one of the most powerful ways of doing that is to remove legislative obstacles, and that will also remove pressure on the national grid.”