The South African Civil Society Information Service

Eskom: Plunging Us into Darkness

By Glenn Ashton · 19 Mar 2010

Picture: sankarshan

Those responsible for formulating the policies required to solve our national energy crisis are clearly floundering, all at sea, while the great white sharks of international capital circle for the kill.

Our national energy policies are a mess. We have signally failed to formulate a comprehensive long-term energy policy since democracy in 1994, instead relying on ad hoc responses by both Eskom and politicians.

The incestuous Tweedledum and Tweedledee relationship between Eskom and the state undermines public participation in formulating energy policy. The excessive provision of energy capacity by the technocratic central planners of the Apartheid state enabled the new South Africa to ride on the shirttails of its predecessors. However this capacity was rapidly absorbed, primarily through controversial deals with major energy consuming industries. 

The sweetheart deal between Eskom and Billiton to exploit our cheap and dirty power to transform Australian bauxite into aluminium and then export the profits is both an outrageous abuse of a national resource and a cautionary tale. It is a relationship that costs us all dearly. We lose electricity capacity to corporate predators. The public effectively subsidises this cut-rate power effectively sold to Billiton below cost. This is effectively redistribution from the poor to the rich.

Aluminium, with its massive power requirements, has been called solidified electricity. Eskom is instrumental in maintaining Billiton as one of the worlds six biggest aluminium companies. Billiton is also one of 138 Eskom customers, which receive electricity at between nine and 35 cents a Kilowatt hour (kWh) -- at a rate that averages 17 cents per kWh, for almost 40% of Eskom's total output. 

This is more than three times less than the 59 cents per kWh paid by most South African consumers, which is set to rise to around R1 per kWh when the full National Electricity Regulator (Nersa) approved increase has been implemented over the next three years. The poor and middle classes, together with smaller businesses are effectively subsidising Billiton and 137 other favoured and already wealthy entities.

Earthlife Africa recently showed how poor consumers who rely on prepaid meters already pay around 72 cents per kW/h; four times more than the average discounted Eskom rate. 

Billiton is apparently one of two companies with a special long-term discount power contract with Eskom and gains its profit at our collective expense. Do we, as a nation, owe privately held corporations a profit, especially if this is at cross-purposes to both our individual and national interests? Surely Billiton and other wealthy, privileged entities should simply pay the same as everyone else?

The preferential tariff rate granted by Eskom to these companies is by its very nature anti-competitive, across the board. This unfair discount, which arose through the government wishing to project an atmosphere of business friendliness, severely disadvantages smaller companies. 

Any energy reliant start up enterprise is automatically compromised by the massive advantages these Eskom subsidies provide. There is clearly a role for the competition tribunal to play in this sordid saga.

The names and the exact rate that each of these privileged companies pays must be legally interrogated and revealed. Eskom is a public entity. South Africans have a vested interest in the fairness and transparency of how this public utility is run and its discriminatory behaviour is patently unfair.

Public utilities should not be permitted to hide behind the cloak of corporate confidentiality. The fact is that the state, as Eskom's sole shareholder, has failed to adhere to the corporate governance principles that the private sector is required to. Eskom does not fulfil its requirements of stakeholder participation and transparency as set out in the King 3 report (Chapter 8), which states that the critical role of stakeholders - which in this case includes all South Africans - cannot be ignored.

The Eskom board has proven itself incapable of projecting or formulating a meaningful energy policy and has failed in its charter role of serving the people of South Africa. The manner in which Eskom, through its inordinate influence on Nersa, has forced through inflationary energy policies while capping alternative energy supply, can only lead to the conclusion that those at the helm of Eskom have lost the plot and are operating beyond their mandate.

We should recall however that Eskom did approach the government in the late '90s to highlight that it was rapidly approaching operational capacity, and was rebuffed. Instead pseudo-solutions like the Pebble Bed Modular Reactor were promised. The state has utterly failed to pursue, let alone achieve, proclaimed energy targets, particularly in renewable energy.

In 2003 we set a 10,000 gWh renewable energy target, to be achieved by 2013; to date we have installed less than one percent of that goal. Yet Public Enterprises Minister Barbara Hogan blindly insists we will meet this target! What hope have we against such bombastic hubris?

While a renewable energy feed-in tariff was recently cemented after years of dithering by Nersa, it is too little too late. Had we met proclaimed renewable targets we would need to build neither Kusile nor Medupi power stations. Nersa's dithering has been compounded by Eskom’s consistent anti-competitive bias.

Now the government has insisted that renewable energy supply must be capped at unrealistic levels and put out to tender. Surely any agency that can competitively supply power should be permitted to enter the market? This starkly illustrates the contradiction of the state being Eskom’s sole shareholder, and then in turn using the authority of the state to stifle competition.

Our energy policy lacks considered planning. Career politicians like Alec Erwin utterly failed to develop meaningful policies, instead engaging in counter-productive pro-nuclear daydreaming. Yesterday’s sweetheart, Barbara Hogan's shift from Health to the Department of Public Enterprises has repeatedly demonstrated that she too has succumbed to a nuclear-induced dwaal.

Hogan’s recent proclamations that we must embrace the nuclear option are both premature and untested. She ignores that nuclear power will cost nearly twice the amount Eskom wishes to charge us in three years time. The nuclear power plant being built in Finland by Areva, identical to the units it wishes to build here, is twice over budget and schedule and will be lucky to produce power at less than R2 per kWh. The alternative, US sourced systems, are equally problematic.

Last year we rejected the nuclear option as being too expensive. Now Hogan expounds on its viability. What has changed in six months? This indicates staggering incompetence and a lack of consistent policy. Lance Greyling of the Independent Democrats, who is one of the few politicians with a decent grasp of energy policy, has pointed out that it is not Hogan’s place to make such proclamations before any consultative process has occurred.

Furthermore, Hogan insists Eskom no longer is a power monopoly. She makes this absurd claim because companies like Sasol (which also benefit from Eskom’s special rating dispensation) are now permitted to sell minuscule amounts of excess energy onto the grid! Barbara is clearly in wonderland.

Hogan is also panicking about the acute pressure being brought to bear by a broadly representative civil society coalition against a World Bank loan, sought to fund Eskom’s Medupi coal fuelled power station. This loan is in direct contravention to proposed World Bank lending criteria. This loan will also subsidise “tenderpreneurs” associated with the ANC linked Chancellor House, which in turn has accrued interests in the Hitachi Corporation that is contracted to provide generation equipment for the coal power plants. 

Hogan’s counter that this World Bank loan provides 7% (R1.95 bn.) for renewables simply illustrates the green-wash behind this entire policy fiasco. Her claim blithely ignores the fact that this is 8% less than the established government policy of the 15% renewable mix required in any new energy generation capacity.

This all glosses over the fact that the government has thrown away at least R15 billion on the hare-brained Pebble Bed Modular Reactor, which actually cost far more in lost opportunities as it diverted power policy attention from alternative supply options. The kickbacks from the coal and nuclear expansion will eclipse the arms scandal by degrees of magnitude, while simultaneously exacerbating our power woes.

We require an urgent national debate about what is required to extricate ourselves from our policy chaos. Our solar water heating policy is unworkable. Our waste to energy policy is rubbish. Our renewable energy policy is ignored. Our proposed spending on supercritical coal fired power stations is excessive. Our proposals to engage in ‘carbon capture and storage’ are not grounded in reality. Eskom and national governments' interference in allowing the open market to establish renewable energy generation plants is unacceptable. The lack of transparency underlying Eskom's price structures is disgraceful. 

There no single area of our national energy policy that is not problematic. The cabinet and relevant ministries have shown themselves incapable of solving this problem. 

Unless there is an urgent review of this whole sorry saga we are positioning South Africa to financially compromise its good standing, simply because we cannot adequately or competitively power our economy. We are being set up for a failure that opens our doors to the sharks and vultures of the developed world - the World Bank, the International Monetary Fund and the rest of the Washington consensus - which will put us collectively in hock for generations to come, to be paid off with our abundant resources and by the sweat of our brows. 

The heat being generated by the hands gleefully rubbing together in Washington is almost palpable, as they look south...

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