Without Damascene conversion, ANC will keep Eskom in crisis

The appointment of Jabu Mabuza as Eskom chairman has been met with elation. It could have been different. At the meeting on Friday evening with President Jacob Zuma, Cyril Ramaphosa and Malusi Gigaba to decide on the new board, it is said that Public Enterprises Minister Lynne Brown proposed the appointment of Playfair Morule to the chair.

Morule doesn’t have a track record in finance, business or energy. What he does have, though, is links to the Free State and its premier, Ace Magashule — he has been a mayor and an MEC — and links to India, as he was SA’s high commissioner there. Morule has been in the news, but not for the best reasons: in 2008 he was fined R36,000 for killing a person in a hit-and-run accident.

So, no, Brown has not given up. She seems to think the Gupta party is still on at Eskom and that the public should pay up and shut up. On Friday, she also suggested that the way out of Eskom’s crisis was a R20bn cash injection from the Treasury. Gigaba, who still has to find the R14bn for higher education that Zuma slipped into the expenditure envelope, was having none of it. (Brown was asked if she wanted to discuss her nomination of Morule and chose not to other than to say that most of the directors selected at the Friday meeting were names that she had put forward.)

Thankfully, madness of that sort will soon come to an end. It seems Mabuza is already on the job and has put off his visit to Davos to scrutinise the employment contracts of Matshela Koko and Anoj Singh.

Since the weekend, we have also got a clearer picture of Eskom’s true financial position. Despite describing the “liquidity situation” as “dire” over the past three months, Eskom has not answered any detailed questions on the origin of the crisis and its scale. The recent blackout fuelled rumour and confusion and wild stories that Eskom staff would not be paid at the end of this month.

Although management is still afraid to speak on the record, on Sunday the company did eventually clarify that it will and can pay its January interest and payroll obligations.

The liquidity problem will come to the fore at the beginning of February, when R14bn must be raised in debt, and in March, when a further R6bn is required. Raising this R20bn between October and March was always part of Eskom’s funding plan, which involves raising some R70bn a year, in large part because of its large capital build programme. When the banks turned off the taps at the end of September over governance concerns, Eskom was left high and dry for the last quarter of the financial year.

Eskom and the Treasury are certain that with governance on its way to being restored, the company will again be able to borrow and a crisis will be averted. As no one really wants a debt crisis, this is very likely to happen.

However, the bigger problem of Eskom as a company will be far from solved. Here the issues are big and complicated. To survive in its present state, Eskom needs to sell more electricity at a higher price. Even when its capital-build programme is complete, its financial problems will not be solved because demand for electricity is not likely to rise dramatically. Apart from the weak economy, growing numbers of consumers are migrating from the grid as new technologies make this cheap and possible.

HAVING STARED INTO THE ABYSS OF AN ESKOM DEFAULT, THERE IS NOW A RESPONSIBILITY ON POLICY MAKERS TO STRETCH THE LIMITS OF THEIR THINKING

New technologies, like renewable energy, have disrupted Eskom’s monopolistic business model. The introduction of independent power producers has begun, by stealth, to liberalise the market. But as Eskom is a vertically integrated monopoly, controlling both power generation and distribution, its response to competition has been to try to kill it.

The suggestion, raised many times by energy experts, think-tanks and consultants that SA should follow the rest of the world and disaggregate Eskom into its component parts has been dead in the water.

The ANC’s impoverished politics, in which policy debate is weighed down by ideology that stridently opposes private participation in state-owned enterprises, have also helped kill the debate. Breaking Eskom up, selling equity stakes in power stations and reforms to the market are all ideas that have periodically popped up in ANC economic-transformation discussions for the past 10 years. Each time, they have been headed off with populist rhetoric and argument and never once genuinely interrogated.

Having stared into the abyss of what an Eskom default would look like, there is now a responsibility on policy makers to stretch the limits of what they once thought was not possible.