Time to stop dilly-dallying over Eskom
Aday after the Reserve Bank ’ s last policy meeting, the governor, Lesetja Kganyago, gave an interview to Business Day. Only halfjokingly, I mentioned that I had so far attended two of his press conferences and noted that both times he had again given the same speech about monetary policy, or lower interest rates more specifically, not being a panacea for SA’s growth and employment crisis and the need for the government to get on with structural reforms. “Don’t you ever get tired of repeating yourself?” I asked.
He proceeded to quote one of his predecessors, Chris Stals
— a name I hadn’t heard for a while — who had talked up the value of central bankers doing just that, repeating themselves until the message finally got through. Seeing that Stals was making similar noises back in the 1990s, talking in a speech in 1999 about the need for a “gradual restructuring of the economy”, it’s safe to assume that this message will take a while to sink in. In 2019, it will be 20 years since Stals’s retirement from the Bank. Two decades from now, Kganyago’s successors will probably also be playing this broken record.
There is one immediate problem that people seem to be getting tired of speaking about, probably because it looks impossible to fix.
With the latest round of petrol price hikes bringing to the fore administered prices and the implications for the wider economy, Eskom and the never-ending demand to suck yet more money out of the economy in the form of inflation-busting electricity tariff increases got some attention again. It’s a subject we should be discussing every day, seeing that this company has the potential to literally plunge the economy into darkness, making interventions on everything else pointless.
An Eskom employee, who is in a position to know, once confided about the futility of throwing more money at the problem, noting that even if it got another R100bn, that would be a waste as it would just come back a few years later begging for more. Eskom already has government guarantees equivalent to about 9% of SA’s economy and each year sucks in billions of rand through inflated tariff hikes, killing off businesses that would otherwise be viable.
That Eskom isn’t fit for purpose is hardly breaking news. Nelisiwe Magubane, a nonexecutive director at the utility, bluntly told the 2018 customers, Joburg Indaba, that a“gathering Eskom, as of it the mining companies that are among the utility’s biggest stands, is not sustainable” because it can’t trade itself out of the mess it’s in. It is burdened with consumers who don’t pay for the service received.
Another less diplomatic industry player simply described this as theft. At the last count, municipalities owed Eskom close to R16bn, an amount that is growing and unlikely to be recovered.
A weak economy and move to cheaper and more reliable alternatives mean demand has been consistently falling.
How many companies can, like Eskom, say they are selling less than they did a decade ago and yet employ about 50% more people? It wouldn’t happen because they would be out of business already. It does help if you are in this unique position of being able to double prices at the same time.
Those paying customers can only take so much before they abandon the grid completely. Also, there is the legacy of corruption and mismanagement, which has led to massive coal shortages at power stations, after it signed contracts with companies that are now unable to supply.
There was some confusion after reports that the regulator had given Eskom permission to raise prices by 4% next year. That was merely the confirmation of a decision made in June, which was something of a setback for Eskom, which gets to recover “only” R31bn of extra costs incurred over the past three years, compared with the R67bn it had asked for.
The National Energy Regulator of SA is still to decide on Eskom’s application for the next three years. Recent history would indicate that it won’t get the 15% increases it’s asking for, though the final settlement is likely to be near or above the top end of the Reserve Bank’s 3% to 6% inflation target range.
Unlike a state-owned enterprise like SAA that could realistically be closed down, no such option exists for Eskom. There must also be some recognition that throwing such a substantial portion of the nation’s wealth on it each year is no solution either.
Perhaps there is a happy medium somewhere between these extreme positions. If only the government would give some indication that it had some kind of plan that can be implemented quickly. It should get on with it, and quickly.
HOW MANY COMPANIES CAN, LIKE ESKOM, SAY THEY ARE SELLING LESS THAN THEY DID A DECADE AGO AND YET EMPLOY ABOUT 50% MORE PEOPLE?