Eskom woes rooted in pendulum policy

On Wednesday on these pages fellow columnist John Dludlu argued that breaking Eskom into three subsidiaries will not resolve its fundamental problems, the primary one being a lack of leadership. Allow me to expand on that and add to his list.

Eskom’s problems are rooted in the macroeconomics of the ANC, particularly its distrust of markets, experience, meritocracy and its obsession with race. The party’s position on Eskom was first articulated by former finance minister Trevor Manuel in 1992 at an ANC-organised national meeting chaired by Ketso Gordhan held at the University of Cape Town.

Manuel emphasised that the state-owned enterprises (SOEs) were considered the commanding heights of the economy and should therefore be in state hands. However, once in power after 1994, the ANC had a Damascene moment and introduced the Growth, Employment and Redistribution (Gear) policy, without consulting its allies, and in the process reinforced the apartheid system of accumulation.

President Cyril Ramaphosa’s comments in his recent state of the nation address were more reflective of the 1985 De Villiers commission recommendations, and the 1998 amendments to the Electricity Act, which reintroduced parts of the De Villiers recommendations.

These were rejected by the ANC after it made another left turn in 2004 to pursue the concept of the developmental state. It went back to its earlier position that the SOEs were fundamental to its economic development agenda.

Then the party changed macroeconomic course again with the introduction of the Accelerated and Shared Growth Initiative for SA and the New Growth Path, and it is now in the process of drafting a new policy stance led by Ricardo Haussman of Harvard University. Needless to say, the ANC’s macroeconomic policy swings like a pendulum.

Its confusion on the role of the central bank is another case in point.

The ANC has in effect embraced the apartheid race project through its BEE and affirmative action policies, which have succeeded in affirming many black people and increasing the size of the black middle class. But by and large the skills and experience remain in white hands.

Yet skills formation, capability, learning and innovation are a cornerstone of development. The implementation of broad-based BEE and affirmative action at Eskom exceeded all targets, at the expense of expertise and experience. Eskom’s present predicament indicates that replacing experienced white engineers and artisans who were hands-on at its power stations and were part of the apartheid national system of innovation was a step too far, too soon. Today some of them have returned as consultants to Eskom, at a cost to the taxpayer.

Eskom symbolises ANC failure across many areas. The World Bank, funder of Eskom’s “white elephants” Medupi and Kusile, refers to an “incomplete transition”. A 2018 World Bank study based on consumption expenditure data shows that SA remains one of the most unequal countries in the world, and that inequality has actually increased since apartheid ended in 1994.

Analysis of the distribution of consumption expenditure per capita in the recent Living Conditions Survey 2014/15 put SA’s Gini coefficient at 0.63 in 2015, the highest in the world and higher than in 1994.

Why, with such depth of experience and expertise, did the World Bank not sound alarm over the HitachiChancellor House contract? It is now clear it was part of the quasi-rent projects of Medupi and Kusile that pushed them way over budget and resulted in gross inefficiencies, at a huge cost to SA.

If Eskom is considered “too big to fail”, that is a sign that it urgently needs competition, especially on the generation side of the business.