Weakness in Cosatu’s rescue plan for Eskom is not what you think it is

Use of retirement funds is not the problem, but failure to push for a socially owned renewable energy sector is

Cosatu’s proposal to use government employees’ retirement funds to reduce Eskom’s debt has sparked a huge debate. It has also raised the hackles of union members, who see the proposed plan as a cunning move to ransack the money chest that holds the deferred income of employees. Right after Cosatu unveiled its plan, some public sector associations outside the union federation announced their opposition to the use of workers’ pension to shave Eskom’s debt from about R450bn to R200bn through an off-balance sheet special purpose vehicle involving the government, the Public Investment Corporation (PIC) and development finance institutions.

Solidarity has launched what it calls a “stop pensions capture” campaign and is threatening legal action to block the use of money from the Government Employees Pension Fund (GEPF) to save Eskom.

In the debate, too many scarecrows have been manufactured and some red-baiting has crept in, eliminating the opportunity to look at the merits and demerits of Cosatu’s proposal.

Absent in the scaremongering is acknowledgment of how private sector players queue daily outside the doors of institutional investors such as retirement funds, life insurance companies and mutual funds looking for capital to finance private sector projects. There appear to be double standards here: it is fine and legitimate for the private sector to use retirement funds as a source of capital, but this financing approach becomes “pension capture” when resources of the same institutional investors are harnessed for state-owned entities.

It also looks as if history does not count. From 1911, when the Public Debt Commissioners Act was passed, to 1990, government employee pension funds were used to finance budget deficits and provide loans to the government and other state entities. It is partly due to this history that the GEPF is exempted from the 1956 Pensions Fund Act and is not governed by regulations that specify limits and the extent to which retirement funds may invest in particular asset classes.

Cosatu is correct to characterise the Eskom debt as a ticking time bomb threatening to destroy the state and economy. Projections tabled as part of the utility’s interim results in November 2019 indicate that Eskom is unable to service debt and fund capex projects from operations. Workers will undoubtedly bear the brunt of the consequences of Eskom going bust.

Eskom’s collapse will also send SA rushing to the World Bank and IMF for a bailout, tying the country to the conditions invariably associated with the bank’s loans and IMF structural adjustment programmes. Cosatu is therefore spot on in nudging us to seek home-grown solutions and look to the GEPF, PIC and other institutional investors as possible sources of capital.

In a resolution adopted at its national congress in June 2012, the National Union of Metalworkers of SA (Numsa) called for an exploration of how workers’ pension funds could be used as a vehicle to finance the building of a socially owned renewable energy sector. We tabled this resolution at a Cosatu national congress in September of the same year.

The Numsa and Cosatu resolutions in 2012 were not the first calls by the progressive labour movement for the use of pension funds for infrastructure investment. Since the amendments in 1989 and 1990 that changed the legal requirement for funds to invest 53% of their financial assets in government and other state entities, the progressive labour movement has championed the use of prescribed assets for reconstruction and development in SA. Cosatu’s first economic policy conference in May 1991 called for the reintroduction of prescribed assets.

As recently as 2013, Numsa, through the Metal Industries Benefit Funds Administrators (Mibfa), committed up to R1bn of workers’ pension money through investment in the renewable energy sector. The investment was done through the Renewable Energy Debt Fund, which provides debt financing to renewable energy projects.

Substantively and policy-wise, there is nothing new in the Cosatu proposal. The call is consistent with the policies of the progressive labour movement in SA. It is therefore unhelpful to dismiss what is on the table with a sleight of hand. What we should debate is whether as a country we need a plan to stabilise Eskom or a plan to finance the energy transition from fossil fuels to a low-carbon economy.

The weakness of Cosatu’s proposals is its focus on how to save Eskom rather than on how to guide and finance the energy transition. Though the federation’s package talks about targeted investments in renewable energy technologies, electric-vehicle production and investment in battery storage as a way of dealing with the intermittency of renewable energy, there are no proposals on how these initiatives are to be developed and financed. The primary focus is on Eskom’s debt and saving the utility. Who is to finance the worker- and community-owned renewable generation capacity that Cosatu moots in its submission?

From the document “Key Eskom and Economic Intervention Proposals”, which Cosatu released in January, it looks as if the union federation has also retreated to a narrow definition of a “just transition” in which the concern is about what to do with workers at power stations and communities around coal mines at the end of their lifespans.

In the discussions within Cosatu in 2012 a “just transition” was more than retraining fossil fuel workers who were about to lose their jobs. It was about a shift prompted by climate change and global warming to fundamentally transform how energy is produced, distributed and consumed. It was about moving from climate change-inducing energy sources to renewables.

A just transition was also seen to be about ownership and control of the emerging renewable energy sector.

NARROW PLAN

According to World Bank data, financial assets of pension funds as a percentage of SA’s GDP grew from 84.5% in 2012 to 99.75% in 2015. These are critical resources for financing the energy transition. Though not exclusively, workers’ pension funds, with public investments and taxes on fossil fuels, are important financial sources with which to build a socially owned renewable energy sector made up of energy parastatals at national and subnational levels, municipal wind and solar parks, community energy companies and co-operatives.

Instead of a narrow Eskom rescue plan, what we need is a just energy transition fund that finances not just the dominant electricity utility but all the noble suggestions in the Cosatu document, such as investment in renewable technologies and installation of solar panels in public buildings, including the expansion of an Eskom renewables division.

The pressing issue of the electricity parastatal’s debt can also fall within the mandate of the just energy transition fund. Sadly, focusing on Eskom only, as Cosatu does, may be putting faith in a utility facing a death spiral and putting workers’ financial eggs in one basket.

The labour movement needs to wake up to the fact that at stake is not just saving Eskom but guiding the transition in a manner that ensures the poor are not left insecure as corporations and the rich opt for self-generation.