Time to see the light over partial privatisation of Eskom
When it comes to the future of our state-owned enterprises, I think one would be best served to ignore the ideological debates that should be but probably aren’t happening within the ANC over the issue of privatisation. The reality is that the biggest SOE, Eskom, is now stuck in a vortex where the only escape, at a date that draws closer every day, is the partial or (in a worst case) full privatisation of the institution. The parastatal finds itself in this precarious position because of its badly managed expansion and governance calamities, and the government’s hands are tied, no matter the comrade in Luthuli House or Union Buildings.
When Eskom is finally done with the build of its two albatrosses in the name of Kusile and Medupi and the two coal-fired power stations are producing at full tilt, the company will be producing some 55 000MW in the year 2023. This is perhaps the most optimistic of all projections, given that in the next five years some of Eskom’s existing plants face the real prospect of being decommissioned — they are just too old.
But let’s just work with that number for a minute and add about a further 5 000MW from renewables.
Now, were the South African economy to grow at 5% a year over the next few years, a mark we’ve not seen since before the global recession in 2008, the country would have found itself in search of a further
20 000MW by the year 2023.
Let’s just say it’s rather unlikely that we’ll grow at that rate. The commodity super-cycle inspired by Chinese yearning for our raw materials is a thing of the past, and is unlikely to be repeated any time soon. US growth that’s been on a record run for almost a decade now will slow on the higher interest-rate environment. European growth hasn’t been robust for some time.
All these factors will serve to depress our economic fortunes, and in turn affect electricity demand for an Eskom that is in the throes of raising more debt to help service its interest costs. For the parastatal to ever reach a stage where it can comfortably service these payments, the Phakamani Hadebe-led firm needs its revenues to rise quite significantly. And while Ramaphoria, in a best-case scenario, may help address some of the more urgent structural flaws in the economy, that won’t happen fast enough to accelerate our fortunes closer to that 5% annual growth mark.
In Eskom’s latest annual results, electricity sales fell 0.9% as a result of self-generation by its largest clients and more energy efficiency from its customers. Even sales to the Southern African Development Community slowed. With sales under pressure, Eskom’s revenues could be boosted by a steep increase in tariffs. That’s politically unpalatable in an era of record-high petrol prices.
Tariff increases certainly aren’t a fix. But Eskom still faces a growing debt burden that at the end of March stood at over R380-billion, about the market capitalisation of Anglo American. This week’s loan by the China Development Bank raised those stakes a bit.
Without a revenue surge to significantly help with its interest payments, Eskom will soon be faced with only one option, really: converting its debt into equity.
Market forces trumping ideological battles.
There’s already talk of the Public Investment Corporation converting its loans into equity, which by any definition is privatisation. Government employees, through their pensions, will be shareholders.
Now, I am with the argument that electricity is a strategic asset to own, so in no way do I think full privatisation of Eskom will benefit a developing economy.
The state should aim to avoid this bitter pill being forced on it by IMF suits, and accept partial privatisation on terms befitting a developmental state.
Market forces trumping ideological battles