Unbundling Eskom: Analyst Warns of Potential Social Instability and Calls for Government Transparency
Quoted in Eskom News
Full article at Eskom News
Hügo Krüger has voiced strong opposition to the South African government’s ERA bill B23-2023, which proposes the unbundling of Eskom into three entities: transmission, distribution, and generation.
This stems from concerns about social instability and negative consequences similar to failed unbundling attempts in other developing nations.
Krüger made this known during a presentation to the Portfolio Committee on Energy.
Reasons for opposition:
Lack of political will to implement unbundling effectively, leading to potential bankruptcy and job losses.
Concerns about the government’s ability to manage the process and prevent asset looting.
Historical examples of failed unbundlings in other countries, including Russia and Zimbabwe.
Lack of empirical evidence linking unbundling to improved performance in the developing world.
Vietnam’s success as a developing nation with a fully vertically integrated utility.
The World Bank’s conclusion is that there is no correlation between public/private ownership and utility performance.
Krüger emphasized that successful unbundling is dependent on specific prerequisites that South Africa currently lacks:
A political class committed to embracing and implementing free market principles.
Honesty about the potential consequences of unbundling.
Engagement with extensive literature on unbundling in the developing world, acknowledging its risks and complexities.
Krüger anticipates that the unbundling of Eskom might not follow the traditional path but could result in failure, similar to what happened in Russia in the 1990s and Lebanon and Zimbabwe, where the process led to adverse outcomes like oligarchy formation, social hardship, and the need to rebundle utilities.
“The government is not being honest with the facts and straight with its intentions,” Krüger stated. He pointed out that almost one-third of Eskom’s assets are under unplanned capacity loss and the government seems unwilling to address this important issue.
Krüger also cast doubts on the government’s claims that unbundling will not lead to “job losses”
He also references extensive literature on unbundling in the developing world, including a World Bank study that suggests a weak correlation between public and private ownership of utilities and their performance.
These literature indicates that unbundling has not consistently improved the security of electricity supply in the developing world.
He pointed to Vietnam, a developing nation with a vertically integrated utility, as a successful example of achieving high economic growth without unbundling.
“The World Bank itself concluded in 2018 that there is no relation between public and private ownership of utilities,” Krüger added.