Unbundling Eskom is going to cause more problems
Eskom’s problem is not a dogmatic debate about ownership, its simply about adding capacity to the grid.
The Public Enterprises Minister, Pravin Gordan’s recent decision to approve the unbundling of Eskom into three separate entities, distribution, generation, and transmission has been welcomed by the Media- and Business Elite as an opportunity to bring “the power of the market” to the electricity crisis. The Minister’s decision is expected as it follows President Cyril Ramaphosa’s 2019 proclamation that "bold decisions and decisive action" are needed to save the “struggling power utility” and former Eskom CEO André DeRuyter’s remark that “It is common cause and widely accepted that [a vertically integrated utility] is an outdated business model”.
As Joseph Goebels would have remarked of their rhetoric, propaganda is about repetition and its greatest enemy is the truth.
A nationalized utility is not an “outdated” business model and one does not have to be Karl Marx or Julius Malema to read the World Bank’s 2018 assessment that concludes that “There is no significant difference across utility ownership types with regards to the efficiency and quality of services provided to commercial end-users”. In fact, the report notes that public utilities provide lower tariffs to end users.
“Private investors” are always keen to rent seek in natural monopolies such as electricity infrastructure so that their profits can be privatized, and losses socialized. Case studies have shown that as the private sector lacks the capital or become impatient, they end up selling the assets for scrap and the utility deteriorates.
Notably examples include Russia in the 1990s when Boris Yeltsin embraced the privatization advice of Bill Clinton’s “Harvard Boys”. The selling of “unperforming assets” to the Russian Oligarchs resulted in a decrease of life expectancy during peace time and a resentment that led to Putin’s rise to power.
A similar situation took place in Ukraine around 2014 when the IMF advocated for “structural reforms” with the aim of privatizing the energy infrastructure. Ukraine was pressured to do so by the US Coup Plotter, Victoria Nuland (who recently praised South Africa’s “just” transition). Energy prices rose with consequences that saw Ukraine turned into a Mafia state, the Maidan Coup d’état, the deepening drift between the Russian and the Ukrainian speakers in the Donbas Region, Putin’s Annexation of Crimea, and The Russian-Ukrainian War.
Other less extreme examples of policy failure include the United Kingdom where privatization resulted in the nationalized utilities of other countries taking over the slack. France’s Electricité de France (EDF) became “the independent power provider” that took over the operations of the UK’s nuclear fleet and in 2023 the Tory Government reconsidered the Renationalization of Railway and Water Supply, because private investors ran the assets into deterioration. In 2022 France renationalized EDF with a mandate to expand and maintain the existing Nuclear Fleet and it’s worth noting that in the United States of America, some of the best performing utilities include the Hoover Dam and the Tennessee Valley Authority - the symbolism of American Civil Engineering.
The privatization dogma started following the 1973 oil crisis as the Chicago School of Economics took over the West’s levers of power, and since then energy consumption has declined in the West to the point of Thermal Dynamic Instability. Industries were offshored to Asian countries who kept their nationalized utilities and added more generation capacity to the grid. South Korea and Taiwan, with nationalized utilities still provide some of the most affordable electricity prices in the industrialized world and China a few years ago, with a nationalized utility, became the world’s largest economy. Even more remarkable is Vietnam’s economy that is expanding, with a nationalized utility, at a faster pace than even China ‘s did.
Eskom was founded on 1 March 1923 with the mandate to “ensure the delivery of cheap electricity in the public interest”. As a nationalized utility Eskom had a better credit rating than the SA government and the “outdated business model” won the 2001 Global Energy Awards for the Power Company of the Year.
Why can’t it work like that again?
Loadshedding as Dr. Frans Cronje of the Social Research Foundation noted can be fixed in a 12–18 month period by simply adding power to the grid. 4GW of power to end loadshedding and 11GW-15GW to achieve a 5% GDP growth rate. With the fastest route is to fix the existing coal fleet, import natural gas, and expanding rooftop solar. In addition, Eskom should construct Nuclear Power Stations around the coast for desalination. The time is ideal as South Korea, Russia, and China are all hitting mass production in nuclear. Bonds easily finance this policy and there is no need to touch pension fund money.
Eskom’s problem is not a dogmatic debate about ownership, its simply about adding capacity to the grid.