Business Day column: Eskom is victim of bad policies and absurd expectations

25 March 2015
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AS PUBLIC Enterprises Minister Lynne Brown has no idea why Eskom’s four top executives are incoherent, she suspended them. The reason for their incoherence is that endless turnaround strategies made them too dizzy to know what she wanted them to say. To keep Eskom turning around faster than its diesel-guzzling air-polluting generators, Deputy President Cyril Ramaphosa’s "war room" discussed new plans with business representatives and thought of a wild newfangled battle plan, the use of experts.

Yes, that should work. Why did no one think of it? The seemingly rational assumption had been that we need people who know nothing about electricity to produce it.

Brown assured us five weeks ago that "we’re not in a crisis because we’ve got a solution". The hitherto undisclosed solution: a war room in peace time, suspension of managers who keep ministers in the dark, an umpteenth turnaround plan and, above all, experts. Not just any experts, not gravy train experts, for instance, but electrifying experts.

If we are lucky beyond reason, these experts will know more about policy than turnaround plans, management or electricity. The problem has never been a lack of plans, managers and engineers, but indifference to policy reforms informed by international experience. We suffer under a quaint assumption that moribund policies, as if by magic, will yield different results if implemented by different people. If we are lucky, very lucky, it will occur to one of the role players that the problem is failed policies, not failed managers.

An expert — not one of Ramaphosa’s recruits — who looks beyond our myopic borders, Chris Yelland, observed that Eskom is "a dinosaur in a modern world". The problem, he observes, is that, as the government never implemented its 1998 policy, "we’re stuck with an old apartheid dinosaur". To the limited extent that anything resembling our nationalised monopoly existed elsewhere, it has been or is being modernised by being unbundled, partly privatised and forced to operate in a relatively free energy market.

The Eskom problem is not the presence or absence of war rooms, experts, turnaround plans or lucid managers. It is institutional; the inherent and inevitable consequence of the government’s undying devotion to "strategic" apartheid enterprises. The government repeatedly promises modernisation in such documents as the 1998 energy white paper, speeches and resolutions, the Independent System and Market Operator Bill, and the National Development Plan (NDP), but just cannot wean itself from the apartheid teat. Ramaphosa actually needs two extra experts: a political scientist to explain the addiction and a psychologist to cure it.

What the war room should do is not rocket science. The solution, like most solutions, is to discontinue causes. To win the war, they must issue marching orders, not ruminate about which, if any, war to fight. We should start by marching into the preceding century before it is too far behind us. Our experts should be generals whose battle plan implements 17-year-old pro-market policies. The long-term solution is to allow private energy producers to decide what form of power to generate at their own expense for sale to the government and liberated consumers.

Sensible policies can end short-term shortages surprisingly quickly and easily. Higher prices, especially peak pricing and charging all consumers for what they consume, induce people with flexibility of demand to cut consumption. On the other hand, huge rental generators on barges can be plugged into the grid within weeks, thus increasing supply. In economics, there are no shortages or surpluses, only government prices that are too low or too high.

None of this ignores Eskom’s need for improved management. The world’s best governance cannot solve the problem. Eskom is a victim of bad policies and absurd expectations. Basic arithmetic makes it clear that Eskom alone cannot, with whatever subsidies the government can provide, supply enough electricity for prosperity. Only private investors in a deregulated market can do so.

Louw is executive director of the Free Market Foundation.

This article was first published in Business Day on 25 March 2015


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