FMF Media Release
16 May 2018
Give Eskom – nothing – and certainly not R67 billion
National energy regulator Nersa should grant power utility Eskom ‘nothing’ until costs have been prudently and efficiently determined. Nersa should rather tell the Department of Energy (DoE) and Eskom to adopt international best practice: i.e., establish independent distribution and generation grids; introduce competing power generation; sell off power stations; deregulate to increase competition; allow private sales back to the grid; sell assets to pay off debt, and create a competitive energy market.
This will achieve the energy security that South Africa needs, according to Terry Markman, Free Market Foundation Board member, in a hard-hitting submission to Eskom’s MYPD 3 – 2014-15 to 2016-17 application on 14 May. None of this is new. It is existing government policy and included in the 1998 White Paper, the ISMO Bill and the NDP.
“The R67 bn Regulatory Clearing Account (RCA) claim Eskom wants is outrageous and a direct result of gross inefficiency; poor management; maladministration; corruption; high wages; overspend at Medupi and Kusile and more. They should get nothing because any grant at all is a reward for incompetence and inefficiency. We should send Eskom the strong message that consumers have had enough.”
Markman said that the saying attributed incorrectly to Albert Einstein holds true here: “The surest sign of insanity is to do the same thing over and over again and expect a different outcome. It’s time to get sane and change how things are done.”
Eskom must do what private companies in financial trouble do: reclaim stolen money; claim against any illegal contracts; become efficient; reduce their wage bill and sell off assets. They cannot keep coming back with a public funds begging bowl.
“Nersa should tell the DoE, the Treasury and the Department of Public Enterprises to address the basics and undertake a fundamental review of the Eskom business model,” Markman said. “We need a strong, independent and objective organisation to tell the government what is the solution. Nersa could do this as they have the knowledge and understand the policy. Eskom cannot do this – they are operators not policy makers.”
Energy security in SA requires the following fundamentals:
- Independent transmission and distribution grids
- Competing power generation
- Deregulation to increase competition
- Sale of assets to pay off debt
- Create an energy market
An independent transmission grid is international best practice and best achieved by PPP (private power producer) tenders. All electricity producers must have equal access to the grid and receive equal treatment. Eskom must cease to act as both ‘referee’ and player.
Private sector generation is efficient, reliable and well maintained. Separate competing entities will force prices down as has been seen in the IPP renewable sector. Consumers should be able to buy from any local supplier they choose and able to switch as they want, as in the UK and New Zealand. Power stations should be sold off, including older ones. Already 5-10% are in private hands.
Examples of the positive effects of a competitive energy market exist globally. The European Union (27 countries) introduced competition (access to grids) and prices fell by up to 20%. When the UK broke up the electricity monopoly, prices took 20 years to double.
Deregulation is essential to increase competition and allow anyone to produce electricity and be able to sell (wheel) to anyone else off the grid, for example, adjacent farmers wheeling to a neighbour. Only safety and technical regulation is required.
Eskom’s debt is a threat to SA’s economic security. Energy security is vital to invigorate competition, sustain growth and encourage job creation. Lack of energy security has seen our manufacturing sector and industrialisation programme stall. Eskom requires a fundamental shake up. Right now, it is an apartheid dinosaur dragging down our prospects of economic recovery and damaging SA’s international standing among investors and credit rating agencies.