For our sake, Eskom must carry less of the burden

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I love the term “load shedding”. It almost sounds like Eskom is doing us a favour; like they are shedding some terribly heavy load from our shoulders and making our burden lighter. In truth, it is quite the opposite.

Rolling power cuts are stifling the economy and causing disruptions nationwide. It is not Eskom that needs to do the load shedding, but industry that needs to shed the load from Eskom.

The answer to our energy crisis lies in part privatisation of the energy supply.

I am not in any way a fan of privatisation across the board, nor do I think that all of the government is incompetent. But certain things are best managed by competitive individuals and, in part, energy supply is one of these things.

The latest power shortages were not caused by a lack of power stations. They were not a result of poor maintenance programmes that have not been properly implemented over the past few decades. There was no bolt involved, no unforeseeable event or crisis, no random act of nature or energy demand that suddenly exceeded that of the norm.

The reason for the load shedding is, according to Eskom’s chief executive, that coal stockpiles were soaked due to rain. Keeping enormous quantities of coal out of the rain is a challenging and expensive task, but the grain industry manages just fine to ensure exports are of prime quality.

Another factor exaggerating the problem is that the coal Eskom uses for power generation is a fine coal dust which is susceptible to humidity. Better is a type of coarse coal, which in South Africa is mostly destined for export to fetch higher prices.

Doing things right would cost Eskom more money, which in turn would cost the consumer more. But, according to some estimates, a day’s power outage costs our economy 0.2 percent of daily gross domestic product. Putting into numbers the time lost, frustration, deterring signals sent to investors, instability in business commitments and opportunity costs of the disruption, would be a far harder guesstimate.

Allowing private firms to enter the market for energy production – in order to add to Eskom’s production, not to replace it – would probably lead to a general increase in prices. The same thing happened in Guatemala when it began a process of energy privatisation in 1996. After a short while, prices stabilised and the results were a more reliable energy supply and an increase in capacity. Once the market matured, systems developed to allow lower rates for low-level consumers and bulk pricing for large-scale commercial users.

In Ireland, the supply of electricity is highly regulated but allows for private suppliers to sell to the market if they feel that this is a profitable venture. They do.

In the 1980s, Chile went through major reform in its electricity sector and privatised all supply. The state partly funds infrastructure development, though, especially for transmission to rural and sparsely populated areas.

South Africa has unique challenges and total privatisation is not recommendable. But the country’s lifeline for production is controlled by a single institution that buckles under bad weather. Its response is to build more coal plants, but not even the current supply of coal can be cared for. What happens when the new plants demand much more? Why have new plants when the current ones can’t be kept operational?

South Africa needs another solution and it lies in Eskom carrying less of the load.

* Pierre Heistein is the convener of UCT’s Applied Economics for Smart Decision-Making course. Follow him on Twitter @PierreHeistein


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