By Hügo Krüger
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 was expected as it followed President Cyril Ramaphosa’s 2019 proclamation that "bold decisions and decisive action" were needed to save the “struggling power utility”, and former Eskom CEO André De Ruyter’s remark that, “It is common cause and widely accepted that [a vertically integrated utility] is an outdated business model”.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A nationalised utility is not an “outdated” business model and one does not have to be Karl Marx or Julius Malema to read the World Bank’s 2018 assessment that concludes that, “There is no significant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 privatised, and losses socialised. 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.
Notable examples include Russia in the 1990s when Boris Yeltsin embraced the privatisation 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 International Monetary Fund advocated for “structural reforms” with the aim of privatising 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 rift 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 UK where privatisation resulted in the nationalised 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 Renationalisation of Railway and Water Supply, because private investors ran the assets into deterioration.
In 2022 France renationalised EDF with a mandate to expand and maintain the existing Nuclear Fleet and it’s worth noting that in the US, some of the best performing utilities include the Hoover Dam and the Tennessee Valley Authority - the symbols of American Civil Engineering.
The privatisation dogma started following the 1973 oil crisis as the Chicago School of Economies 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 nationalised utilities and added more generation capacity to the grid. South Korea and Taiwan, with nationalised utilities still provide some of the most affordable electricity prices in the industrialised world and China a few years ago, with a nationalised utility, became the world’s largest economy. Even more remarkable is Vietnam’s economy that is expanding, with a nationalised utility, at a faster pace than even China‘s did.
Eskom was founded on March 1, 1923, with the mandate to “ensure the delivery of cheap electricity in the public interest”. As a nationalised utility Eskom had a better credit rating than the South African government and the “outdated business model” won the 2001 Global Energy Award for Power Company of the Year.
Why can’t it work like that again?
Load shedding 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% gross domestic product growth rate. 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.
Hügo Krüger is a YouTube podcaster, writer, and civil nuclear engineer who has worked on a variety of energy related infrastructure projects ranging from Nuclear Power, LNG and Renewable Technologies.
* The views of the column are independent of Business Report and Independent Media.
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