CAPE TOWN – The extent to which a desperate social condition can be described as a crisis requires a series of definitional acuities and to reach that end, a sudden conversion of accelerating interventions. The situation itself or as in this case, our energy economy, may not deserve the appellation of crisis, no matter the rapidly expanding volatility of its desperation. It is in the process of measuring the desperation against varying socio-economic factors which may lead to the deduction.
For certainty, it is important to understand what if anything is desperate in our energy economy and to what extent does it fail to support the fragility of our de-industrializing economy. Let’s start with the description of an efficient energy economy. It is possible to conceive of definable attributes of an efficient economy, as opposed to a perfect one. The reasoning behind this conclusion is not complex. A perfect energy economy is not realistically achievable by this or kindred economies, either of similar size or depth. And while exploring the preeminent attributes of what eventually aggregates to efficiency, the point about different energy economies shall be explored.
My convenient starting point is not really convenient, but at least it’s a start. Not all energy economies are born equal. The size of the endowment of primary sources, the geographical dispersal of source to market, the premium leverage of the commodity, the size of the population, the ownership, the policy undergirding the relationship of participants in the energy market value chain, the currency, the performance of the economy and, in order to make the list reasonably accessible, all other factors that are susceptible to global vicissitudes, contribute in large or small measures, to the definition of a country’s energy economy and the measure of its efficiency.
Flourishing energy economy
Framed rather differently, is it really possible to contemplate a flourishing energy economy in a declining or failing economy and a shrinking GDP output? Is it even necessary to make a dialectical connection between the two, if indeed an energy economy is a prominent facet of the overall economy? An answer in the negative elevates the temptation to suppress the enquiry. Yet, the temptation notwithstanding, we must go on enquiring with the sincere hope that we may unveil those esoteric aspects of the energy markets and their economy that would help us understand the choking nature of their symbiosis.
Energy for its part lends into the economic converse its own universe of complexities. Whilst coal still dominates the primary sources for the generation of electrical power, it has new competitors, solar and wind. The dominant sources of primary vehicular engine power, however, are anything but coal. And there begins the complication. There is compelling empirical evidence that the new competitors of Eskom are partially reliable, very expensive and cannot survive on their own without drawing blue blood from Eskom. It is this realization that makes one wonder why the cheapest, safest and most reliable energy source generated from nuclear, has been politicized to a point where anybody, I mean anyone, who points out the obvious, must necessarily be crucified on a Russian cross and forever be damned. But then again, powerful anti-nuclear forces who are invested in some other technologies, also have overweening political clout with adequate sway to forestall the debate long enough until the Eskom obituary is read.
Efficiencies in our energy economy ought to reflect the true cost of local coal production and how such coal is acquired. This would include increasing the production of electricity from sources which are cheaper and, as an urgent priority, the delinking of electricity supply from renewable sources from the Eskom balance sheet. Energy markets are most likely to be efficient when they are transparent, something that South Africa will be at pains in doing. And so this aspect of upstream energy generation is the only thing we may have the ability to control.
A monopoly advantage of transmission
Generators of electricity, all of them without exception, must each find their own markets and in tandem, their own clients' writ on transparent contracts that are accessible on the electricity energy index. This approach provides Eskom with a monopoly advantage of transmission at globally competitive prices. The perversion of this logic will be accentuated when the Transmission function of Eskom is privatized, a factor which would push the desperation of our energy economics into a crisis. A full state capture if you will!
Beyond the point of coal, we wade into the dark murky waters of oil, monopolies and politics. It is almost evident to any reasonable onlooker that no matter the posturing regarding the petrol price formula, no politician wants to be the first one to do it. And this is largely accounting to the fact that there are some in-built areas of cushion for International Oil Marketing Companies which serve as incentives to keep them here. This has resulted in turning the Basic Fuel Price into the holy of holies. So sacrosanct is the BFP that neither the parliament of the people nor the Energy Regulators can even investigate it. And so our debate is weak, factually impoverished and intellectually dishonest. The question arises as to what would happen when a local company puts up a petroleum manufacturing facility. But I digress.
Whilst petrol and diesel prices are ever-increasing for a population that is continually getting poorer, in what some observers believe is the country with the highest wealth inequality on the planet, the country’s refining capability is becoming less and less efficient, thereby tending to rely more on imports. It is all these liquid imports, South Africa’s largest single import bill, that negatively affect our Reserve Bank balance of payment capabilities and help expand the country’s current account deficit overall.
If the prices are distorted and there is no policy bulwark against these production costs, energy pricing and petroleum liquids import imperatives, the energy economy is rendered inefficient to a point where it ceases to serve the macroeconomy for which it was designed. It must be repeated in these pages that the state has the opportunity to do what all other ambitious nations have done. And this is to own all our remaining natural resources through a state-owned company, thus bringing into the country’s balance sheet the trillions of dollars worth of value for the benefit of all our patriots and posterity. Any private entity wishing to exploit these minerals must partner such nominated state-owned company, where the state will always be the majority.
SA natural resources belong to no one in particular
It is a known fact that all the oil found in Saudi Arabia or Norway belongs to the Saudis and the Norwegians respectively. And yet it is a known fact that natural resources found in South Africa belong to no one in particular and therefore can be owned by anyone else. The tragic effect of this reality is difficult to fathom. Different energy economies range from the cheapest priced energy sources to the most expensive. The difference between these two ranges is emphasized by the fact that cheaper energy sources economies tend to develop faster than their counterparts who are left languishing at the desperate and expensive bottom of the energy price pyramid.
What is even more compelling is the correlation between the cheaper pricing of the energy source and its ownership. The state that owns its energy sources, can price it reasonably. And while we are not prolific producers of oil and gas, we must resolve to wean ourselves off from those energy sources that are most expensive in our economy, determined as we are, to embark on a transition to sources that would be cheaper, accessible, local, environmentally friendly and can be priced by our Independent Energy Regulators.
A glaring policy mystery is the relationship of Eskom with the Energy ministry and the reasons why the energy giant reports under the portfolio of Public Enterprises. Eskom is a state-owned enterprise and ergo, must fall under the Ministry of Public Enterprise, we are told. This syllogism does not reflect all the state’s reality and its exceptions. CEF, PetroSA, the State-owned Mining Company and many others in that line of stable, are also state-owned enterprises, yet are accountable to the Energy portfolio. If this adjustment is not pursued either by treating Eskom as an energy asset or as an exception to it, the perpetuation of policy apathy and unresponsiveness will continue to distort our energy efficiency ambitions for a depressingly long period of time.
And so the experts were right all along, the economy is a malleable vestibule that is shaped by many primers. I am beginning to accept that our energy balance is way out of kilter, our primary energy generative sources are too costly, the energy import stranglehold is unsustainable and that our policy vortex is completely unresponsive. In short, our energy economy is inefficient. The energy markets are not transparent and if we are not careful, allowing the Transmission grid of Eskom to tango romantically with independent power producers, may spell a svengali hold that may be impossible to disentangle for generations to come.
Too many of these tributaries have flowed silently and have suddenly converged into the estuary of an economic cauldron in full crisis mode. If the energy matrix, the biggest contributor of all, is in such crisis, therefore, small wonder our macroeconomy is in even deeper trouble.
Ambassador Bheki Gila is a Barrister-at-Law.
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