File photo: African News Agency (ANA)
File photo: African News Agency (ANA)

Privatisation is not the way to go

By Waseem Carrim Time of article published Feb 12, 2019

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In the State of the Nation Address 2019, the president announced reforms to Eskom which was to start the unbundling process.

Naturally, being South Africans, the reactions were at both ends of the field. The market generally welcomed the announcement, indicating that sweeping reforms were needed, and organised labour responded by indicating that they do not support the changes and that strikes were imminent.

We sometimes forget the quality of a compromise. And evidence of the compromise can be found in the President’s speech where he said, “As we do all this, we will not support any measures that, in any form, dispose of assets of the state that are strategic to the well-being of the economy and the people”.

Energy lies at the heart of everything we do. If we are going to build quality infrastructure, capacitate medium-sized manufacturers and allow a rural young person to study at night, we need a safe, cost-effective and reliable power grid. And that is the reason I don’t believe privatisation is the way to go.

Let us consider examples. The experts will indicate the success of the privatisation of Telkom. And yes, Telkom has made a transition from being a fixed-line operator into more diversified type services.

Yet, has its privatisation made the quality of life better for most South Africans? I would argue no. We are still battling the challenges of high telecommunications costs due to the oligopoly of Vodacom and MTN.

MultiChoice remains a monopoly despite Telkom burning through cash to develop an alternative, the main challenger being an international competitor called Netflix.

Then there’s the little-reported scandal of Telkom blowing R200million on strategies that were never used with Bain.

And then Telkom’s share price is about R66, way down from the highs of R179 in 2007. Still think privatisation is the way to go?

The Airports Company of South Africa (Acsa) is one of the few state-owned entities earning a profit.

Although it faces challenges, it has contracts to build airports globally, which is critical for the growth of the economy. It is an interesting case, because although it is majority state-owned, it has a percentage of private ownership.

Back to Eskom: Eskom should produce and distribute power for the state itself for business and for consumers. In any monopoly, the ability of the owner to increase price irrespective of quantity demanded exists. If we privatise, given the debt shareholders would be required to take on, one cannot expect anything other than increases in electricity over the short term.

However, we need Eskom to attain our developmental objectives. And we can use the pricing of electricity to attain those objectives.

We pursue pro-poor policies - we should have electricity pricing that responds to household income rather than collective pricing.

We must also appoint the right competence at Eskom. I would advocate that the president should again allow for an open televised process for the appointment of the board and chief executive.

And then what of the future?

The National Development Plan indicates that one new power station (producing 4 800MW of electricity) costs about twice the entire depreciated capital stock of existing power stations (producing 40 000MW) illustrates the challenge.

We need to transition all households towards solar power in the next 10 years and this can be done with strong research and development in this sector.

We should also consider alternative mixes of energy if we build this skill in the country, and not import it. I know that we can come together to foster a new energy era, new industries, create millions of new jobs, protect our planet, and help us become more energy independent.

Carrim is the chief executive of the National Youth Development Agency

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