Public ownership of the electricity system must be defended

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When Cyril Ramaphosa became president on 15 February 2018, Eskom was operating at an energy availability factor of 78% and surplus electricity of 5 600 megawatts. This was a world-class performance considering that energy availability had peaked at 86% in the winter of 2017. There had not been load-shedding since September 2015.

On 21 January 2018, a few weeks before his inauguration, Ramaphosa stepped in to remove the board of directors of Eskom and unlawfully dismiss group chief executive officer Matshela Koko. They were replaced by a group of inexperienced and pliable appointees, such as Jabu Mabuza, Malegapuru Makgoba, Phakamani Hadebe and Andre de Ruyter.

It is undisputed that, after Ramaphosa’s new appointments, the energy availability factor collapsed from 78% to 50% in five years. A total of 17,4 terawatt-hours of energy was not served, at a cost to the economy exceeding R1.5 trillion over those five years. The economic costs have been devastating, with the electricity crisis being a central factor in our ongoing economic decline. The South African Reserve Bank sees the country’s economic growth dwindling to 0.3% this year from 1.1% in 2022. The International Monetary Fund downgraded its 2023 growth forecast for South Africa from 1.2% to 0.1%.

This is an economic bloodbath which, of course, is swiftly worsening the already acute social crisis. With mass unemployment, endemic hunger and a general sense of decay and hopelessness one would have thought that Ramaphosa would have done all in his power to ensure a regular and affordable supply of power.

The question is why Ramaphosa intervened in Eskom on 21 January 2018, to trigger an energy crisis? The answer lies in the class interests of the elites that Ramaphosa represents. As any student of politics knows, those who control the economic life of a country tend to have an overwhelming influence over the formation of opinion and the development of state policies that serve their interests.

The banks and the financial institutions at the commanding heights of the economy want the structural reform of the electricity sector. Last month, Business Day reported that the five big banks in South Africa stand to benefit from R1 trillion in loans to fund the shift to renewables in the next four years. Other factions of capital stand to benefit from the construction, management and ownership of renewables. The electricity crisis is a social crisis for the majority but for a minority it is an opportunity for rapid accumulation and enrichment.

This is typically the case, worldwide, when publicly owned institutions are run into the ground and then privatised. Noam Chomsky, the great American academic, famously described what he called “the standard technique of privatisation” as “defund, make sure things don’t work, people get angry, you hand it over to private capital”.

The plain fact is that an Eskom that works is an obstacle to restructuring the electricity sector and therefore an obstacle to the prospects of huge accumulation by some fractions of capital, against the interests of other fractions of capital, as well as society as a whole. De Ruyter and his board were not deployed to fix Eskom or to sustain it. They were deployed to wind it down and begin the shift to privately owned renewables.

Ramaphosa and his grouping in the ANC stand for the structural reform of the electricity sector. And, as is so often the case, there are also powerful international forces at play. The International Partners Group — chaired by the UK and comprising that country, France, Germany, the US and the EU — have mobilised the initial $8.5 billion to catalyse the first phase of the so-called just energy transition in South Africa. This is not charity, let alone solidarity. It is an investment in the further enrichment of the West at the direct expense of ordinary South Africans.

We have to ask who are the actual beneficiaries of the “just energy transition” that seeks to exclude nuclear, gas and clean coal technologies in the integrated resource plan? The answer to this question is essential, considering that European electricity costs tend to rise with renewable energy penetration.

The World Energy Outlook Report published by the International Energy Agency in 2022 is instructive. It shows that, in 2021, financing costs accounted for around half of the total levelised costs of a solar PV plant, which reached the final investment decision in the emerging market and developing economies, including South Africa. Capital costs comprise 35% to 40% of the total levelised costs. Operations and maintenance levelised costs make up only 10%. Vast amounts of money stand to be made from financing the just transition in South Africa.

The link between interest rates and the just energy transition becomes obvious. The Reserve Bank is aggressively implementing contractionary monetary policies to tackle inflation. In this kind of environment, borrowing costs tend to rise faster. The bank increased the repo rate by a 50 percentage basis point at its March 2023 meeting. It was the ninth consecutive rate increase since November 2021.

Economists are forecasting another hike in interest rates in May. The impact on the profitability of the just energy transition is significant given that financing costs account for around half of the total levelised costs of a solar PV plant. The banks and other financial institutions are the biggest benefactors of the just energy transition. The Reserve Bank’s contractionary monetary policy is the most significant lever for these financial institutions.

South Africa must be pragmatic in balancing strategies to keep the lights on with the pace, scale and cost of the transition to renewables. Adding a significant intermittent power source to the system affects the ancillary reserves’ requirements, balancing electricity production and demand, the supply of reactive power and the system’s cost.

The system operator’s biggest challenge today is that the ancillary reserve services are underperforming. Unless this is addressed, load-shedding will not stop and building more renewables can only worsen it. The only short to medium-term solution is extending the life of Eskom’s old coal power stations.

Metal workers’ union Numsa, having held a meeting with the minister of electricity, is extremely impressed by Kgosientsho Ramokgopa’s quick understanding of the importance of prioritising quality maintenance of power stations to receive a 75% energy availability factor. He was clear about the importance and urgency of reconnecting all the units in power stations that were recklessly disconnected under the leadership of former Eskom head De Ruyter and Public Enterprises Minister Pravin Gordhan. We remain firm that this should be the main focus of both the electricity minister and the new group chief executive officer of Eskom.

However, we must be clear that we differ with the latest pronouncement by Ramokgopa when he called for the private sector to take over old power stations, refurbish them and run them on behalf of Eskom. We agree with him that the lack of investment in Eskom’s coal power stations will lead to more load-shedding. However, we object to them being given to the private sector to be refurbished and operated on behalf of Eskom.

The fiscus must invest in refurbishing coal-fired power stations to improve their performance. Eskom should never be considered a burden on the fiscus and we remain firm in rejecting the shrill demands for the privatisation of our country’s energy provision.

It is crucial that electricity remains a public good so that, as a country, we can continue to have a competitive electricity tariff to drive the much-needed manufacturing and industrialisation of our economy. This is the key to creating the jobs so desperately needed to alleviate the crises of poverty, unemployment and inequality.

Ramokgopa cannot be allowed to succeed in his plan to hand over Eskom coal power stations to the private sector. The South African people will go to the streets to oppose his attempt to drive the privatisation project via another route. We will defend the need for public investment in publicly owned institutions to be run in the public interest.

The ANC cannot do as it pleases, while the rest of society is left to contemplate the ruins it leaves behind.

Irvin Jim is the general secretary of the National Union of Metalworkers of South Africa, the largest trade union in the country. This piece was originally published in the Mail & Guardian.