Eskom, the ANC, government and public trust

The extreme nature of the reaction to the electricity price increase is about a number of things, perhaps most obviously:

• the public and institutional suspicion that the crisis in Eskom is due to cronyism at a management level and looting via tender abuse by a politically connected elite, and
• the Great Recession has left the society, but particularly the poor, deeply vulnerable to price shocks like this one.

The National Energy Regulator of South Africa has granted Eskom the right to increase its tariff 24.8 percent this year and a further 25.8 percent for 2011, and 25.9 percent for 2012.

The problem Eskom is attempting to address is its increasing inability to meet growing demand for electricity because of capacity constraints in the generation, transmission and distribution process – with this capacity already having caused the economic and social chaos of the rolling blackouts two years ago.

The price increase immediately:

1. makes it viable for Eskom to raise the more the R385 billion it has estimated it needs to upgrade its generation capacity;
2. reduces demand.

Either way (or rather, both ways) the constant threat to the extremely narrow reserve margin (the small safety gap between what is demanded by industry/society and what Eskom can supply) is immediately relieved.

The SACP and Cosatu are outraged. The SACP calls this a “catastrophic betrayal of the poor” and places the blame squarely on “a neo-liberal economic regime that did not encourage increased state investment”. Cosatu speaks in similar terms, but also appears to acknowledge that the increase is less than the 35% per year that Eskom wanted.

The level and timing of the increase is a political matter and it is quite likely that Eskom built a margin into its request to give the regulator and, by popular implication, government room to wriggle and demonstrate its caring and thoughtful approach. And this is as it should be in the political kingdom.

To make a real assessment of the validity and necessity of the price increase one would need a detailed and comprehensive analysis of Eskom, its productivity and its commercial soundness. In the absence of such an analysis here are two general points:

• We have to move towards costs recovery in this kind of utility. It is appropriate to protect the poor and possibly subsidise the use of this kind of product, but the society as a whole must pay the price of the secure and ongoing generation, transmission and distribution of electricity. Hiding those costs through the state subsidising Eskom is a mistake.
• It is crazy that this far down the road we still have a state utility that has a monopoly on the generation and transmission of electricity. What is it about the last hundred years of human history that could suggest to anyone that a state institution is likely to generate electricity more efficiently, cleaner and more securely than a competitive private sector and a traded electricity market?