The Committee was briefed on the comments on the Eskom Debt Relief Bill by the Minerals Council of South Africa (MCSA); the Congress of South African Trade Unions (COSATU); and DearSA. The organisations spoke extensively in response to all questions the Committee raised, with a full engagement covering a wide range of topics.
The MCSA said that unbundling Eskom into three entities -- generation, transmission, and some parts of distribution --would not solve the country's electricity woes, because they would still be wholly owned by government. Governments, because of competing objectives and, at times, on account of corruption, eventually run out of money to recapitalise the enterprises they own.
COSATU supported the objectives of the Eskom Debt Relief Bill and the relief it would provide to Eskom. They believed this relief would help it shift its resources to ramp up its maintenance programme. This was the fastest way to end load-shedding and thus ease the burdens on workers, their families, businesses, the economy and the fiscus. However, it was deeply concerned by some conditions set by National Treasury, such as the prohibition on Eskom investing in new generation capacity. This made no sense. One of the fundamental causes of load-shedding was that Eskom’s generation fleet was nearing the end of its life span.
DearSA said it hosted a participation campaign online to facilitate, educate and encourage public participation and comment to shape this Bill. Those participants who did not support the Bill had raised concerns over corruption, mismanagement, constant bailouts, a lack of convictions, and political interference. Solutions included a strong call for privatisation, reduced employees, employed skilled individuals, and recovered municipal debt.
Members questioned why it had taken the organisations that had been around for several years so long to intervene and bring all the issues to light. Of all the issues that had been raised, privatisation was the most concerning matter of all, the question being whether privatisation was going to solve the energy crisis in the long term. They pointed out various dangers of privatisation, saying that the private sector was also a part of the corruption afflicting Eskom. The private sector was going to serve only their own best interests, and the poor were going to be sacrificed in the process, as they were not going to focus on providing electricity to those who could not afford it. The already high tariffs were going to keep on increasing if Eskom was privatised.
Chairperson’s opening remarks
The Chairperson welcomed the Members, the support staff, members of the public, and the organisations who were presenting before the Committee today. The meeting was a continuation of the process of dealing with the Eskom Debt Relief Bill. According to the Constitution, they had to involve the public, stakeholders, and people with interest in the bills that were passed. Many organisations had approached the Committee and expressed their interest in the Bill.
Before they proceeded with the meeting, the Chairperson asked if there were any apologies. Mr N Kwankwa (UDM) was the only Member who asked to be excused from the meeting.
The Chairperson moved on to the third item on the agenda, which was to allow the different stakeholders to make their presentations. He reminded them that each had a maximum of 20 minutes to make their presentation. Only after all three stakeholders had finished their presentations would he allow the Committee to comment on the presentations and pose their questions to the stakeholders.
Minerals Council of South Africa (MCSA)
Mr Bongani Motsa, Senior Economist, Minerals Council South Africa, took the Committee through the MCSA’s comments on the 2023 Eskom Debt Relief Bill.
He provided the Committee with a brief background of energy consumption in China, South Africa and the US. The reason that China had become a global manufacturing factory was due to the availability of energy and its affordability. The US had become a services-driven economy, as shown by its industrial sector's decline in energy consumption. This was a natural process as countries developed, so it was not about energy use efficiency, but a decline in the US’s industrial sector. South Africa’s sector declined due to a lack of energy and higher tariffs.
On the erosion of global competitiveness, cost indices indicated an erosion of global competitiveness. The mining producer price index (PPI), the South African consumer price index (CPI), and Eskom average tariffs, had grown much more than commodity price indices -- base metals, metals and minerals, and precious metals. To remain competitive, mining firms had to cut jobs. In other instances, they had to limit investment in greenfield projects.
There was a clear decline in electricity generated and available for distribution in South Africa, mostly due to Eskom’s underperformance. The lack of electricity had led to de-industrialisation and weak growth, while higher tariffs reinforced the erosion of competitiveness.
He took the Committee through the recommendations the MCSA had developed.
On the Eskom debt relief general principles
There was a clear decline in electricity generated and available for distribution in South Africa - mostly due to Eskom's underperformance.
The unbundling of Eskom
Unbundling Eskom into three entities -- generation, transmission, and some parts of distribution --would not solve the country's electricity woes, because they would still be wholly owned by government. Governments, because of competing objectives and, at times, on account of corruption, eventually run out of money to recapitalise the enterprises they own. Transmission must be concessioned to the private sector for a period of at least 15 to 20 years. Distribution assets must be sold to the private sector.
Eskom staff morale
The Just Energy Transition from coal to clean energy sources must be well managed. Anecdotal evidence suggests that a major reason some of the coal-fired power plants were not performing‚ with abysmal EAFs, was because of worryingly low staff morale. This was because employees had been told that the power stations at which they worked would be decommissioned. The national and social/labour narrative surrounding the Just Energy Transition needed to be well managed to ensure worker productivity and optimism about the future.
Writing-off municipal debt owed to Eskom presents a moral hazard that would most likely worsen the problem of non-payment in the future. Other measures should be explored to ensure municipalities service their debt with Eskom in the future. A free pass would, without a doubt, create a bad precedent.
See attached for full submission
Congress of South African Trade Unions (COSATU)
Mr Matthew Parks, Parliamentary Coordinator, COSATU, said Eskom was the nation’s most important economic asset. The entire economy, including all jobs and the ability of workers to earn a salary and take care of their families, depended upon a functioning and modern Eskom. Simply put, Eskom was simply too big to fail.
Eskom, for a variety of reasons, had incurred debts it could not afford to pay. Some of this was due to rampant theft and corruption, particularly at Medupi and Kusile; mismanagement, institutional neglect, and lack of investment; ageing infrastructure; and rising levels of debt owed to Eskom by municipalities, businesses, communities, and even government entities.
COSATU had first proposed in October 2019 that the government take over at least half of Eskom’s debt burden. COSATU supported the objectives of the Eskom Debt Relief Bill and the relief it would provide to Eskom. They believed this relief would help Eskom shift its resources to ramp up its maintenance programme. This was the fastest way to end load-shedding and thus ease the burdens on workers, their families, businesses, the economy and the fiscus. Whilst COSATU welcomed Eskom Debt Relief Bill, they were concerned about some of its underpinnings.
COSATU was deeply concerned by some conditions set by National Treasury in the Eskom Debt Relief package. Their first concern was the prohibition of Eskom investing in new generation capacity. This made no sense. One of the fundamental causes of load-shedding was that Eskom’s generation fleet was nearing the end of its life span.
COSATU’s proposal was:
Debt conditionality concerns
- The prohibition on Eskom investing in new generation capacity was to be removed from the Eskom debt relief package.
- The clause seeking to preempt and undermine the collective bargaining processes at Eskom should be removed from the Eskom debt relief package.
- All customers must move to prepaid electricity to end the rising levels of debt owed to Eskom and to ensure that it has the necessary cash flow to be operational.
- The government must determine which debt was not recoverable and which was recoverable. That which was recoverable must be pursued, even legally.
- A new municipal funding model must be developed, as the current model was collapsing and this was having a spillover effect on the ability of municipalities to pay Eskom what it was owed.
- Law enforcement organs had to be actively deployed to support Eskom in dealing with electricity connections.
- The Department of Cooperative Governance and Traditional Affairs (COGTA) must undertake interventions to ensure that all indigent households were registered to receive their allocation of free electricity, and that the number of free kilowatts was increased appropriately.
- Treasury must work with Eskom to identify all financial leakages, develop a plan to end them, and report to the nation quarterly on progress made in this regard.
Additional support for Eskom
- Escalate the scrap metals export ban enforcement and measures to regulate the informal traders.
- Deploy specialised support from the South African Police Service (SAPS), the Hawks, the National Prosecuting Authority (NPA) and the State Security Agency (SSA) to root out corruption and criminality at Eskom.
- Prioritisation of cases affecting Eskom by the NPA and judiciary.
- Active enforcement of the penalties provided for in the Criminal Matters Amendment Act (cable theft) and Auditing Amendment Act (holding offending officials personally financially liable).
To conclude, he said that COSATU welcomed the positive aspects of the Eskom Debt Relief Bill, and hoped that it would provide the support Eskom needed to ramp up maintenance and end load-shedding.
See attached for full submission
Dear South Africa
Mr Robert Hutchinson, Managing Director, DearSA, said that the entity hosted a participation campaign through an online platform to facilitate, educate and encourage public participation and comment to shape this Bill. Individual public submissions were prepared and directed to the Standing Committee. A total of 9 298 comments were received and delivered by the set closing date of 21 April 2023.
He said two questions had been presented to the public in the questionnaire:
- Do you support the Eskom Debt Relief Bill as proposed?
- What was your top reason?
Participants were encouraged to provide comments to justify their selection, to help shape the Bill.
Of the “Yes, I do” comments, the participants were most concerned over the consequences of a failing national electricity producer, dire consequences for the South African economy, load-shedding for many years to come, and a concern over inconsistent renewables. Further comments were raised over concerns surrounding much-needed maintenance to eliminate breakdowns.
Of the “Not Fully” comments, most participants were in favour of debt relief, but major concerns were raised surrounding the elimination of corruption, mismanagement, recovery of stolen funds, transparency, accountability, and a change in the “non-payment” culture.
Of the “No, I do not” comments, participants raised concerns over corruption, mismanagement, constant bailouts, a lack of convictions, and political interference. Solutions included a strong call for privatisation, reduced employees, employed skilled individuals, and recovered municipal debt.
He read out some of the comments by the public to the Committee before he ended the presentation.
See attached for full submission
Mr O Mathafa (ANC) said that public participation was one of the pillars of democracy and he thanked the stakeholders for their participation.
He asked, in the view of COSATU, if any other conditions would have been considered to be prudent regarding the R254 billion debt relief package. Would they have proposed any other and what advice would they have given to the Minister, as the release of the funds was determined by the Minister? He asked if they had any other input that they had considered making.
He pointed out that there was a mention of a clear programme of action to deal with the debt that was owed by municipalities. He asked COSATU why Eskom, with the help of government, had not implemented a clear debt recovery strategy, especially in instances where the debts seemed impossible to repay. He pointed out that some municipalities were not honoring their debt obligations to Eskom, and that that question could also be raised to them.
He pointed out that, just like the Committee, COSATU was in support of the Eskom debt relief package. However, concerns have been raised about the sustainability of the package. With the debt relief being advanced, did they have confidence that the package could last for up to ten years, or would it relieve Eskom from its debt?
He said the MCSA's recommendations had emphasised that coal power plants must be sold or concessioned to the private sector. He asked whether they were suggesting they move towards privatising electricity. If yes, had they considered the costs of coal power plants, especially the cost implications for over eight million unemployed South Africans, and those South Africans who were also beneficiaries of the indigent households’ electricity provision?
He said they were all aware that the private sector was driven by profit, and as a state, they were driven by service delivery and community service. He asked whether they had factored in the impact of privatisation, as maybe the power plants should be sold off to the private sector in the future.
On slide 5, under the second recommendation, he pointed out that they had stated that public-private partnerships must operate the power plants. He asked the Council how they suggested the partnerships should work, considering the developmental role of Eskom. How were they going to achieve a balance whereby Eskom was still going to assist the country in achieving economic growth and ensure that the government also still achieved its goal of eradicating inequality, as electricity played a big role in this?
Mr A Shaik Emam (NFP) posed a question to all the stakeholders, asking them what made them believe that privatising electricity was going to be a success, and that when it was in the hands of the public sector that it could not be a success. Did they not rather have to focus on the shortcomings that state-owned companies lacked?
On the issue of privatisation, did they consider the cost factor, and did they take the number of indigent families who got free electricity into account? The emphasis was going to be on profit, and not on providing services. For economic growth, Eskom had been established as a state-owned company to meet the country's energy supply demands, sustain itself, and provide some revenue to the fiscus. However, in his opinion, it had not been successful at providing any of the aforementioned,
He pointed out that many of these stakeholders and institutions had been around for several years, and many of these concerns had been raised year in and year out, so why had the MCSA and other institutions not done anything about it? Why did they not put pressure on government, and raise their problems and concerns? If that had been the case, they could have dealt with the problem before it got to the severity it was at now. Eskom’s problems stemmed from no maintenance; not looking at future demand and building more power stations; corruption and looting; sabotage; and a whole list of other things. However, these problems did not all start this year -- they had been around for years and years.
He noticed that they had recently put a lot of emphasis on renewable energy because of the high emissions, which were hazardous to health. However, when it was said that they wanted to privatise coal, all the noise was gone. When it was under the public sector, the emissions were a problem and a health hazard, but nothing was mentioned when it was talked about being moved to the private sector. This indicated that there was a need to move to privatisation. He said they had to address the root causes instead of moving to privatisation as a quick solution to the problem.
He said that Eskom had too many employees, which was an issue that had been raised before. He asked whether COSATU and others were going to aid the government in dealing with this problem. If there were too many employees, it was certainly going to have an impact on the costs.
Some countries had offered to come to Africa’s rescue regarding energy. Why were they not taking any of this into consideration? Why were they not using the coal they had at their disposal? They needed an urgent solution. Did they not consider building new power stations? The crisis South Africa experienced now was just going to get worse in ten years’ time.
Mr X Qayiso (ANC) asked COSATU what their view was on the issue of the exemption of Eskom on accounting.
The Chairperson interjected, and asked him to keep his questions to the presentations they were discussing on the day.
Ms N Ntlangwini (EFF) said that she fully agreed with the issues her colleagues had raised.
She expressed her concern about the issue of privatisation and the people who were going to suffer the most. In 2013/14, there had been campaigns for renewable energy, and they were being played by the private sector and the international community, who were using SA for their mineral wealth to benefit their countries and serve their interests.
On the municipal and private sector debt to Eskom, there were no recommendations by any of the stakeholders to the Committee on suggestions on how they could handle the issue of debt. There had to be some way for Eskom and the public to help each other.
On the issue of privatisation, how were they going to curb the private sector from increasing the cost of electricity to such high levels, so that smaller poverty-stricken communities could still afford electricity, and that they adhere to their social responsibility?
Ms Ntlangwini raised a last question to the MCSA, and the other stakeholders, asking what their outlooks were regarding alternative energy sources the country could use.
The Chairperson raised a question to all the stakeholders, saying that if they were proposing the privatisation of coal-fired power stations, were they aware that one of the mandates of Eskom was a developmental mandate? What would happen to the public good once the coal-fired power stations were privatised? Was their proposed model going to reach rural areas across the country to provide electricity?
In the Integrated Resource Plan (IRP 2019) by the Minister of Mineral Resources and Energy, electricity generation was liberalised, where the private sector was allowed to generate their electricity. He asked what the MCSA were doing in terms of this, and what had happened in the private sector on this matter.
Eskom’s tariffs had increased exponentially over the years, so he asked what the impact of their recommendation on the tariffs would be. Whenever the private sector and tariffs were involved, they were just going to increase.
On the issue of the debt relief of municipalities, the unfortunate reality was that the debt was just going to keep on increasing, year in and year out. The Minister of Finance had proposed that they install prepaid meters, and COSATU agreed with this proposition. He asked about the MCSA’s stance on this condition of debt relief to municipalities.
He raised a question to DearSA, asking what their proposal was to deal with the issue of load-shedding. Did the people they had interviewed for their survey know about the severity of the issue, and were they aware of the impact load-shedding had on the economy, employment, health, education, etc.?
He asked COSATU what they thought the reason was for the Minister of Finance to put in a condition for Eskom not to invest in electricity generation.
Corruption had been raised as a factor in load-shedding by Eskom, and the private sector was a part of this corruption, therefore privatisation did not solve that problem.
He asked the MCSA if it was fair for their members to agree on contracts with Eskom. Did that not count as part of some form of corruption, and what should be done about that?
Mr Motsa said there was a fear of privatisation in the electricity industry, and suggested they could learn something from the telecommunications sector. They were predominantly privatised, and there had been fears about that in the beginning, before the liberalisation of the sector. There were fears that the cellphone charges were going to be too high. Lessons that they learned were that there were 90 million connections in South Africa, with a population of 60 million. That meant every person had at least one and a half cellphones. Of course, not every person had a cellphone, but the statistics pointed to the fact that many people had access to cellphones, even if the sector was privatised.
The Independent Communications Authority of South Africa (ICASA) played a pivotal role in ensuring that cellphone charges remained relatively low. However, the charges were high in comparison to other African countries.
The second point he made related to the fact that the government had run out of money, and he referred to this in his presentation to the Committee. Because of competing objectives, governments eventually ran out of money, because they had to take care of health, build schools, and ensure that South Africans were secure. Eskom had not fully and sufficiently been capitalised by government, and this was something that they had seen with the Industrial Development Corporation (IDC). He said that they did not have to be afraid of privatising Eskom.
When Eskom was established in 1923, it was to address a particular market failure. The market failure at that time was because the entities supplying the electricity were not supplying sufficient electricity to South Africa. When the government consolidated those entities to form Eskom, that market failure was addressed because the project was to supply electricity to the rest of the economy. When Eskom was established, it was to provide cheap electricity to South Africa and that led to the industrialisation of the country. Currently, the only market failure that existed was in the electrification programme of the rural areas. However, they needed to take note of the fact that about 90% of South Africa was electrified. The objective in terms of electricity delivery had been met. The question was how they electrify the remaining 10%. There were renewable solutions to that, such as solar. Their proposal for the privatisation of the electricity sector was that they would have a regulator -- in this case, the National Energy Regulator of South Africa (NERSA) -- who would attach a section or term to the private sector’s application to raise tariffs, relating to what they had done in electrifying the rural areas. They could learn from developing countries, such as Saudi Arabia, that one could have a term in the tariff escalation equation, about electrifying the non-electrified areas of a country.
He reiterated that they did not have to be afraid of privatising the electricity sector.
On slide 5, where they recommended that the coal-fired plants had to be sold or concessioned, the question was whether that suggested they should have a more direct move toward privatisation. The answer was yes -- they should move towards urgent privatisation of Eskom.
On the question of whether they had weighed the costs of coal-fired power plants, especially over the cost implications for over eight million unemployed South Africans, he answered no. He said that the market determined the cost of the coal-fired plants. Government spending of around R250 billion on Eskom was depriving the people of much-needed services and resources in other sectors, such as education, health, training in the workforce, building hospitals, etc. The private sector could assist in lessening the burden of the state so that it could use its resources to help the poor – the eight million people.
They also had to remember that tariffs for most indigent households were already subsidised by R240 billion annually by the larger electricity users, including the manufacturing or industrial sector. The number of indigent households was increasing, and they were experiencing only a 10% increase compared to the rest of the economy, which had experienced an 18.65% increase in tariff, starting in April. He pointed out that the subsidy had been increased to R1.2 billion, which was going to be paid by the private sector and the larger electricity users, such as the mining companies.
On the question of the recommendation that coal-fired power plants must be operated by public-private partnerships, considering the developmental role of Eskom, the reality was that Eskom had not been playing a developmental role. Tariffs have been escalating annually by double digits since 2007. That showed that Eskom was no longer playing the developmental role they had promised. The only area where Eskom was maybe playing that role was in the area of the rural electrification programme. In recent years, Eskom has done very little with those programmes.
There were other solutions, such as solar, but Eskom had little role in electrifying the 10% of people without electricity. If the private sector played the role of privatising Eskom, the regulator could then play a role in adding a term in the application, where the electricity-generating companies could then approach the regulator for annual increases. There could be a term about electrifying the non-electrified areas.
In slide 6, they spoke of the transmission being concessioned to the private sector for 15 to 20 years. The question was whether they were aware that these proposals were informed by specific research. They had recently submitted the private sector participation in the rail space. They had solicited comments from the mining companies. One of the comments was that ten years was not going to be enough for those companies who would operate a rail concession, to break even. They suggested that 15 to 20 years would be ideal. This was the same for concessions on the freeways as well. As far as he was aware, it took about ten years or more for the companies in the freeway space to break even.
On the question of what made them believe that privatising electricity was going to be a success and that when it was in the hands of the public sector that it could not be a success, he said that governments eventually run out of money. They were not saying that the private sector would always have funds available, but the models they proposed had been proven to work. The issue was that the government had competing objectives, and private companies usually had a core focus and were able to maintain and manage their assets. That was why the privatisation of the electricity sector was a good idea.
On the issue of a private-public partnership and what the costs of that relationship would be for indigent households, he said that they had answered the question, and that the indigent households were already subsidised.
As to what the MCSA had done regarding the fact that there had been liberalisation of the electricity sector, he said that the MCSA had renewable projects lined up and amounted to about R100 billion. Some of the projects would be commissioned this year or during the next year. They had taken advantage of the liberalisation. Eskom was no longer supplying the base load power to allow any investment into the manufacturing sector, and because of the double-digit annual escalations, that had made mining and manufacturing exporters lose their global competitiveness, and as they lost their global competitiveness, they had shed jobs. This was why there had been a contraction in the number of people employed in the mining and manufacturing sector.
As to why they were comparing the US, China, and South Africa, he said that the US had a developed economy and as a developed economy, they had been industrialising for over a decade. China was also an example of a developing economy, and it had been competitive. They just wanted to showcase how the manufacturing or industrial sector in those countries was consuming electricity and just show the trajectory there.
In South Africa, since 2011, the industrial sector has been consuming less and less electricity. This was not because of the decoupling of energy consumption and manufacturing, but strictly because there was very little adequate supply of electricity in the country and the increasing tariffs, which were more than the CPI.
The reason why they believed that transmission had to be concessioned to the private sector was because the private sector would be able to recapitalise it without using the fiscus.
On the question of how much private companies owed to Eskom, he said that he did not have the numbers with him. The reason why Eskom published the municipal debt was that it was a major risk on the utility's balance sheet. If the private sector also owed as much, the numbers would have also been made public. In his opinion, it did not pose a major risk to Eskom, and was not worth publishing.
Responding on how they would cap tariffs by the private sector, he said that, as he mentioned before, the indigent households were already being subsidised. He pointed out that some households could not afford the Eskom tariffs as they were now, and privatising could not make things worse, as the supply of electricity would be increasing, and along with that, one would be more likely to have lower prices. The reason why the tariffs were high right now was because the supply was very low.
He had spoken about other supply support options, like nuclear, to provide baseload power. He said they had the skills to run Koeberg but never spoke about nuclear and interim technologies. They had experience in running nuclear projects, and the question was more about why they were not able to attract nuclear investment in the private sector.
On the question that one of the mandates of Eskom was to be a developmental state, he said that they were aware of that, but Eskom was no longer fulfilling that role.
Some people argued that South Africa's tariffs were still competitive if they were converted to US dollars, and that was true, but the major problem was that the tariffs were increasing at a faster rate, more than inflation. Most of their inputs were also denominated in rands and not in dollars, and in that way, they were losing global competitiveness. The mining and manufacturing sector was already suffering because of load-shedding and the agricultural sector was also starting to suffer because of it.
He said that they could learn from the telecommunications sector about the exponential increases in tariffs, as he had explained earlier. Eventually, they would see a balance in prices -- as they supplied more electricity, the tariffs would decrease. One would not only have more supply, but more credibility as well.
They did not have an immediate solution to the questions about prepaid meters. Regarding the solution to the municipal debt, they could write it off now, but how were they going to deal with it in the future? They supported the proposal, but required an amendment in the Bill that would make Eskom the sole collector of revenue for electricity. They supported the proposals of prepaid meters and the proposal of making it the customers’ responsibility to pay Eskom directly. However, this was in the event of no privatisation.
The last question was about corruption that was related to the members of the MCSA. He said that he could get back to the question.
Mr Parks responded to the question about Cosatu's thoughts on additional conditions for the Eskom debt relief package. He said that they would have supported conditional additions, for example, to cripple corruption and wasteful expenditure, and would need the necessary support from the state and the National Treasury, etc. They welcomed additional conditions that required Eskom to invest in new generation capacity. Their concerns about the conditions of the Eskom debt relief package were that they prevented Eskom from investing in new-generation capacity and made no sense, as they were threatening Eskom’s long-term sustainability.
On the issue of municipal debt, he said that they did not have a debt recovery plan from the state. The Eskom municipal debt levels were around R40 billion a couple of years ago, and it is now around R57 billion. Eskom had done a lot of work around trying to recover some of the municipal debt. They had tried to take some of the municipalities to court, but they had owed Eskom for years and made no effort to settle their debts. The previous Minister of Finance went to Parliament about four years ago and made a big noise, saying he was going to deal with the issue. Instead, nothing was heard from him, and he had left the political scene. Municipalities were threatening the survival of Eskom and the entire economy.
Local government owed Eskom R57 billion, but communities, businesses, and government institutions owed the local government about R480 billion. It was clear that something was not working. Around ten years ago, 90% of municipalities were fine, and 10% were in a financial crisis. The figures were turned around today, and 90% of municipalities were in a financial crisis. About 27 municipalities were unable to pay their staff. Eskom was now paying the price for the collapse of local government.
Cosatu agreed that the Eskom debt relief package could be successful, but it was not going to be easy. They had to deal with the issue of corruption and wasteful and fruitless expenditure. Eskom needed to invest in maintenance and new generation capacity. They needed support to tackle the municipal debt, and citizens needed to move to prepaid electricity.
The increase in tariffs was just going to push Eskom even further down into a debt spiral. They needed a cost-effective regime in Eskom.
He said there would always be different opinions about the privatisation of Eskom, and they did not have to put the private sector on a pedestal. The private sector would always play an important role and it would always be the largest employer of workers in the economy. Privatisation did not always end well. There was a place for the private sector, but also the state, as a provider of essential goods and services. There were a lot of fears about the private sector becoming the sole electricity provider. The private sector usually neglected the poor and the marginalised, so there were many questions about whether they would be focused on investing in maintenance and providing free electricity in rural areas.
Cosatu wanted to see Eskom get back onto their own two feet, but for that to happen, they had to address the issues. It was not going to be a quick fix and there were other ways in which they could run state-owned enterprises (SOEs) better. There were positive examples of this across the world, such as in China, Singapore, Norway and Sweden.
On the staffing issues in Eskom, he said that there was a need to get newer and younger staff onboard at Eskom.
Regarding the issue of China, he said that they should not be outsourcing their responsibilities and failures to other countries. They had a responsibility and capacity to fix the problems. There was nothing that South Africa could not address and fix.
Regarding the Komati power station, he said that Komati was not closed, but that it had been repurposed. When the old power stations were being repurposed, they had to make sure that the communities were not plunged into an economic depression, as there were fewer jobs available when the old power stations were repurposed.
On the question about Eskom’s annual financial statements, he said that COSATU was not impressed by government’s motivation, and thought that it was disastrous. However, the Minister of Finance had responded to the public comments.
Cosatu agreed with government that maintenance of the power stations was the quickest way to solve the load-shedding, and they needed to look at investing more. They hoped that the Eskom debt relief package was going to free them of their debt. There were other issues that were out of their hands, such as corruption, sabotage, vandalism, etc. This was where law enforcement agencies were going to have to step in, as Eskom did not have those capacities legally.
There was a clause within the Eskom debt relief package that they had an issue with. There were certain issues that they had to leave to Eskom management to deal with, such as the bargaining forum, and he was sure that they were more than competent to deal with issues related to that.
Their presentation had proposals on the municipal debt (slide 16). They had made several recommendations, such as for all customers to move to prepaid electricity to end the rising levels of debt owed to Eskom and to ensure that it had the necessary cash flow to be operational. It was not profitable if about 60% of the country was on prepaid and if the other 40% was on municipal billing systems. That meant there were debts to Eskom that were not being paid -- for example, the R57 billion. It was not just a question of indigent households. There were also, for example, embassies in Gauteng, hotels, and SOEs that owed Eskom money and were not paying their bills on time. Yes, they needed to look at what was recoverable and not recoverable, and ensure that the recoverable debt was legally pursued.
They had to ensure, during the whole process, that indigent households were not left behind. 50 kilowatts were supposed to be free each month, and many municipalities were not providing that, and many households were not receiving it. Many municipalities chose to cut costs, and many poor people were sacrificed because of it. People were required to register for electricity each year, and many people were not aware of how to even register for it.
In terms of how far the private sector had come regarding nuclearisation, he said that it was quite slow. They would welcome any generation capacity and they were on board with that, although it was slow. They hoped that the request by Eskom for information about battery storage capacity would help the shift towards new generation capacity.
Some of the clauses within the Eskom debt relief packages blocked Eskom from legally investing in renewable energy itself. Cosatu thought that needed to be reconsidered. In the long term, renewable energy is going to become the most affordable means of energy generation capacity. If they were not going to allow Eskom to invest in it, they were essentially trying to privatise renewable energy. This would increasingly shrink Eskom and open up that space to the private sector completely, essentially threatening Eskom’s survival. This was rather worrisome, because Eskom was going to remain the largest player in the energy sector for a long time, and if they were not going to allow that and help them to get back on their feet, then they were going to keep on having the issue of load-shedding.
Mr Hutchinson said that to answer the Chairperson’s question, the participants in their survey had been aware of the impact that load-shedding had on the economy, etc. As reflected in most comments, he pointed out that the respondents had issues with the Eskom Debt Relief Bill.
People were aware of the need for maintenance and the correction of Eskom. The main concern was whether the money was going to help. Where corruption and mismanagement existed, was money going to rectify the issues? They had not seen enough action from the government to deal with corruption and mismanagement. There were not enough success stories to give people confidence in the government and Eskom’s ability to turn things around. They needed to start with success stories to build up the public’s confidence and that, in turn, would lead to a shift in the public’s willingness to agree with future payouts.
He pointed out that the public wanted to see an immediate solution. Was the total package of R248 billion and the immediate R184 billion going to make a difference and solve load-shedding? That was a major concern. The question that the public had was whether or not the Eskom debt relief package was going to make a difference.
He said that many disciplines were calling for privatisation in various forms. If they opened up the market to privatisation, it would, in turn, create competition within the market. Competition increased efficiency and an increase in efficiency led to an increase in profits. Competition within the market could be regulated by the regulator and by legislation, which could lead to a decrease in tariffs.
On the question of the privatisation of the coal-fired power stations, he said that the major problem was that it was not going to happen. He could not see any private investors investing in coal-fired power stations so long as the presidency was committed to moving away from coal due to international pressures and loans offered to South Africa by first-world countries. The commitments and the agreement needed to be re-addressed and made open to the public to access and possibly suspended until the country had dealt with the energy supply issues.
Mr Z Mlenzana (ANC) asked Mr Motsa if he had any private companies or enterprises in mind when he spoke about privatisation, or if he could e declare that he was a part of such an enterprise or company.
The Chairperson also raised several other comments, saying that everyone was aware that corruption was mentioned as a factor in load-shedding by Eskom, and the private sector was a part of that corruption. Privatisation was not going to solve the issue of corruption, per se. Was it fair for some of the members of the MCSA to have contacts with Eskom? Did that not just contribute to the problems of load-shedding, and what were they going to do about that?
He did not agree with the comment that the market failure of the early 20s, which was meant to be solved by Eskom, had been taken care of.
He asked what the role of the MCSA members was in implementing social labour plans, and if they were suggesting that they had to outsource Eskom’s responsibilities to the private sector.
He pointed out that comparing the energy sector with the telecommunications sector was unfair, as they were two completely different sectors. For example, many people were dependent on the IDC and Eskom. People were unaware of what the IDC did, but if you asked them what Eskom did, all of them would know.
The Chairperson allowed Mr Motsa to comment on the questions and comments he delivered.
Mr Motsa responded on the matter of corruption and the contracts that some of the MCSA members had with Eskom, and said that he had not stated that there was going to be no corruption and that the private sector was not corrupt. However, there were state agencies who were capable of handling that. Some of the companies were involved in corruption involving billions and billions of rands.
On the issue of why they had to trust the public sector with the job of electrifying the 10% of people who had no electricity, he said that the regulator could play an important role there.
He said that he had made a comparison between the telecommunications sector and the energy sector to highlight the principles. Of course, they were two completely different sectors.
On the issue of discrimination in the private sector and the SOEs, he was not prepared to answer these kinds of questions. They could have another discussion about that at a later stage.
The Chairperson thanked the speakers for their presentations, and for making themselves available.
The minutes of the meeting on 20 April were considered and adopted.
The Chairperson asked if there were any further announcements.
The Committee Secretary reminded the Committee of a meeting that they had on the Friday of that week, where they were going to consider the report of the Eskom Debt Relief Bill. The Chairperson asked that the report be circulated to the Members, and requested them to make their inputs on the report.
The meeting was adjourned.
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