There appears to be a ‘New Dawn’ of optimism in South Africa lately. The opportunity now exists for a turnaround in the country’s fortunes. Clearly, corruption, state capture and bad governance are at the top of the list. The priority is to raise the economic growth rate. For this, South Africa must restore domestic and foreign business investment confidence.
Direct business investment is critical to restore sustainable high economic growth to the economy.
Only in this way can unemployment, inequality and poverty be reduced on a sustainable basis. One of the key sectors that needs to be focused on is the energy and electricity generating sector.
Electricity is a necessary but not sufficient condition for economic growth. There are a number of important energy-related policy decisions to be made to bring clarity to the way forward. At present there is no shortage of advice being given as to what should be done. However, it is necessary to take a hard-nosed closer look at the issues raised and focus on the economic necessities and priorities of the country.
One must start with an analysis of the economic needs of the country.
The country must give priority to raising the economic growth rate. All other issues are secondary. The National Development Plan (NDP) has set a GDP growth target of over 5% per annum for the country to be able to meet its economic, social and political objectives.
The country must re-industrialise. The mining and the industrial sectors have been static and shown little growth for many years. Since 1986, the mining sector’s share of Gross Domestic Product (GDP) has fallen from about 13% to just 7% at present. The industrial secondary sector’s share of GDP has fallen from 30% to only 19%. These sectors also supply over 60% of the country’s exports.
South Africa needs to maximise sustainable electricity supply growth to support a higher economic growth rate, particularly in these energy-intensive sectors.
Electricity generation must offer business investors long-term security of supply at the lowest possible economic cost. It must not be variable or unpredictable. It must be a reliable sustainable supply in terms of their demand.
It is necessary to assess the country’s assets.
While South Africa has a treasure chest of natural, mineral and human resources, it has poor hydro potential and at this stage little gas or oil.
All energy is derived from the sun. The most efficient usable energy and energy storage systems are natural and are today stored underground. Nuclear or uranium are the most efficient, formed by the earlier nuclear processes followed closely by fossil fuels, primarily coal, gas and oil from earlier plant growth driven by the sun.
Two of the most inefficient and unpredictable forms of natural energy generation systems available to human beings are solar and wind.
The country is richly endowed with the two most efficient energy storage systems namely coal and uranium. It is estimated that the country has more than a trillion rand of each of these assets buried in the ground ready for use at low cost using the human skills and abilities that this country already has in abundance.
The fundamental issue then is to provide a reliable and secure supply of electricity at the lowest price to the economy to support re-industrialisation, mining development and economic growth.
There needs to be an institution that has a legal and moral obligation in terms of its “mandate” to “supply secure electricity at the lowest possible cost” to business to foster economic development and naturally to the public.
In terms of its mandate set up many years ago, Eskom is indeed precisely that institution. Eskom’s image and reputation, like many State Enterprises, is tarnished. However, it remains a jewel in South Africa’s asset crown. It needs to urgently to review its governance, management and strategic structures. It should however be recognised as a key resource. Its professional human resources remain without question leaders in their respective fields. They are the ones who kept the lights burning whilst facing many difficulties and incorrect policies were being imposed on the institution.
Many problems in the country are attributed to Eskom. It has unfairly become the country’s whipping boy. However, on closer examination, many decisions were taken out of Eskom’s hands. Recommendations made were not followed, decisions and damaging policies were imposed.
Many of these have contributed heavily to the spate of delays, cost overruns, and generating and energy policy issues that continue to bedevil South Africa’s energy landscape.
The slowdown in economic growth and electricity demand is directly attributable to the political and economic policy decisions made by government.
These are complex issues.
Clearly Eskom cannot remain the sole generator and distributor of electricity going forward in perpetuity. In the foreseeable future, it must remain a primary supplier with a focus to supply secure reliable electricity at the lowest economic cost to industry and business.
It clearly needs restructuring most probably into two or three entities focusing on generation, transmission and distribution.
All units should probably be set up mostly as public-private independent enterprises. It is imperative to resist the wishes of many of the circling vultures recommending the dismantlement of this important asset. It is essential to rebuild a restructured Eskom so this organisation and its parts can fully meet its original primary mandate.
Business and government should work together to achieve this objective rather than listen to the baying hounds. The Independent Power Producers (IPPs) have an important role to play. They should become major efficient suppliers of stable secure electricity to the country and build a growing market share.
The final requirement is to evaluate carefully the long-term economic impact of the available alternative sources of energy for electricity generation. This requires a hardnosed assessment of the economic impact of current plans.
This assessment should be based on the envisaged plans to completion over a full thirty-year period rather than marginal incremental impacts which do not reflect the true ultimate situation. This is a major separate exercise and will become a key guideline to any strategy and plans to restructure Eskom and the energy sector.
Author: Rob Jeffrey, independent economic risk consultant.
The views expressed here are not necessarily those of Independent Media.