South Africa – the unanswered questions


[Nicholas McDiarmid][May, 6 2008]The recent call by the African National Congress’ National Working Committee for an urgent electricity summit is an important move by the party to align itself with a beleaguered and frustrated public and business community, as well indicating a shrewd counterpoint between the often blurred lines of the party and government.

Whilst the major thrust of this summit would, on the face of it, deal with the question of Eskom’s application for a 60% increase in power tariffs, there are a range unanswered questions that also need to be answered. Recently, the South African Editor’s Forum (SANEF) criticised the National Energy Regulator’s decision to allow Eskom to keep part of its tariff application secret from the public. Eskom stated that this relates mostly to its coal purchase agreements. It no doubt relates to other questions as well. Such secrets could be justified within a less regulated and more competitive environment; consumers can simply move on to another provider if they are unhappy. In South Africa, government is the only shareholder of the utility, and if it has not been competent in its dealings, the public have every right to know.

The proposed tariff hikes are a gateway into every operational issue of both the utility and government. A good starting point would therefore be the request for a national energy audit – an open national energy audit. A primary justification of the tariff increase is Eskom’s CAPEX programme, with its well publicised goal of doubling capacity by 2025 – that is to say, an additional 40 000 MW of installed capacity. This has been presented as a fait accompli, but what is this figure based on? According to a recent interview with Eskom CEO Jacob Maroga in ESI Africa magazine, the utility has no intention of extending its export agreements and this additional capacity is purely for national consumption. As was revealed recently, Eskom’s senior management’s bonuses are linked to capital expenditure projects. It surely beggars the question.

Another key question that will need to be addressed at the proposed summit is the role that cogeneration and Independent Power Producers (IPPs) can play in meeting the current demand. The now infamous White Paper of 1998 proposed that IPPs be pursued as a solution to growing demand, and yet the regulatory and tariff issues that could have created a favourable environment for such an endeavour were never adequately pursued or coordinated.

It is with keen interest that one tracks a similar process in Ghana, observing that in that country, accountability for its power crisis resulted in the dismissal of Energy Minister, Joseph Kofi Adda. Accountability is a hallmark of a well functioning system. South Africa’s current crisis is the result of poor planning over a period of a decade or more, making it harder to simply dismiss one person. But beyond simply a lack of power and rolling blackouts, the crisis has brought to the fore issues of good governance, adequate planning, the retention of human capital and political clarity. As Jacob Maroga concluded in his interview with ESI Africa, the crisis has woken Eskom up to the fundamental role it plays in the country’s well-being and economy — every employee at the utility now knows this and there is a keen sense that they are burning the candle at both ends to ensure that measures are taken to ensure consistent power supply. But again, one has to point out that where collective accountability is the reason that no one got the axe in South Africa, the same principle does not apply to bonuses, which are handsomely awarded to individuals.

There is no way out of this crisis if the full story is not exposed at some point. The decisions that could potentially arise from the summit will affect the nation for generations to come. A key forum that provides an opportunity for these unanswered questions to be addressed is about to take place in Cape Town soon: African Utility Week (AUW) is due to take place from 20 to 23 May 2008 and is expected to attract more than 1200 delegates from South Africa and across the continent. Key presentations will be made on electricity generation – from maintenance and refurbishment to the potential of nuclear power on the continent. Transmission and distribution issues will be in the spotlight this year – South Africa alone loses about 10% of its capacity to transmission losses! In line with government’s emergency energy plan, demand side management and smart metering will be featured strongly, with new technologies under discussion and the feasibility of new projects being analysed.

In addition to this, the inaugural Power Indaba will be co-located with AUW. A first of its kind, this conference will bring together the highest level of delegates from South Africa and the rest of the continent, with an emphasis on Government Ministers, Utility CEO’s and experts in the field of finance. This event will focus on the fast-tracking of investment into Africa’s power sector and is the only forum on the continent that brings this elite group of stakeholders together.