New research conducted by the Institute of Race Relations (IRR) highlights the troubled history of state power utility, Eskom, which has led to its demise.
In a paper published in @Liberty, the policy bulletin of the IRR, engineer and energy expert, Andrew Kenny says that from a well run state organ, Eskom’s new managers appear to have little interest in ensuring future electricity supply.
In 1923 the South African Government established Escom (the Electricity Supply Commission) under the 1922 Electricity Act.
Its Afrikaans name was Evkom (Elektrisiteitsvoorsieningskommissie). The two names were combined as Eskom in 1986.
The main curse of any state-owned industry is political interference. Eskom was free of this from 1923 until 1994, the IRR paper noted.
“Its brief was simple: to make sure that South Africa had enough electricity. It was very lightly regulated, much less so than private electricity utilities in the United States of America (USA). It was an autonomous organisation run by technocrats. Engineers
were in charge and were appointed entirely on merit.”
Even under apartheid, there was no attempt to Afrikanerise Eskom’s senior management, the IRR said.
In about 1969, after South Africa’s economic growth rate had topped 6% in various years in the 1960s, electricity demand threatened to outstrip supply. In those years, growth in electricity demand was double economic growth. “Near panic set in,” the report’s author said.
Eskom embarked on a programme of building large coal stations of standardised design, each one having six identical units. “The result was that vendors and contractors from all over the world tripped over themselves to give Eskom the best prices and conditions,” the IRR said.
Moreover, the stations were built on time and on budget. They were funded via cheap debt and all the debt was timeously repaid. The taxpayer didn’t have to pay a cent.
“By the end of the programme, Eskom had plentiful and very reliable electricity at probably the lowest prices in the world – lower than that from private utilities in other countries, the research paper said.
South Africa’s vast reserves of cheap, easily mined coal was partly responsible for this success, it noted. “More important was the clear-sighted, well-planned, consistent programme of new building, which was based entirely on technical and commercial considerations,” Kenny said.
The unprecedented high economic growth of the 1960s did not continue however, due to the effects of apartheid, the growth rate slowed down in the 1970s and even more so in the 1980s.
By the middle of the 1980s, South Africa was seen as having a surplus of electricity supply. “Through some rather strange psychology, belief in this surplus took a strong hold over many senior Eskom managers and many politicians,” said Kenny, adding that it persisted for a long time, even when South Africa was in fact beginning to run out of electricity.
Three elderly coal stations, Camden, Grootvlei, and Komati, all in the eastern Transvaal (now Mpumalanga), were shut down and mothballed.
In 1994, when the ANC took power, there were unfortunate changes at Eskom: ‘some of
them predictable, some of them surprising’, the report said.
“Race-based affirmative action, political interference, and political appointments were predictable. Highly skilled and experienced white engineers, managers, and technicians were given generous ‘packages’ to get out and make way for persons of the correct skin colour and political affiliation,” Kenny said.
“This was sometimes known as ‘space creation’. To Eskom’s previous single brief – providing sufficient electricity – were added various political and ideological objectives.”
The unexpected changes were even worse. The ANC had long been regarded as Marxist
in outlook and was expected to favour state-run institutions. To everyone’s surprise, there
soon began to be talk about Eskom being ‘unbundled’ or privatised.
The State also seemed to be intent on taking away Eskom’s obligation to supply, according to Kenny, who said that in 1998 it forbade Eskom to build new stations.
“However, the new directives were also vague and confusing, lacking clarity and consistency. Eskom fell into a void.”
“Meanwhile, the country was running out of electricity. This was clear to a school child,” Kenny said.
After 1993 growth in electricity demand, as a ratio of economic growth, fell from 2:1 to 1.1, but remained very steady at this ratio, the report said. Electricity demand was growing in tandem with the economy, and the country’s ‘surplus’ electricity was steadily and predictably shrinking to nothing.
In its election campaign in 1994, the ANC had promised an annual economic growth rate
of 6%, which South Africa could easily have attained – especially as other developing countries were growing even faster. If the country had increased growth to 6% a year, it would have run out of electricity in 2001, the report stated.
“As it was, we seldom had growth much above 3% a year, and so we ran out in about 2007,” the report’s author said.
“One of the greatest lies of this era, often repeated by many ANC politicians, was that we ran out of electricity because we were ‘victims of our own success’. Actually growth was unexpectedly low, and we still ran out of electricity,” Kenny said.
Eskom also to blame
“The fundamental problem that is crippling us now is that we didn’t build power stations when it was glaringly obvious that we had to,” the report stressed. “Eskom is at least as much to blame as the Government.”
And while the Government did order Eskom not to build more stations, it seemed not to understand the problem where as Eskom did – or should have.
“ANC ministers seemed to regard Eskom as a sort of magic machine that would automatically make as much electricity as was needed, but could also be diverted to other purposes, social and political,” Kenny said.
The new managers at Eskom, mainly political appointments, seemed to have little interest in ensuring future electricity supply.
“Instead, they were preoccupied with other goals, such as racial transformation and keeping the price of electricity artificially low for social purposes.
“Accountants replaced engineers at senior levels, and those accountants lost sight of Eskom’s fundamental purpose, which is simply to provide electricity and cover its costs – not make a big profit or a high rate of return.
“Eskom became blighted with a damaging combination of ANC ideology and business school fashion,” Kenny said.
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