Government Needs To Capitalised ESKOM Appropriately – Lucky Montana

PICTURE: MAKWENA MANAMELA

Former Prasa Chief Executive Officer, Lucky Montana pens a tell-a-tale letter to his former ANC Gaby Shapiro Branch Secretary, Senzeni Mphila in Cape Town. 

The letter comes after President Cyril Ramaphosa announced that Eskom will be split into three during Sona on Thursday. This announcement has met with criticism from all quarters of our society with some suggesting that this will lead to loss of jobs. 

Read in full: Government Needs To Capitalised ESKOM Appropriately – Lucky Montana

My dear brother, friend and comrade (and my former Branch Secretary at the Gaby Shapiro branch in Cape Town), Senzeni Mphila. I am sorry but the matter of the restructuring of ESKOM is far bigger than the loss of jobs.

The decision to split ESKOM into Generation, Transmission and Distribution is a Big Mistake and a Major Strategic Setback. Whilst some in the investor community and the Democratic Alliance (DA) had been clamoring for this sort of thing for a while now, the President has granted them their wish instead of telling them they are wrong.

We need to study some of the detailed reports that were developed when as a country during the late 1990s we were exploring the restructuring options for ESKOM. When I was still part of the Department of Public Enterprises (DPE) from 1999 till 2004, Government rejected some of the regulatory changes that some within the investor community had demanded at the time as well as the call to split and/or privatize Eskom. Whilst this may be good for competition and may result in the entry of new players in the sector, but it is true that this will come at a significantly huge cost to the country and the loss of jobs.

The ESKOM model is still suitable for our environment as a developing country and our current stage of economic development. South Africa needs a “vertically-integrated public entity” to deliver on its Integrated Energy Plan, including the energy mix Government seeks to achieve. Splitting ESKOM into three will satisfy the short-term demands of some within the investor community but cannot be in the long-term interest of the country.

There is a need to sequence our strategies and fulfill a number of critical tasks before we could split ESKOM. First and foremost, Government needs to ensure that ESKOM is appropriately capitalized. This is the most immediate challenge for Government.

Secondly, we need to strengthen the ESKOM model so that we increase in the short to medium term, cross-subsidization between generation, transmission and distribution. This will also mean Eskom’s legal mandate should be redefined more broadly so that it continues to be the driver of the long-term energy mix plan we seek to develop over the next 30 years.

Thirdly, we must accept that ESKOM “non-core” assets are also key to strengthening its balance sheet and cash position. Whilst some in the investor community may not like that, but Eskom needs these assets in the medium-term to cross-subsidize some of its costs and its huge debt.

During the late 1990s and mid 2000s, Government stopped ESKOM from investing in new generation capacity because it wanted to introduce competition in the sector and had hoped new investors will build new power stations. Government insisted on this position even though there was overwhelming evidence showing no investor and/or BEE player at that time had the capacity to meet the huge capital requirements to build the new generation capacity.

This proved to be an extremely erroneous position and has put us in the position we find ourselves today. We must learn from countries like China on how they dealt with their challenges. In a number of books, professor Joseph Stiglitz show for example that the Chinese were able to achieve their economic and social objectives because they were able to strike that “delicate balance” between the role of the State and the private sector. They were able to develop and implement appropriate policies for this purpose.

The “failure of policy” is at the heart of the many challenges we face in South Africa, including for many of our state-owned enterprises like SAA. We pursue the introduction of competition like a religion even if this is not commercially-viable, increases costs of doing business and not in the long interest of the country.

For example, the introduction of competition on routes where passenger numbers do not support a highly-competitive airline industry is a case in point. It has destroyed the ability of SAA to recapitalize itself and has increased its costs to levels that are not sustainable. My little experience in Government has exposed me to some of these issues and the difficult choices the President and Government have to make.

The President delivered a great State of the Nation Address last night but we tend to allow our love for the man to cloud the long-term picture. The problem is that the President started at the end and not at the beginning. If our energy strategy is sequenced properly, we will realize that what the President announced yesterday should infact be the “End-State” and not the start. Government will need to implement a number of measures and strategic interventions first before we could say the country is at a level where the splitting of Eskom into three is a real, immediate option.

I am sorry for disappointing you and breaking the consensus and excitement among my own comrades. The “fanatics” among us can attack me for this position. It may not be popular with some comrades but I am not in a “beauty contest”.

I am convinced that this is the right path for South Africa that will help our President to deliver on his vision for the country.