SOUTH Africans can relax: the lights will stay on during the holidays because the machines will stay off. The deepening power crisis seems to have abated because it is concealed at immense cost. Stripped of obfuscation, the situation is easy to understand, so let’s demystify it.
We do and should play the blame game. Eskom is usually the clear winner. Of course there have been mistakes, but Eskom tended to respond rationally to its regulatory environment. The government told it 16 years ago that private competitors would enter a deregulated market, so it neither built new power stations nor resurrected mothballed ones.
The National Energy Regulator of SA usually comes second, mainly because it failed to license private producers and allowed excessive pricing, more than 100% above than inflation, but it also responds rationally to rules of the game. In third position we usually have Eskom’s controlling shareholder, the Department of Public Enterprises, although it has also generally acted like any monopolist with limitless funding. Successive departments of energy usually occupy fourth place and are blamed primarily for bad policies, but departments are supposed to implement, not make, policies. Joint fifth and sixth places are held by Parliament’s energy portfolio committee for failing to get Parliament to adopt good policies, and the Treasury for allowing financial errancy.
That there would be a crisis was no secret; all concerned knew demand was about to exceed supply. Blame rests squarely with department officials and their minister for failing to implement the government’s 1998 policy white paper. As it was never amended under section 195 of the constitution, it remains policy, namely "giving customers the right to choose their electricity supplier; introducing competition into the industry, especially the generation sector; permitting open, nondiscriminatory access to the transmission system; and encouraging private sector participation in the industry".
Lights are on and engines off because it is politically expedient for voters to have domestic electricity from a seemingly benevolent government instead of prosperity, the lack of which is blamed on the imaginary "global meltdown". The cost of the crisis in 2007 alone was estimated by Zietsman & Hewson at R120bn. That is the equivalent of houses for all; 25 mines; clothing for all for three years; 500,000 cars, or jobs for half of the unemployed.
Eskom rewarded businesses that stopped creating wealth and jobs with R1,8bn in the six months to May last year. Its "buyback" (don’t buy) policy "saves" (loses) electricity by making it rewarding for half of its 250 biggest "intensive users" to cut production by up to 40%. Electricity insufficiency ensures stagnation and makes nonsense of growth and development plans. Eskom runs bizarre campaigns to discourage its customers. Its "49m" campaign solicits avoidance pledges. You can join the 7,000 who pledged to "turn off lights because things are more fun in the dark", whereupon you’d see an "AAH OOH" bubble on the website; or take the "Flab to fab" pledge to "warm up by exercise instead of heating"; or "shower with a friend" to save water, or "play with your pets" instead of using a heater, for which the curious image is a sheep. Eskom wants its best consumers criminalised. It is like Pick n Pay having a government-created grocery monopoly and paying its best customers to stay away or fining them if they shop.
Beyond all of this, the two new power stations, Medupi and Kusile, will cost twice as much and take twice as long to build as expected. Eskom wants prices to increase by 500% in 10 years from 2009 and will soon be charging double what private producers would if allowed to complete. It wants R3.6-trillion over the next 10 years, by which time we, if the apartheid-era monopoly is perpetuated, will have close to the world’s most expensive electricity and guaranteed economic stagnation. The solution requires nothing new, creative or costly, merely the implementation of existing policy: consumer choice and free competition through an independent transmission grid run like roads, harbours and airports.
• Louw is executive director of the Free Market Foundation.