Moving Eskom to Mantashe's ministry would be a serious mistake

There is a conflict of interest for a ministry being a shareholder of an SOE while also having responsibility for sector competition and regulation

15 January 2023 - 00:00 By ANTON EBERHARD
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Eskom could fall under mineral resources and energy minister Gwede Mantashe's portfolio.
Eskom could fall under mineral resources and energy minister Gwede Mantashe's portfolio.
Image: Jeffrey Abrahams/Gallo Images

It would be a grave mistake to shift the governance of Eskom to the department of mineral resources & energy (DMRE), as recently proposed by the ANC’s national conference.

The consequence will almost certainly be ongoing power cuts as Eskom is protected at the expense of private investment. 

There is an obvious conflict of interest for a government ministry being a shareholder of a state-owned enterprise (SOE) while also having responsibility for sector competition and regulation.

This conflict is even more evident when a vertically integrated SOE like Eskom owns and operates close to 90% of electricity generation as well as access to the national grid.

One of the reasons South Africa currently experiences load-shedding is that the government previously sanctioned Eskom’s refusal to sign contracts with independent power projects, resulting in a seven-year hiatus between the opening of bid windows 4 and 5 for new generation capacity.

International best practice demonstrates that shareholder ministries or agencies should concentrate mainly on the financial sustainability of their SOEs so that they can deliver effective services.

Separate ministries are charged with formulating sector policy and providing regulatory oversight. Indeed, South Africa’s Electricity Regulatory Act enjoins the minister to “promote competitiveness and end-user choice” in the electricity sector. How will ministers do that if they are also responsible for Eskom?        

What is extraordinary in this latest proposal is the collective amnesia around the policy work that has been done on the governance of SOEs.

In 2013, the presidential review committee on SOEs recommended that “government must delineate the separate roles of owner, policymaker, regulator and implementer”. 

The current presidential SOE council has made similar recommendations. Both build on the benchmark OECD Guidelines on Corporate Governance of State-Owned Enterprises.

Eskom’s power stations are failing at a faster rate than new power generation capacity is being added. The solution is thus twofold: Eskom has to perform better but South Africa also needs accelerated investments in new power.

Fixing Eskom is really difficult. I believe the current management and staff have tried their best. It’s hard to see how one or two new executives can make a revolutionary difference in a huge organisation struggling with historically poorly maintained and ageing power stations, and not enough reserve capacity or funds to undertake the required maintenance.

Sensible strategies to end load-shedding thus have to include massive new power generation investments. Government doesn’t have the fiscal space to fund this. Eskom’s indebtedness and insolvency restrict its ability to raise new finance.

In contrast, the private sector, and to a lesser extent development finance institutions, have demonstrated their ability and willingness to fund required investments.

These investments require a level playing field, non-discriminatory access to the grid and a competitive market, unconstrained by the dominant incumbent.

Yet South Africa’s energy minister believes in only one side of this equation. He has made this absolutely clear in his numerous public utterances.

“Load-shedding is a result of 22,000MW of idle Eskom generation capacity”, he says. And every time he announces the award of new renewable energy generation contracts, he states they will not resolve load-shedding.

In fact, in Gwede Mantashe’s nearly four years as energy minister, he has not yet delivered a single publicly procured megawatt that is generating electricity for the grid.

The earlier renewable energy IPP auctions, initiated between 2011 and 2014, delivered around 100 projects totalling more than 6,400MW and R200bn in private investment.

In contrast, Mantashe has presided over disastrous emergency procurement and renewable energy IPP bid windows 5 and 6 — initiated far too late — that have signed only a few hundred megawatts from the thousands on offer. No procurements have been launched for gas or storage.

In Gwede Mantashe’s nearly four years as energy minister, he has not yet delivered a single publicly procured megawatt that is generating electricity for the grid

One of my meetings with Mantashe was in 2019, soon after his portfolio was expanded to include energy, and I warned that his legacy would be “Mr Load-Shedding” unless he acted with ambition and urgency in procuring new power, enabled by the extraordinary powers granted him in legislation.

He tucked my briefing note into his jacket pocket and said he would blame Pravin Gordhan when the lights went off.

And subsequently he did exactly that. My encounter was not unique. Others have reported similar experiences.

Mantashe later accused Eskom’s CEO, André de Ruyter, of undermining the state through load-shedding and acting as a policeman against corruption. And now Mantashe has his wish: De Ruyter, who was accused of “not enabling the comrades to eat”, is departing Eskom.

Good luck to managing the criminal syndicates that have been identified in Eskom and are causing power plants to fail, with unprecedented levels of load-shedding — until, they hope, law enforcement eases. 

Another impediment to new power generation investments is inadequate transmission. The Just Energy Transition Investment Plan of $8.5bn (about R145bn) has allocated significant international funds for relieving these constraints.

Yet Mantashe, in a recent meeting with one of the funding partners, railed against “colonial agendas”, prompting the visiting deputy head of state to suggest they could direct their funding elsewhere. Who then actually is undermining South Africa’s attempts to restore energy security? 

This raises another conflict of interest. Mantashe is clearly ill-equipped to resolve South Africa’s power crisis. He is backward-looking rather than embracing the energy transition.

His position also as minister of mineral resources, plus his ideological necrophilia, makes him focus on Eskom coal-power stations almost exclusively, rather than on how to mobilise the R1-trillion that Eskom estimates is necessary for new generation capacity by 2030. 

But this is not ultimately a question about personalities; it’s about structural reforms. If the oversight of Eskom is transferred to the DMRE, or even a separate energy ministry, the restructuring and unbundling of the utility will falter; inadequate transmission investments will be made to connect private generators; plans for a power exchange and market will be abandoned; South Africa will not have enough new power generation capacity to meet demand; and power cuts will persist, crippling economic development.

Let’s hope the president makes the right decision.

Eberhard is professor emeritus and a senior scholar at the Power Futures Lab at the University of Cape Town’s Graduate School of Business   

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