Is Godsell looting South African energy sector?

The arguments given by Eskom CEO Bobby Godsell for increasing tariffs are an insult to the intelligence of consumers. The former mining boss is quoted by Bloomberg as saying “South Africa needs to set electricity prices at levels that will attract companies into the industry and encourage funding for necessary expansion by the utility.” In other words, the tariff increase has nothing to do with providing consumers with cheap, economical and environmental-friendly energy.

Rather the tariff increase is all about profit-making and the creation of a lucrative energy market in which capital will be able to make a sizeable return on investment. In a country in which the majority of South Africans are still living in abject poverty, in which a disproportionate amount of income is spent on basic services such as water and electricity, Godsell should probably be shot. It is one thing to attract investment and open the market to competition but guaranteeing high tariffs so that capital expenditure will be guaranteed a fixed term on investment is a bit like taking the worst aspects of socialism and capitalism and banging them together into a new beast which is far worse. At least under the former monopolistic regime prices were kept low by limiting consumer choice.

White South Africans and the economy benefited from cross-subsidization. Although Black South Africans were essentially excluded from many economic activities, they benefited from low food prices as a result of the subsidisation of agriculture by the utility. Now Godsell is arguing the subsidies need to be removed, so that a new tariff structure can be introduced. One which will benefit foreign investment and the so-called “private entry” to the sector while pushing up input costs in a variety of key industries especially agriculture. (There is currently no feed-in tariff for less than 1MW projects. The new tariff scheme is solely for the benefit of projects which exceed 1MW.)

All good and fine, we need to find ways of expanding the base electricity available to the national grid, but surely not by forcing consumers to subsidise large capital projects which will not return profits to the consumer, but rather end up repatriating investment along with a guaranteed escalation and interest to parts unknown. South Africans are therefore likely to see an enormous outflow of Rands and increase in inflation because of Godsell’s decision, money which is taken out of the pocket of the consumer, merely because, like so many wealthy South African capitalists, Godsell refuses to distinguish between investment, and the duties of the utility to provide for the common good or benefit of all. Eskom under Godsell will also be engineering its own demise, with aggressive capital expansion projects that do nothing more than shift power from government to a foreign banking sector, through a variety of unnecessary and capital intensive projects such as Nuclear Power and PBMR, while funding an unsustainable form of competition dependent upon a captive market – you the consumer.

We should demand an open market in which energy providers can fail or none at all. We must also have the courage to demand failed projects such as the PBMR white elephant be shelved. Eskom, as the nation’s energy provider of last resort, has a mandate to provide cheap and affordable electricity for all. This can be seen by the relevant clauses in the constitution. It is all very well to open the market to competition but at what price? Our telecommunications sector has a similar history of phased deregulation, and provides us with lessons on what not to do. A big bang is preferable to a phased period of deregulation in which an artificial market is created which in turn acts to prevent the transition to the next phase. South Africa could end up with the worst energy sector in the world. One in which consumers pay triple or are overcharged for the same unit of electricity, merely because contracts entered into by our government no longer see to the best interests of the consumer.

Locking consumers into an aggressive expansion programme in which there are no conceivable benefits for at least another generation will doom South Africa to unsustainable and unfordable electricity for the foreseeable future. It would be far better if the utility was raising money to fund the purchase of hydrogen fuel cells, solar panels and wind generators for domestic homes. In fact today’s technology could bring us a distributed energy grid which closely resembles the Internet. Instead, Godsell like so many in the ANC elite, is simply feathering his own nest and entrenching his class position.

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