Shakespeare’s tragedy MacBeth starts off with the question: “When shall we three meet again; in thunder, lightning or in rain?”
That the play has become a favourite source of quotes for SA presidents is rather fitting. As custodians of a country whose economic and social prospects held such lofty promise just 20 years ago, the country’s gradual decline into the abyss has been reminiscent of King MacBeth’s own demise.
SA’s decline is best illustrated by the fate of two entities, Eskom and SAA. It is common cause that these entities are unique in that they are expected to meet an economic and developmental mandate by venturing into avenues traditional businesses would not be expected to serve. Less understood by the politicians, in particular, is that the developmental mandate can only be met if the primary mandate — profitability — is sustained. If there is tension between the pursuit of profitability and the quest for social returns; the profitability question must prevail.
The concept of cross-subsidisation is well entrenched in the world of business. Whenever an entity has to service a cross-section of clients with different abilities to pay; charging some customers a higher price to subsidise others is justifiable. This is especially so in critical services everyone needs. What makes the model work is the provision of quality service to the “paying” market that matches the prices charged. Compromising on the service creates a scope for the paying clients to migrate to alternatives. Once that happens, the subsidisation model collapses, simply because the cash flow into the system dries up.
The attitude of the current political custodians exhibits a lack of understanding of how cross-subsidisation works. The rise of private schools and universities as an alternative to the public system is a case in point. The opening up of the skies in the early 1990s forced SAA to confront this reality much earlier than Eskom. And yet, rather than adapt to this reality by improving the service offering, SAA’s management at the time took a series of unfortunate decisions, the most scandalous of which was engaging in anticompetitive conduct that has now resulted in a R1.1bn settlement in favour of Comair. Remarkably, this fine comes as SAA is facing a cash crunch that is in contrast with the sustained profitability of Comair itself.
Eskom’s long-standing monopoly needs to start imagining that alternatives will eventually emerge that will take its place in various parts of the energy supply chain. The best response, therefore, is to find a way to service clients more efficiently. Little evidence exists to indicate Eskom appreciates this. The recent announcement that it is to be split into three parts seems premised on the flawed reasoning that Eskom has three discrete business units that individually and collectively can be profitable. This is not supported by the evidence, which exists at our primary reference point — Eskom’s own financial statements.
Either way, even if such business units had any prospect of profitability, the elephant in the room is the R420bn debt burden. No one knows if this burden will now be allocated across the three units and, if so, what exactly the point of that might be. On the other side, SAA has three discrete service lines — domestic, regional and international — that might be better served if they are managed by dedicated and focused teams.
In this vacuum of reasoning and articulation around Eskom, anxieties have naturally crept in, particularly from the unions. That President Cyril Ramaphosa thinks this is a conversation that can be held behind closed doors betrays a lack of understanding of just how frustrated the country is about the Eskom crisis. And just like the characters from MacBeth, he will soon discover that difficult decisions have now become inevitable and urgent.
• Sithole (@coruscakhaya) is a chartered accountant, academic and activist.
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