Logically, the government can no longer see Eskom as a desirable asset. This is obvious considering its operational failures, for which the government is blamed, and its ongoing demands on the Treasury, to which no end is in sight.
The question now is: how do we fix it? Should it be broken up into smaller components, as planned? Or should it be kept as a single entity and placed within a different institutional context? What are the implications either way?
Two arguments in favour of the unbundling option have been produced. The first: more narrowly focused activities would allow inefficiencies and the causes of operational failures to be more easily identified. Corrective action could then be taken. The second: restructuring would facilitate eventual privatisation, which would introduce competition and the profit motive into the industry. This would improve efficiency, resulting in lower tariffs, and relieve the government of responsibility for providing financial support.
A better solution is to reconstitute Eskom as an autonomous trust in which the beneficiaries are its electricity customers.
On the other hand, the causes of the operational and economic failures of Eskom all originate outside the electricity supply sector. Costs increased in attempts by the organisation to support government policy objectives. Decisions that proved to be strategic blunders were not taken by Eskom management but rather within various government departments. Tariff constraints, imposed by the National Energy Regulator of SA (Nersa) resulted in the neglect of essential maintenance and the effective bankruptcy of the organisation.
Thus, government intervention — usually done with the best intentions — is the cause of the problems. A rational solution would eliminate the causes of the problems rather than attempt to deal with their consequences. It is therefore reasonable to look for a remedy within the institutional context in which Eskom operates, before looking for one within the organisation itself.
A better solution is to reconstitute Eskom as an autonomous trust in which the beneficiaries are its electricity customers, each of whom would benefit in accordance with amounts paid for electricity purchases. Representatives of each consumer segment (households, municipalities, the public sector and the various industrial sectors) would constitute the board of trustees. They would be responsible for appointing the management and for approving or rejecting all strategic and operational decisions proposed. This would include budgets, tariffs and generation expansion plans.
Nersa would have no authority over Eskom. The justification for this is that Eskom customers are better judges than Nersa of what is in their own best interests. In addition to the disqualifications usually applicable to office bearers, no trustee would be appointed unless nominated by a recognised customer grouping. Any involvement with any supplier (including a trade union) or competing electricity supplier would also be reason for disqualification. This is to curtail the dysfunctional influence of special interests.
All current and future Eskom assets would be owned by the trust and all management and staff would be employees of the trust. Other than an initial transfer of some of the current Eskom debt to the government, taxpayers would have no responsibility for any further Eskom liabilities.
Key features and benefits of this structure are:
- Eskom management would be beholden to the trustees, who would in turn be directly answerable to the electricity consumer, creating a clear alignment between the interests of customers and management of the organisation;
- The burden of implementing government policies would be excluded and the influence of special interests would be blocked, leaving management free to focus on the single objective of supplying all electricity required by its customer base at the cheapest possible prices; and
- No statutory monopoly rights would be granted to the trust, allowing alternative suppliers access to the electricity market if they can do so competitively.
To the first unbundling option it can be said that Eskom is already divisionalised. Reorganising it into separate entities would reveal nothing that cannot easily be learned from an examination of its management accounts. Substantive corrective action would simply be deferred. We need a solution now, not at some vague future date. To the second unbundling option it can be said that placing Eskom, as a whole or in parts, in the private sector would simply replace one source of problems with another.
Competition and the profit motive introduced into the intermediate stages of power supply create intractable financing, management and co-ordination difficulties, the costs of which completely overwhelm the theoretical benefits of private sector involvement. This is a consequence of the technicalities and the large scale and scope economies offered by current, proven technology. Heavy government regulation is invariably required in this kind of electricity supply structure.
The argument that unbundling and privatising Eskom would result in a decline in electricity prices and relieve the government of operational and financial responsibility for the sector is, therefore, fallacious.
• Joubert, formerly corporate economic consultant at Eskom and now with Econometrix, is an engineer with a 20-year career in Eskom spanning corporate planning, financial planning and marketing.
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