MICHAEL AVERY: How energy emergency would pose a risk to rule of law

It may sound conspiratorial, but the way SA’s energy crisis is being mismanaged one might suspect an ulterior motive.

At the time of writing the country is still waiting to hear what the president’s plan (yet another one) may be after revealing in his weekly letter that in the coming days he will announce a comprehensive set of actions to achieve far faster progress in tackling load-shedding.

In his weekly newsletter the president stated his administration was committed to exploring “every avenue” and using “every opportunity to ensure that we generate enough electricity to meet the country’s needs”.

The question is, do we really need a state of emergency when the minister is empowered to clear away red tape by the Electricity Regulation Act (ERA)? Too often around the world, and here in SA, we have seen crises being manufactured into a gateway for corruption.

The legislation already provides for the minster to do what is necessary to get new generation onto the grid, including exempting entities from licensing requirements, and registration requirements if there are good reasons for this. That’s part of the ERA.

An emergency won’t give the minister more powers, but under the act he would have to give reasons for this exemption because it would be an administrative decision so it could be put under review.

If mineral resources & energy minister Gwede Mantashe hasn’t used the huge powers afforded to him under the act up to now to get new generation capacity onto the grid, the suspending of this law and bestowing emergency powers upon him could actually reward the government for failing to put reasonable, rational and economically sensible solutions on the table.

It could also open the door for the special interests that have arguably prevented renewable energy getting onto the grid so far (going back to the anti-renewables campaign run by Matshela Koko and Brian Molefe when they were Eskom CEOs, and open the door for large coal, big gas and nuclear to get into the room. The ERA has kept them out of it so far, but once they have a foot in the door they will be nigh on impossible to remove.

It’s possible to conceive that the special interest groups that put paid to the highly successful Renewable Energy Independent Power Producer Procurement Programme and stopped any new generation capacity from being connected to the grid for seven years, has now deliberately created this situation so that they can walk all over our democratic governance and establish themselves for another lock-in period.

The energy emergency could usher in a far bigger emergency for our democracy and the rule of law. Rather than a state of emergency the president should be asking why Mantashe hasn’t acted yet to deliver on the targets agreed to in his 2019 ministerial performance agreement using the considerable powers already afforded to him under the existing law.

Missed targets

Just as the global economy is getting carried away with inflation, notable areas are starting to roll over like skittish puppies. The EFF’s top brass will be pleased that Rolex watches have been ticking lower since April. But the likes of graphic chips, industrial metals, trucking, shipping rates, used cars, houses and lumber all point to a potential peaking of inflation.

There are obviously different reasons in most cases, such as the dampening impact of a tumbling stock market, or the wealth or base effect. But other areas are more directly linked to the US Federal Reserve and higher interest rates.

Meanwhile, segments related to transportation and shipping could have more to do with the bullwhip effect, the aftermath of the huge boom in goods consumption we saw in the initial wave of the pandemic.

Taken collectively though, it does support a view that this rate hiking cycle will be short and sharp, with rate cuts now being priced in as early as the end of next year. This spells good news for a softer landing than initially feared, but also raises the prospect of policy missteps by the Fed and other central banks that are trying to regain credibility.

BlackRock believes we are entering a regime shift from the era of the great moderation — which started around 1985 and ended in 2021 and was characterised by steady growth and moderate inflation — to the emerging era of increased volatility and rising risk premiums.

Main features of the great moderation era were steadily expanding production capacity and demand shocks. BlackRock posits that central banks could easily nudge spending by cutting or hiking rates. But according to BlackRock that has now been flipped on its head, largely due to production constraints triggered partially by the pandemic and in large part by the global transition to net zero.

This presents a Gordian knot for monetary policy. A pile-up of global debt to buffer the Covid-19 shock limits the wiggle room of central banks, and makes it more tempting to live with inflation. In addition, the politicisation of just about everything these days means policy debates are oversimplified, when nuanced solutions are needed.

BlackRock believes all this makes trade-offs between growth and inflation harder, and leads to worse outcomes. Your average 60/40 portfolio isn’t going to cut it in this new era.

• Avery, a financial journalist and broadcaster, produces BDTV's Business Watch. Contact him at badger@businesslive.co.za.