US public intellectual Noam Chomsky once said: “That’s the standard technique of privatisation: defund, make sure things don’t work, people get angry, you hand it over to private capital.”
According to 2008 Nobel economics laureate Paul Krugman, a zombie idea is one that should have been killed by evidence but refuses to die. The whole point about zombies is that you can never fully kill them, he said. There is always going to be big money to support them.
In August 2019 a draft Treasury economic strategy document floated the zombie idea of selling Eskom’s coal-fired power stations through a series of auctions. Investors would take over the assets and sign power purchase agreements (PPAs) that had power station-specific tariffs. The new owners would sell power to Eskom for the remaining life of the power station.
Citing a Council for Scientific & Industrial Research report, the Treasury said the sale of the assets could raise about R450bn. The assets were segmented in three categories according to age. But two-thirds of the value was in the new stations — Medupi and Kusile. The rest were either worthless or had little value.
Two months later the Treasury had removed this proposal in the final document, probably because the politics did not allow it. But the original document should be seen as an indication of its true intentions. Four years later, when we all assumed the zombie had died, the Treasury resurrected it in the 2023 budget as one of the conditions for Eskom to get balance sheet support of R254bn.
The Treasury announced a process of evaluating the power stations that will end with concessions with “targets for energy availability and operations”. The Minerals Council SA has supported the idea.
However, in its latest annual report Eskom has rubbished the idea. An internal study found that Eskom would be unable to sell its power stations for three reasons. First, investors believe Eskom’s coal-fired power plants are stranded assets. “Based on expert feedback, the experience is that selling coal plants has become hardly feasible if not impossible.” Second, many mines could be closed if they do not make large investments to meet minimum emissions targets. Finally, the age and poor performance of the plants would deter long-term investors who want high returns.
Therefore, Eskom would have to compromise considerably on the economics of the transactions through either a severe discount on the book value of the assets or a higher than cost-reflective PPA. “Unless there was a huge increase in tariffs, both options would end up worsening Eskom’s already distressed financial situation. Furthermore, while selling power stations could provide short-term liquidity relief it would not resolve Eskom’s financial viability.” Had the Treasury’s officials not read Eskom’s annual report when they inserted the sale of coal power stations into the bailout conditions?
I don’t usually believe in conspiracy theories, but Chomsky was right, though he should have added that the standard technique also requires a propaganda campaign that convinces society that the government is broke and has no option but to turn to the private sector. But the SA government cannot run out of the currency it issues.
Eskom is too big to fail. It must be provided with the funding it needs to fix its power stations. The alternative is to play a dangerous game of monopoly with the country’s public assets in the hope that the private sector will invest. This would result in the largest fire sale in corporate history, where the private sector pays nothing for public assets and then refuses to invest unless it is paid to do so.
Almost two years after the SAA deal, nobody knows how much will be invested in the airline. It is time to kill the zombie idea that there is a financial shortcut to fixing Eskom.
• Gqubule is research associate at the Social Policy Initiative.
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