Unbundling of Eskom a death trap – SAFTU

The unbundling of Eskom, Not just a Roadmap, But a Death Trap for South Africa’s Energy Independence

The South African Federation of Trade Unions (SAFTU) joins NUMSA and NUM in opposing the decision to go ahead with the unbundling of Eskom.

What is at stake here is much more significant than simply breaking Eskom into three separate parts. The proposals made in the DPE’s Roadmap for Eskom in a Reformed Electricity Supply Industry, if implemented, will wreak havoc on South Africa’s energy system. The reason offered for the restructuring of Eskom into three subsidiary businesses – generation, transmission and distribution – is to “reduce the risk that Eskom poses to the country through its dependence on fiscal allocations and inability to supply the economy with adequate power.”  But what is being proposed will leave Eskom in a worse state and leave consumers worse off. By 2030, South Africa will have lost its energy independence, sovereignty and will be dependent on multinationals based in Europe and China. Costs will rise astronomically, and these costs will either be recovered through increased tariffs, state interventions, or both. We will be back to square one, but we will have lost control over our energy system.  

Moreover, there is no attempt to account how it came that a world leading energy company ended up with a massive debt of between R450 and R500 billion. There is no attempt to explain how unbundling will address this debt trap. No explanation is given as to how breaking up Eskom into three components with three CEOs, three executives, three boards and staff will drive the costs down.

​Information is hidden to the public that Eskom is effectively subsidising overseas private firms.  The country is not being told that the Independent Power Producers are importing readymade renewable equipment such as solar panels out of the country. They are creating employment in other parts of the country but generate profits at the expense of the public utility, Eskom. Above all, Eskom is not allowed to enter the renewable space which is designed and reserved for the Independent Power Producers who have been asked to invest in renewables without taking any risks. Their profits are guaranteed for the next twenty years. This is a rip off and a deliberate milking dry of the public utility. This will render Eskom useless to bolster the chance of the private sector to take over the provision of the public good not in a too distant future. The question that arises is who really stand to benefit from this? What model of a competition is this? Wake up South Africa and smell the coffee, the country is being sold the to the highest bidder!

The DPE’s Roadmap claims that breaking up Eskom will usher in a “new business model.” This model is not consistent with the principle that electricity is a public good that should be used for human development and to strengthen the national economy. The proposed new model can be labelled “electricity for profit” where private interests, many based outside of South Africa, will enjoy Government backed guaranteed returns on investment as a result of 20-year power purchase agreements (PPAs).

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Without mentioning the word “privatisation” once in the entire Roadmap for Eskom document, it is plainly obvious that what the DPE is proposing comes straight from the World Bank’s privatisation handbook. It is consistent with the Bank’s “privatisation in stages” approach attempted in many other countries. 

According to this plan, first the public utility is broken up, but its component parts will remain--for a while--in public hands. Then for-profit independent power producers (IPPs) are offered long term contracts (power purchase agreements, or PPAs) to take over new generation capacity. We have seen this already with the Renewable Energy Independent Power Producers Programme, or REIPPP.  Privately-owned generation is phased in, publicly owned generation is phased out.

According to the DPE, Eskom’s future in power generation will be as one of many generators bidding for PPA contracts. It is claimed that this is but a steppingstone that “will thereafter transition to an open-market model.” In other words, Eskom’s generation must first compete with other IPPs as if it were a private entity. According to the DPE, “Consideration is being given to create two or more generation subsidiaries to introduce intra-company competition among the generation subsidiaries and drive efficiencies in generation.” In other words, separate parts of Eskom’s fleet will be forced to compete against each other on what will be an overcrowded generation market and sluggish energy demand. This is how privatisation happens: impose “market rules””, split up the business and sit back and watch how public entities struggle to reconcile their public mission of providing affordable electricity with the imperatives of profit making.

The DPE points to Vietnam as a successful example of this approach, but it fails to mention that demand for electricity in Vietnam has been rising at an average of 7% per year and nearly all of this added demand is being provided by new coal-fired capacity. In the context of South Africa, revenues from what is now Eskom’s existing fleet will plummet and the “death spiral” will intensify. With the planned decommissioning of 12GW of coal by 2030 under IRP 2019, it is clear where things are heading. Eskom’s share of generation will fall from 90% to 60% by 2030, and fall still further after that.  The share of private generation will rise accordingly. But South Africa will still be dependent on coal-fired power for most of its electricity

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