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The beginning of the end of Eskom’s monopoly

DA to revive bill that will ease the power utility’s stranglehold.
Eskom supports the move, saying the concept of an Ismo is government policy. Picture: Reuters

The Democratic Alliance (DA) announced on Monday that it will revive legislation to break Eskom’s monopoly on the generation and transmission of electricity by introducing a private member’s bill.

The proposed bill will provide for the establishment of an Independent System and Market Operator (Ismo) owned by the state that will buy electricity from electricity generators, including Eskom.

“The operator will function as a wholesaler of electricity that sells electricity to distributors and customers at a wholesale tariff,” states the DA. “The Ismo will function independently to electricity generation businesses to ensure fairness between generators, encouraging competition and innovation.”

The move will revive a bill first introduced by the minister of energy in 2012 and then withdrawn in 2014.

Eskom spokesperson Khulu Phasiwe said in response to the DA’s plans that the concept of an Ismo is government policy and that Eskom supports it.

He added that Eskom is working on a new corporate plan that will look at several options for the future of the utility, including the impact that the removal of the transmission function would have on Eskom.

He said all stakeholders, including the department of energy, would have to be consulted about the restructuring of electricity supply and chart a way forward with regard to existing power purchase agreements.

A crucial element of the DA proposal is that it aims to empower metropolitan municipalities to buy electricity directly from power producers, without going through the Ismo or any other third party.

Cape Town mayor Patricia de Lille earlier threatened court action to enable the city to bypass Eskom and buy electricity directly from renewable power producers.

Meridian Economics regulatory economist Dr Grové Steyn says there are three elements to the Ismo. The first is ownership and management of the transmission network. He says the original Ismo Bill did not provide for the unbundling of these assets from Eskom.

The second is the market operator that buys electricity from various generators and sells it to distributors and consumers.

Buyers typically contract in advance for their power requirement per time slot – be it for every hour or half hour of the day.

At a certain point the bidding closes and the system operator, which represents the third element, schedules its different suppliers according to predetermined rules or priorities, much as it does currently. Real-time demand never exactly matches the prior orders and the system operator has several levers it can use to fill the gaps, at predetermined prices.

Steyn says existing power purchase agreements, including those in early bid rounds of the department of energy’s Renewable Energy Independent Power Producer Procurement (REIPPP) Programme that came at a hefty premium, will have to be factored in.

Government bound itself to buying that power at a fixed rate, which is adjusted annually by the inflation rate, for 20 years.

That should not be an unsurmountable obstacle and won’t stop the introduction of competition in the electricity sector, says Steyn.

Thembani Bukula, CEO of electricity exchange PowerX and former energy regulator (Nersa) member for electricity, says the Ismo concept is inherent in most deregulated electricity industries.

He says it will enable the different divisions currently situated in Eskom to stand alone with no cross-subsidisation.

Bukula says the transmission business is one of the better functioning parts of Eskom, but is overshadowed by problems in generation.

He adds that the introduction of an Ismo would do away with the current perception that Eskom favours its own generation plants and would lead to greater transparency, which would be conducive to investment.

The unbundling of the transmission network will impact on Eskom’s balance sheet as it represents about 10% of the utility’s assets, Bukula says. He does not think that should be a problem, since Eskom does not currently plan any big capacity expansion that would require a strong balance sheet.

Having to compete with other generators should put pressure on Eskom’s generation business to operate more efficiently, he says.

DA leader Mmusi Maimane said the DA will now refer the bill to Parliamentary Legal Services and issue a call for public comment to be published in the Government Gazette. Thereafter, the Ismo Bill will be tabled in the National Assembly.

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It is an indictment on the ANC that most South African’s start celebrating the fact that Eskom’s monopoly is demising.

Under the ANC, the most commoditised thing in the world (the humble electron) has been so thoroughly corrupted and wasted and stolen, that Eskom is mear shadow of its former self.

Under clean administrations, state-owned monopolies can work very hard for economies, but under corrupt administrations, state-owned monopolies become a noose around the economy’s neck.

Eksom still delivers more than half the Grid capacity on the continent for less than 5% of the people on it. Eskom is experiencing problems with the most obvious and major one being that the state has chosen that the Municipalities should be subsidized on it’s back and even get away with not paying their bills. The vast amounts of revenue lost to Eskom due to it not having full control of over half of distribution is a bigger threat to it’s future status than any scam the Guptu’s could or did run for 2 or 3 years.

https://mg.co.za/article/2018-05-22-south-africas-municipal-electricity-tariffs-are-hurting-the-economy

Eskom still provides some of the very cheapest electricity in the world and is among the 10 biggest utilities by both generation and revenue. To throw it all away to punish will not reduce price to consumers and poses a far larger danger to the future of the country any fiscal overhang on the national treasury.

African ” pragmatist”

Eksom still delivers more than half the Grid capacity on the African continent for less than 5% of the people on it so again if that is a sign of failure they are doing a spectacular job of it.. Eskom is experiencing problems with the most obvious and major one being that the state has chosen that the Municipalities should be subsidized on it’s back and even get away with not paying their bills. Why this happened i can’t say and while the over sized staff at Eskom can’t help balance sheets the extra tens of thousands with fair pay that work there would undermine several tens of thousands of extended households.

The vast amounts of revenue lost to Eskom due to it not having full control of over half of distribution is a bigger threat to it’s future status than any scam the Guptu’s could or did run for 2 or 3 years as it the choice of the ‘free media’ to undermine the fantastic terms the Russians were probably ( as in other countries) willing to give us to gain some positive influence with the ANC.

A bit late for Eskom and others to open up the market, considering the uptake by private house holds to fully or partially remove their reliance on electricity supplied directly

Quite correct Tim. It also took them a while to realize that it was cheaper to let someone else supply the capital, build the power generator and maintain it, while they ran the distribution network.

It’s a question of national integrity. Allowing private owners the capacity to shape policy by controlling generation capacity is a thing no sovereign state should do lightly and it was exactly then what what the old Apartheid regime considered doing to hamstring the ANC during the transition period by trying to privatize it in 1992.

Cheap it may be but when it’s come to questions of sovereignty cost can not and should not always be the primary consideration at all and never in a country with democratic ambitions.

Tim Rice: And where exactly are people going to go? The subset of people who can out the capital for true grid independence is as vanishingly small as to make no difference.

You will have the equivalent of an ACSA which makes the profit but SAA is still a dog.
That will not save Eskom, proper management according to good business practices is the solution.

Well frankly Eskom is already beyond saving.
The best thing they can do is, split it up, and try and see if you can get some private sector partners for the profitable bits, because no one wants any piece of the current Eskom structure.

PJJ: And why do you think the private sector would want something if not because there is a massive capacity to extract profit? Do you realize that it’s currently the municipalities that are stealthily being allowed to extract revenue/profits and that this is well understood by anyone with education or power?

Nationalizing Eskom wouldn’t just be the wrong financial choice for the fiscus but also a terrible idea for out democracy and if that’s what you care about ( the ‘little’ middle class actually wealthy person) then agreeing with the free market raiders called economist on radio just means you are another dupe with more money than time to figure out why and whom you are being exploited by.

QQ1942: SAA is significantly a jobs scheme and if you would be happier if those people work directly for the state ( inflating those costs) instead of at least being on a semi independent payrole then that’s fine. My problem is that people think that SAA is has to make money and that money is not in fact being made by the private sector airlines using all those facilities.

If you want to save Eskom and the national sovereign airline fight to ensure that SAL can get all the local and lucrative routs as well as get the maximum income from all it’s assets instead of allowing those large incomes to to be privatized at the national expense.

The DA is really barking up the wrong tree here. Eskom used to be profitable but due to corruption and bad management it is now dysfunctional. Even breaking up Eskom into various units won’t solve the problem if that corruption and inept management continues.

May reduce the size of the private cookie jar.

TIMMO : Yes the neoliberal reactionaries that actually control the DA wants to privatize everything in South-Africa ( the moment they think they can get away with it) to both further enrich themselves as well as of course the wealthy elite they represent. The idea that the DA is barking up the wrong tree instead of up the tree they are commanded to bark up is just another of those interesting observations one can make of the average apartheid era voter who at the time would probably have railed against privatization lest it cost them an inch of perceived democratic control of the wealth generated in this country.

Delusional to believe this socialist government will ever allow competition. Besides, we know how the unions will react – they cried blue murder simply at the presence of independent producers. This legislation ain’t gonna happen.

Brad666:

The ANC is so far from a socialist government which should be adequately illustrated by the fact it’s inequality status has actually worsened under the ANC ( slower growth compared to others) especially after 2008 crisis. Why anyone can call the ANC socialist is beyond me other than having to presume that they don’t know what the word means and are just being duped into believing the spokesmen( economists) of the billionaire class.

South-African corporations have either the highest or some of the highest returns on investment( ROI) in the developed world so again that would be an impossibility in a even a modestly socialist orientated government that would tax those corporations to uplift it’s citizens and expand the infrastructure works.

The DA is delusional in their thinking if we take what is said in this article seriously. Why did they not come up with this motion when the ANC and its cadre were raping out wallets and filling theirs and the Guptas/Zumas? he DA is a lost force, and this will show in the results in the next election.

I can’t understand why, pre-1994, Eskom not only produced some of the cheapest electricity in the world but was also one of its most respected utilities. Er, hang on a moment…

Because they overbuilt in the 70s and 80s. That capital could have been allocated elsewhere,so it represented waste. The NP government was as much into central planning as the ANC is today, but with less corruption. Nonetheless all that “cheap power” wasn’t as cheap as you would think.

Less BLATANT corruption. Pretty sure it was just as bad. They were just better at covering it up.

As you say Jimmy. The old apartheid people think that because they didn’t hear about corruption ( no free media back then) it wasn’t corrupt but it was more corrupt as whatever the apartheid government chose not to give to their billionaire class they gave to white minority who had to be compensated for holding the whips&guns and dogs over the majority.

Pistov:

Well Eskom still produces at least competitively priced electricity and if didn’t have to so generously share it with the municipalities ( around 50% is purchased and resold to end users) it’s problems and cost escalation might all but evaporate.

http://www.poweroptimal.com/350-increase-decade-expensive-electricity-south-africa-compared-countries/

https://www.htxt.co.za/2015/06/26/south-africas-electricity-pricing-compared-to-the-rest-of-the-world/

https://africacheck.org/reports/eskom-and-the-viral-infographic-do-the-numbers-add-up/

Maybe they were corrupt but at least when you switched on the electricity the light came on! The D A can only try but it is a David and Goliath struggle as the A N C will keep it and all the other S O E s no matter how illogical

Nostra:

When the old nationalist government came into power they also fired tens of thousands of people ( mostly Africans) from jobs they were doing adequately according to British standards and then replaced them with party loyalist of dubious capacity and overstaffed any ways. This is also what just about every political movement in the history of humanity have done and thus not even worthy of any but partisan hack commentary.

End of comments.

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