Regulating the energy sector in South Africa: Role of Parliamentarians

“South Africans are struggling due to the rolling blackouts. Business people are struggling, patients are struggling and bodies are decomposing in mortuaries”- Themba Masango, Secretary General of NIMN

By Nyasha Mcbride Mpani

Introduction

South Africans have quickly embraced the new term ‘load shedding’, which is synonymous for scheduled electricity blackouts imposed by the country’s state-owned electricity monopoly, Eskom. The country has been affected by load shedding for the last 14 years with citizens enduring the obvious frustrations which are brought by the intermittent blackouts. South Africa stands at the abyss of a major politico-socio-economic catastrophe. Eskom is in a precarious position as it is failing to rescue the country from the power generation shortages which now have become a daily phenomenon. The power utility organisation has also indicated that the country must brace for at least two more years of continuous load shedding between stages 2 and 3, with higher stages not being ruled out.  The increasing rolling blackouts which are now currently at stage 6 and the growing domestic electricity tariffs, which are also cutting into meagre and stagnating wages, the high cost of living triggered by the Russia-Ukraine war, retrenchments looming over Eskom workers, and workers across industries pose a socio-political threat to the country. These challenges are fuelling protests across the country, sparking resistance and resentment. This paper delves into the history behind the energy crisis in South Africa and the role that parliamentarians can play in order to try and rescue the country from load shedding and put an end to it being a significant part of South African daily life.

South Africa’s Energy Crisis: A Synopsis

In 1923, Eskom was established to serve a white minority and the mining community. This went on until South Africa entered into a democratic dispensation which then saw millions of South Africans being connected to the power grid. The connection of the majority of South Africans to a power grid that was designed for the minority meant the pressure for power had been increased. In the late 1990s, President Thabo Mbeki and his government were warned by energy experts that “Eskom’s generation capacity surplus will be fully utilised by about 2007” and to take action quickly so as to secure the country’s electricity supply. President Thabo Mbeki, just as he did throughout his presidency, when he denied the connection between HIV and AIDS and questioned medical science supporting the causal link, and his government,  also rejected the advice that came through the white paper. The energy experts continued to issue many subsequent forewarnings about the country’s electricity supply shortages, but they continued to fall on deaf ears. In 2007, the country experienced its first load-shedding and this is when all hell broke loose. With this crisis facing the country, the government in 2010 took a US$3.75 billion loan from the Bretton Wood Institutions. The loan was to support South Africa in obtaining a dependable electricity supply while also financing some of the biggest solar and wind power plants in the developing world (The World Bank, 2010). According to the World Bank (2010), the support to Eskom through the loan facility was “to boost generation capacity for growing small and large businesses, creating jobs, and helping lay the foundations for a clean energy future through investments in solar and wind power.”

Having received the loan from the World Bank, Eskom awarded the tender of building new power stations to the ruling party,the  African National Congress’s business front called Chancellor House in 2012 (Evans,2012). The contract was awarded to Chancellor House despite the outcry that was made by opposition parties and non-governmental organisations in which they opposed to this award citing the contract as a conflict of interest. The opposing parties argued that the ruling ANC, which was the governing party, cannot be both a player and referee. It is on record that the then ANC secretary general, Gwede Mantashe, shielded Chancellor House, reiterating that there was nothing erroneous in ANC capitalizing on public companies that are awarded state contracts.  Chancellor House, having won the tender, partnered with Hitachi which by then had a significant ANC ownership of 25% of Hitachi Power Africa and which was/is awarded most of the major maintenance tenders of Eskom. As a result of a legacy of mismanagement and corruption, the company failed to complete the project under the agreed time frames. Due to a cocktail of challenges the company was facing, the company went on borrowing a lot of money so as to try and complete the two power stations, Medupi and Kusile, which the company were supposed to build. Medupi and Kusile power stations became the epicentre/ground zero of looting with a huge strain on Eskom’s financial resources, and upward pressure on Eskom’s electricity price trajectory. To date, these two power stations are not operating at full capacity and they are the ones facing major breakdowns all the times.

Situation at Medupi and Kusile Power Stations

South Africa has over 15 coal fired power stations, 14 were commissioned between the period 1961-1991 and three were later commissioned between the period 1991-2021 (see image below)

Source: BizNews

Source : BizNews

The power utility company, Eskom, uses open cycle gas turbines (OCGT) to burn diesel to generate electricity during peak periods at Ankerlig and Gourikwa. As of the 1^st of April 2022, Eskom spent R12 billion on diesel for these power stations. It is without any doubt that Eskom is facing a financial crisis and does not have any more money to spend on the diesel required. As a result of this, the country is therefore facing load shedding that can quickly jump from stage 2 to stage 4 and stage 6 within a short period of time. This is in contrast to what was happening previously when Eskom could have been using the open cycle gas turbines to just keep the country at stage 2 for the whole day. It should be noted that the reason why the country is having load shedding in the first place is that there are constant breakdowns in the Eskom coal fleet. The power stations use coal, they are very old, unreliable and they have been over-used and not maintained for a very long time and it is the reason why they keep on breaking down every single day. Experts have reiterated that the OCGT are used to keep the load shedding at some level but as a result of the never-ending breakdowns and with the country not having working power stations to supply electricity while they fix the broken down ones, this has become a vicious cycle. This could have been avoided had the warnings made by energy experts in 1998 been taken seriously by the government. What has been happening in the midst of low power generation capacity, the existing power stations were run very hard with low levels of maintenance. This then caused these power stations to be very unreliable and caused continuous breaking down.  While 2022 has been a very bad year, the country needs to be prepared for load shedding to get worse. The country is on its way to terrifying times.

The National Energy Regulator of South Africa (NERSA) and Tariff Increase

NERSA is a regulatory authority established as a juristic person in terms of Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004). The mandate of is “to regulate the electricity, piped-gas and petroleum pipelines industries in terms of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Gas Act, 2001 (Act No. 48 of 2001) and Petroleum Pipelines Act, 2003 (Act No. 60 of 2003)[1]”. On Thursday, 12 January 2023, NERSA gave the go-ahead to Eskom to implement an electricity tariff increase of 18.65% from April 2023[2] (See table below). From this increase, Eskom seeks to raise R350 billion, while municipalities owe it R50 billion. The debt is accumulating  as the municipalities persistently make low payments or default on payments.

[1] https://www.nersa.org.za/

[2] https://ewn.co.za/2023/01/13/this-thing-makes-me-mad-south-africans-react-to-eskom-tariff-hike

Eskom’s fifth Multi-Year Price Determination (MYPD5)

The go-ahead for the tariff increase came at a time when the country is undergoing stage 6 rolling power cuts. Opposition parties, civil society groups, citizens and other pressure groups have condemned the increase and ruled it as unfair, unaffordable and unjust. Cape Town Mayor Geordin Hill-Lewis said “Eskom has just tried to shield itself from the consequences of years’ worth of mismanagement by making struggling South Africans and their families their financial scapegoats.”[1]. The Economic Freedom Fighters (EFF) also lambasted NERSA and reiterated that the regulating body had failed in its mandate.

Is the Tariff Increase Justifiable?

One open secret is that Eskom is going through significant financial challenges. Another reason why Eskom is implementing some stages of load shedding is partly to manage scarcity of financial resources. For OCGT to run, diesel is needed and Eskom does not have enough money to buy more diesel for this. According to energy expert, K.W. Miller, Eskom needs 1.7 trillion in new capital requirements, above and beyond existing disclosed debts. Without this amount of money, the power utility is on a verge of complete operational and financial collapse. While NERSA is yet to issue a written statement to justify the factors they considered when they agreed to the increase, it is quite evident that the cash flow issue is one of the reasons, as the power utility needs money to burn fuel for OCGT. In addition, taking from the conversations that were made by the regulatory committee, it was quite clear that Eskom needed funds to deal with the following;

• Too much use of diesel-powered open cycle gas turbines (OCGTs)
• The declining performance of Eskom’s coal-fired power plants
• Coal supply and maintenance issues

While the reason/s for the increase are reasonable and compelling, the point of departure is the timing of the increase. Many South Africans are at the moment reeling from the ravages of the effects of COVID19 which left some people jobless and some companies struggling to stay afloat. Other companies are now battling to recover from the pandemic. Added to this is the Russia-Ukraine war which has had a negative impact on the world economy and has not spared the South African economy either. The war has triggered a rise in the cost of living and of basic goods.  The finances of businesses and consumers is already under a stress and having such an increase under such circumstances is very insensitive. This is also not at a time that the country is experiencing load shedding at stage 6.

What can Parliamentarians do?

Parliament, being an elected democratic assembly whose role is to represent, legislate and conduct oversight, has an important role to play in regulating the energy sector in South Africa which is posing a threat to the stability of the country. In terms of the role of South African parliamentarians to regulate the energy sector, there are several additional actions they could take which include:

Legislate: Parliamentarians could create new laws and regulations to improve the oversight and management of the energy sector. These laws can include the promotion of renewable energy, improve efficiency and reduce corruption. Parliamentarians can also pass laws that establish independent regulatory bodies to oversee the energy sector and ensure compliance with regulations.

Oversight: South African Parliamentarians could use their oversight role to monitor the performance of the energy sector and hold government officials and companies accountable for their actions. They could also use their oversight role to review and approve budgets for the energy sector and ensure that public funds are being used effectively. Also, they could ask treasury to allocate more funding for the development of renewable energy sources, such as solar and wind power. This would help to reduce the country’s dependence on fossil fuels and decrease the load on Eskom’s power grid. Also, Parliamentarians need to strengthen the established regulatory framework for independent power producers (IPPs) to increase competition in the energy market and diversify the country’s energy mix.

The corruption and mismanagement that is, or has been, taking place at Eskom and at Medupi and Kusile power stations needs parliamentarians to keep their eyes on the ball and ears on the ground, do due diligence in oversight work such that public finances are not misappropriated. Parliament needs to make sure that through their oversight work, they put an end to cadre deployment which has hollowed out the power utility organisation. It is imperative that Parliamentarians work to improve the efficiency and management of Eskom by implementing cost-saving measures and implementing good governance practices.

Represent: Parliamentarians could represent the views and concerns of their constituents by engaging with them to understand their energy needs and by communicating with the government and energy companies on their behalf. Citizens have been complaining about the incessant load shedding and how it is affecting their businesses and private lives. The tariff increase by NERSA is also impacting the livelihoods of citizens who are already struggling to make ends meet. Unions have also aired their concerns about the current power crisis and how it poses a threat to the working hours of workers. COSATU has already argued that the energy crisis is affecting the workers who are now losing working hours due to load shedding. Parliamentarians need to represent the demands and cries of these constituents and make sure their demands and cries are addressed. They could also engage with civil society organizations and experts to develop a comprehensive understanding of the energy sector and to promote sustainable solutions.

Furthermore, parliament can also develop long-term energy plans and policies, such as developing a long-term energy plan and policies that promote sustainable energy solutions and address the needs of the country’s growing population. This would help to ensure that the energy sector is able to meet the country’s needs well into the future. Subsequently, Parliamentarians could encourage public-private partnerships to attract private investment in the energy sector and to promote the development of new technologies. Lastly, Parliamentarians could review and amend the existing energy laws that are no longer effective or are outdated in order to ensure that they are in line with the current needs of the energy sector and the country. Parliamentarians could encourage energy conservation through incentives and education campaigns to reduce demand on the power grid and decrease the load on Eskom.

Conclusion

The paper looked at the energy crisis in South Africa and gave a brief synopsis on how it started, dating back to the 1998 energy warning which was ignored by the then government, led by Thabo Mbeki. In addition, the paper also looked into the Medupi and Kusile power stations and how the two power stations’ lack of completeness and the corruption laced with it have caused more power woes for the country. The tariff increase by NERSA has also been discussed in the paper and the justification surrounding the increase, coupled with the economic challenges that citizens are facing. The role of parliamentarians in addressing the energy challenge has also been discussed where parliamentarians are encouraged to make use of their three main duties (oversight, legislate, represent) to address the energy crisis in the country.

[1] https://ewn.co.za/2023/01/13/this-thing-makes-me-mad-south-africans-react-to-eskom-tariff-hike