In the annals of South Africa’s history, the year 1987 etches itself as a watershed moment when Eskom, once a pillar of the nation’s state-run economy, underwent a seismic transformation. The introduction of the 1987 Eskom Act not only changed the name from ESCOM to Eskom but also altered its fundamental mission. No longer was Eskom solely tasked with providing electricity “in the public interest”; instead, it became a for-profit corporation, signaling a shift that would reverberate through the decades. In this comprehensive piece on Eskom, we look at where it all began, went wrong and offer possible viable solutions on how all of its problems can be resolved.
A Legacy: The Birth of ESCOM & Dr Hendrik van der Bijl (1923)
The Electrification Act (1922) gave birth to Escom (Electricity Supply Commission) in 1923. This important piece of legislation also gave rise to the Electricity Control Board (ECB), which is in charge of regulating and approving the supply of electricity while establishing rates.
In South Africa, many different organisations were involved in producing electricity before the establishment of the Electricity Supply Commission, including 40 municipalities and 18 private companies. The Victoria Falls and Transvaal Power Company and the Rand Mines Power Supply Company held prominent positions among them. But as businesses like mining, transportation, and industries grew and looked for a dependable and affordable source of electricity, the need for a comprehensive solution became critical. Notably, the railways needed cheap, reliable, and plentiful electricity to power their electric trains, which sparked the creation of Escom.
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Escom’s Founding Mandate and Role in South Africa’s Development
Escom’s primary objective was to ensure the affordable delivery of electricity to the railways and mining operations. However, its mandate was rooted in providing a public service and supplying electricity “in the public interest.” The Electricity Supply Commission played a pivotal role in propelling the growth of the South African capitalist economy, enabling cost-effective power for the burgeoning mining, transport, and manufacturing sectors. During the apartheid era, even white South Africans reaped the benefits of this economical electricity, enjoying a high-quality, low-cost service in residential areas.
In these nascent years, Escom operated without the burden of profitability requirements and tax obligations. Instead, it emphasized its independence from the government and parliament, financing its operational expenses through revenue generated from electricity sales. Moreover, it used this revenue to repay loans obtained to fund capital expenditures. Electricity Supply Commission’s access to funds from the national treasury necessitated an Act of Parliament.
The Evolution of Escom: A Vertically Integrated State Utility
As Escom continued to expand, it gradually assumed control of private, independent power stations. By 1948, it had evolved into a vertically integrated state utility, assuming responsibility for generation, transmission, and distribution, although local governments still played a vital role in distribution. Functioning as a provider of affordable electricity for mining, industry, and the railways, Electricity Supply Commission became a driving force behind the Minerals-Energy Complex (MEC) and the ascendancy of large-scale private monopoly capital.
ESCOM’s Crucial Role in the 1970s
The gravity of ESCOM’s role became glaringly apparent in the 1970s when foreign lenders refused to extend credit to the South African government, deeming the SOE a financial burden. Astonishingly, the government opted not to divest itself of the power producer but instead rallied local lenders to bolster ESCOM’s precarious financial position.
However, the sheer magnitude of this initiative made funding through tariff increases a challenging endeavor. Consequently, the government introduced a novel law permitting the SOE to establish a Capital Development Fund. This allowed Eskom to retain its earnings and allocate surplus funds to this reserve, facilitating ongoing financing for its new build program.
During the early 1970s, global energy crises began to exert pressure on Eskom’s costs, resulting in a mid-1970s surge in electricity prices. Simultaneously, the demand for electricity grew, compelling the power giant to continue its ambitious expansion efforts. Additionally, amidst international sanctions against apartheid South Africa, the government aimed to bolster the nation’s self-sufficiency, including energy independence. The SOE’s new build program encompassed projects like Koeberg, South Africa’s sole nuclear plant, and new coal-fired plants.
To fund this expansive initiative, electricity tariffs once again escalated in the early 1980s, placing additional strain on the South African economy. Public frustration mounted due to these price hikes, leading to significant resentment toward the SOE.
In 1984. This move aimed to appease the public and scrutinize the SOE’s operational and planning processes. In the wake of the de Villiers Commission’s recommendations and as a symbolic shift in the state utility’s evolution, Escom underwent a name change in 1987, becoming known as Eskom. These changes were incorporated into two pieces of legislation: amendments to the 1922 Act (Electricity Amendment Act of 1985) and the Eskom Act of 1987.
Apart from the name change, the de Villiers Commission introduced several other alterations, including:
- Abolishing the electricity control board and replacing it with the Electricity Council, responsible for policy and planning. This marked the first instance of private capital’s direct involvement in state decision-making processes.
- The establishment of a management board by the Electricity Council, creating a two-tier governance structure.
- A transition for the SOE to operate on a commercial basis, departing from the principle of being a not-for-profit entity.
- Discontinuation of the capital development fund in 1985.
- Introduction of a national tariff, relinquishing the authority of municipalities to set their own tariffs.
- Eskom’s shift from the Ministry of Minerals and Energy Affairs to the Ministry of Public Enterprises, although overall energy policy remained under the purview of the Ministry of Minerals and Energy Affairs.
- Segregation of Eskom’s non-regulated activities, consolidated into Eskom Enterprises.
These transformative measures redefined the SOE’s operational landscape, adapting it to the evolving economic and political climate of the 1980s.
1987: A Defining Year
The Emergence of the Electricity Council
However, in 1987, the South African government initiated a pivotal shift by establishing the Electricity Council, effectively ceding control to the Chamber of Mines and the South African Chamber of Business. This marked the first instance in ESCOM’s history where private capital held sway over the state’s decision-making processes.
Despite its historical role as a public service provider and driver of economic growth. With the introduction of the 1987 Eskom Act, the SOE’s identity underwent a profound transformation. It ceased to provide electricity “in the public interest” and became a for-profit corporation. This seismic shift challenged the core principles that had guided the SOE for decades.
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Private Ownership’s Unprecedented Ascendancy
The Shift in Paradigm
The decisions made by both the National Party and ANC regimes in 1987 and 2001 constituted a complete reversal of ESCOM’s initial government-regulated structure, which had prioritized affordable energy and public ownership. Prior to 1987, the government and the private sector had staunchly resisted the privatization of critical sectors like electricity and rail transport. However, with the end of apartheid, a seismic shift occurred, with both parties embracing the expansion of private ownership within these pivotal industries.
Redefining Eskom’s Mission: Profit Over Public Interest
Eskom’s New Mandate
In essence, the 1987 Electricity Act brought about a radical redefinition of the SOE’s objectives, most notably stripping away its ability to function without pursuing profit, as it had for six decades. The company was relocated from the Department of Mineral Resources and Energy to the Ministry of Public Enterprises, with the clear mandate of preparing it for complete privatization.
From the Electricity Control Board to NERSA
In 1995, the Electricity Control Board (ECB) underwent a significant transformation when it was replaced by the National Energy Regulator of South Africa (NERSA). NERSA assumed the crucial role of regulating the energy sector, overseeing both the SOE and local authorities. Its responsibilities encompassed the licensing of electricity producers, transmitters, distributors, and sellers, as well as the approval of all tariff structures.
The year 1998 marked the release of the Electricity White Paper, which introduced the concept of unbundling the SOE, a state-owned utility slated for privatization. The plan outlined a vision where 30% of electricity generation would originate from private sector entities. Unbundling was deemed essential to this strategy, as it entailed dividing the SOE into distinct entities, enabling competition from other market players.
This restructured electricity sector blueprint included the creation of six Regional Electricity Distributors (REDs), tasked with consolidating the distribution functions previously shared between Eskom and municipalities. These REDs would operate under a new entity, Eskom Holdings. Within Eskom Holdings, a separate Transmission Utility, initially state-owned but potentially privatized in the future, and a system operator would also be established.
The formal process of corporatizing the SOE began with the enactment of the Eskom Amendment Act in 1998. Under this legislation, the State assumed sole ownership of the SOE’s equity, revoked its tax-exempt status, and tasked the Minister of Public Enterprises with incorporating it as a limited liability company with share capital.
Paving The Way For Privatization: Thabo Mbeki’s Eskom Conversion Act
In a further twist, 2001 witnessed the introduction of the Eskom Conversion Act which then President Thabo Mbeki signed. This act transformed the SOE, in 2002, from a statutory body into a company under the framework of the Companies Act (No. 61) of 1973, with the ultimate aim of listing on the stock exchange. As a company, Eskom became subject to taxes and dividend payments to the state. Notably, the structure of the SOE’s board underwent a shift, transitioning from a two-tier system comprising a management board and an Electricity Council to a single board of directors, primarily composed of business representatives, a few academics, and a Department of Public Enterprises (DPE) representative. The role of stakeholders within the Electricity Council was discontinued.
The practical consequence of this corporatization effort was the delineation of Eskom into three distinct units: generation, transmission, and distribution. The objective was to facilitate the private sector’s involvement, aiming for it to contribute 30% of the country’s electricity generation by 2004. The SOE also sought to bolster its financial stability by engaging in contracts in other African countries through Eskom Enterprises.
However, the plans to establish the REDs and fully privatize the SOE eventually encountered obstacles. These challenges stemmed from strong opposition to privatization from labor unions and a diminishing international appetite for such endeavors. The South African Local Government Association (SALGA), representing municipalities nationwide, also vehemently resisted the REDs proposal. Their major concern revolved around the potential loss of income, as municipalities heavily relied on electricity sales as a significant revenue source.
The New Metrics: Profit vs. Public Service
Eskom’s transformation meant that its success would no longer be measured solely by its capacity to generate electricity and efficiently supply the nation, but rather by the pursuit of profits amidst corporate bureaucracy. It was a paradigm shift that many saw as destined for failure, raising questions about the true motives behind these sweeping changes.
The Controversial Transformation
In hindsight, the transformation of the SOE in 1987 and 2001 would prove to be a contentious turning point in South Africa’s history, fundamentally altering the trajectory of its energy sector and ushering in an era marked by profit-driven motives and private interests. The legacy of this transformation continues to shape South Africa’s energy landscape, with debates raging on the merits and drawbacks of privatization and profit-seeking in a sector once committed to the public interest. Eskom’s transformation remains a vivid example of the delicate balance between economic reform and the preservation of public welfare in a rapidly changing world.
South Africa’s load shedding has deep roots, stretching from 1987 when the apartheid government enacted the 1987 Act to 2001 when the black majority government, led by Mbeki, transformed ESKOM into a corporation through the conversion act. This marked the beginning of the end for the power utility.
A Planned Destruction
With all that has been said, it should be clear that what is happening at the utility is intentional and has been a long time coming. If there is ever to be a change in this state-owned enterprise with a proud history, something radical needs to occur. What that is remains unclear, but the once-proud powerhouse could be rescued from its long-planned demise.
Switch Off All Coal-Fired Stations Today, Right?
In the realm of South Africa’s energy landscape, one stark reality stands as an undeniable pillar of its economic stability: Eskom’s coal-fired generation cannot be taken offline without grave consequences. Even in the scenario where the most ambitious renewable energy development goals are achieved, the nation finds itself teetering on the precipice of a catastrophic economic collapse.
What is happening at ESKOM is not by accident, it is intentional and has been a long time coming.
This sobering assessment emerges as a resounding reminder of Eskom’s enduring significance in powering South Africa’s industries, homes, and businesses. Its coal-fired power plants have, for decades, been the backbone of the nation’s electricity grid, providing a consistent and robust source of energy that keeps the wheels of the economy turning.
To contemplate a scenario where these coal-fired generators cease operation is to confront the spectre of an energy deficit, a total collapse unlike any other, one that threatens to send shockwaves through every facet of South African life. Such a scenario would ripple across industries, with manufacturing, mining, and agriculture feeling the brunt of power shortages. Lights flickering out in homes, machinery grinding to a halt in factories, and essential services strained to their limits — this is the grim picture painted by the prospect of Eskom’s coal-fired generation going offline.
Even with the most optimistic renewable energy expansion strategies on the horizon, the sheer magnitude of the task at hand is staggering. Transitioning to a predominantly renewable energy portfolio demands time, resources, and meticulous planning. Added to that is the possibility that it will never work, due to the fact that countries that have embraced it, still to this day rely on fossil-fuels for their power needs. This transition involves overhauling not only the energy infrastructure but also retraining the workforce and reshaping the energy market dynamics. Such transformations, while commendable and necessary, cannot occur overnight.
Therefore, the pragmatic truth remains as South Africa charts its course toward a greener, more sustainable energy future, it must tread carefully, recognizing that Eskom’s coal-fired generation (including nuclear and gas), for the time being, and perhaps into the future, remains a lifeline that the nation cannot afford to sever abruptly. The journey to a more environmentally friendly energy mix must be executed with unwavering diligence and a clear-eyed understanding of the challenges that lie ahead because even in sunny South Africa the sun doesn’t always shine, and the wind doesn’t always blow.
The Way forward?
Faced with financial instability, inconsistent supply, and its significant contribution to the deepening climate crisis, Eskom urgently requires a substantial overhaul. While many business commentators and the government advocate for “unbundling” the utility, a closer look at Eskom’s history reveals that this approach would exacerbate the issues that have brought Eskom to its current crisis.
The transformation of Eskom from a non-profit utility to a commercial entity in the late 20th and early 21st centuries led to its profound financial troubles and increased reliance on inexpensive fossil fuels. Unbundling Eskom would further corporately influence, promoting marketization in power generation.
However, we must recognize that renewables alone cannot entirely replace coal and nuclear energy, as renewables are intermittent. Instead of embracing this profit-driven path and risking further instability, an alternative vision must be embraced.
Rather than serving solely capital interests, Eskom should undergo a process of de-corporatization, becoming a fully public, vertically integrated utility like it was before 1987 and 2001. State investment in renewable energy can facilitate widespread adoption of wind and solar power, ensuring nationwide electrification, irrespective of profitability. But SA must also recognize the ongoing importance of coal and clean nuclear energy for consistent power supply even with that widespread adoption, you cannot run a country on sun and wind alone whether one likes it or not.
A significant increase in state-backed renewables investment can drive low-carbon industrialization, addressing unemployment and mitigating climate change which were signed by the government (even though South Africa emits a tiny fraction of CO2 into the atmosphere). To tackle the interconnected challenges of climate change, unreliable supply, unemployment, and financial instability, we advocate for de-corporatizing Eskom and using it as a foundation for expanding the public sector while maintaining a balanced energy mix that includes coal and nuclear for reliable power generation.
