05 Feb 18 Eddie's Blog South Africa

Ramaphosa makes me hopeful once again

Eddie's opinion piece below featured in Fin24 South Africa on 04 February 2018 As a long-term investor in South Africa, the ANC’s leadership transition to Cyril Ramaphosa makes me hopeful once more for the country. The decisive clear-out at Eskom is a simple, but effective signal that change is coming. To outsiders, it was extraordinary how Eskom had so much power.
It seemed to be able to ignore government instructions at will. Such behaviour might have been acceptable if it resulted in success for the country or even the company. Former finance minister Pravin Gordhan said in this week’s parliamentary inquiry that one of the world’s largest utilities had been brought to its knees by corruption and management incompetence. Mainstream Renewable Power, with its local and international partners, built three new power stations in South Africa in the past two years. We delivered them on time, with no health and safety lost, incidents and are now sending significant amounts of renewable energy into the country’s electricity grid. During that time, Eskom not only failed to build its own plant, but also conspired to delay the next round of renewable energy projects – known as Round Four. Deadlines passed without any sanction from government or the regulator. Even now, despite the clear-out, the Round Four power purchase agreements remain unsigned. About R58 billion of investment and 15 000 jobs remain at risk. What should have been a priority for government was passed between ministers for three years.
Those days are ending. Eskom’s ability to blatantly frustrate government policy lies in its control of the grid and generation. It dictates who gets access to the grid. Independent power producers like Mainstream Renewable Power have been sent to the back of the queue, despite the fact that we are now producing cheaper electricity than Eskom. If SAA owned the Airports Company South Africa, it would be able to block its competitors from landing at OR Tambo international or at Cape Town international airport. In most other countries like South Africa, government has created separate grid and generation companies. The grid is kept in public or mutual ownership and the generation company competes on a level playing field with other players. The ANC pledged to introduce the Independent System and Market Operator Bill in South Africa. It remains a mystery why this has not been done. The bill remains a priority and must be delivered by the new government for the country to enjoy cheaper electricity and to remove the opportunities for corruption from Eskom’s executives. While the board and management changes at Eskom are welcome, they are insufficient to address the issue of control. South Africa cannot continue being held to ransom by a state-owned enterprise that is deemed too big to fail. Why is this important? Simply because renewable energy, which South Africa possesses in abundance, costs half as much as coal and is less than half the cost of nuclear power. To jumpstart the economy, a Ramaphosa ­government should adopt the recommendations of the CSIR.
The council reported that an energy plan consisting of renewable energy, flexible gas and hydropower could save South Africa R70 billion a year, create thousands of jobs and consume significantly less water than coal and nuclear power. Imagine what South Africa could do with an additional R70 billion to invest in infrastructure, free education and economic development. This is a future within the country’s grasp – as the CSIR has told us after extensive modelling. We know from international evidence that renewable energy is cheaper than coal and nuclear power. Renewable energy is water wise and emits no greenhouse gases. Countries across the world, from Vietnam to Chile, have split their power utilities into grid and generation companies and have never looked back. South Africa still faces many challenges. Getting back growth in the economy is the first step. Properly reforming Eskom and embracing a new future powered by renewable energy will help deliver the better future that we all want for the country.