Recent load shedding has reminded South Africans that Eskom is not yet the reliable electricity producer that we need. Alongside rising electricity prices, the state-owned utility is still struggling to keep up maintenance without shutting off the power.
The most recent stage-6 load shedding, which was sprung on Sunday, 23 February, is apparently an isolated incident; this may be a vain hope.
Eskom is toying with aged infrastructure and decayed power units that are long due for maintenance and replacement. Unfortunately, when Eskom was running a surplus of electricity, boasting about providing the cheapest electricity in the world, it failed to invest in any new generation capacity.
Attempts to bring more power production capacity online have been plagued with corruption, overshooting deadlines and sabotage. Medupi, for instance, was initially expected to cost R80-billion, but this cost soon ballooned to R154-billion, and then R234-billion. The power plant took 14 years to build, and the African Development Bank has stated that it does not expect Medupi to make back the value spent to build it.
Eskom also has an endemic issue with non-payers, further putting a strain on Eskom’s finances. As of August 2024, Emfuleni municipality owes Eskom approximately R8-billion. Many municipalities are heavily indebted to Eskom and refuse to pay what they owe. Countless households use electricity without paying.
All these non-payers contribute to putting strain on the grid, while not contributing a cent to keeping Eskom running.
Escom to Eskom
In November 2020, Eskom stated that “no company can survive where products and services are delivered but the customers are not paying”.
The problem is that Eskom has never really been a real company. Since its founding in 1923, Eskom (then Escom) has existed as a state-owned regulator and electricity monopoly. The law keeps it from facing competition. And despite countless failures over the decades of its existence, Eskom has been shielded by the guarantees of state subsidies, and state backed credit. When Eskom has functioned competently, it has been because political interference was kept to a minimum.
Read: Load shedding may have ended, but Eskom is still in big trouble
Yet even in these times, there were still problems. Eskom has always faced an inherent problem: that it is a state-owned monopoly. It faces no competition, thus no has accountability and is unable to plan properly due to the lack of a free market in electricity to generate prices to inform decision making.
Due to ideological meddling starting at its inception, Eskom insisted on charging as little as possible for electricity as possible. This was great for the consumer. But this boon was based on bad information. Eskom, incentivised by political whims, made an intentional loss for decades, holding back its ability to cover its costs, grow its production or plan for future crises.
Eskom suffered from a textbook example of the socialist calculation problem, whereby state institutions are incapable of realising the reality of the market due to being cushioned by state protection.
While cheap electricity was good, it prevented Eskom from being able to price electricity realistically and sustainably increase its supply.
Today, electricity prices are rising, and consumers can’t keep up with the prices after decades of being cushioned by overly cheap electricity.
Eskom’s problems are decades in the making, but the ANC doubled down on furthering the demise of the company by ensuring it was infected by an ideology of racial socialism that was incompatible with the functioning of any institution.
Only recently has Eskom been excluded from needing to abide by race-based procurement for supplies and replacement parts. This, and the limited permission of private sector electricity producers, is what we must thank for the 300 days of no load shedding.
But as the recent stage-6 load shedding has reminded us, we aren’t out of the woods yet.
Inherently flawed
Eskom itself is an inherently flawed institution. The solution is to abolish its monopoly, ensuring that genuine competitors can enter the market. This free-market competition mitigates risk, as if one company fails to keep up with supply, there will be others that can replace it, maintaining supply to the grid. Additionally, competitors hold each other accountable, preventing a single company from raising prices too high.
The reality of costs and the incentive to make a profit will keep companies from not charging too little, while the need to undercut competitors will lead to prices not getting too high. These companies will also more easily be able to enforce payment, as they are not motivated by politics to keep non-payers happy.
Read: Eskom prices to rise by four times latest CPI figure
Most importantly, Eskom itself needs to be unbundled and privatised to these myriad private sector companies. With Eskom’s assets split over many competitors, maintenance can be spread across many institutions, and the responsibility of keeping the lights on will fall on the shoulders of many competent companies, rather than a single incompetent one.
Privatise Eskom. End its monopoly. Embrace a free market in electricity – that is how we end load shedding once and for all.
- Nicholas Woode-Smith is a senior associate at the Free Market Foundation. He writes in his personal capacity
Don’t read:
Why Eskom plunged South Africa back into stage-6 load shedding