A sparkling moment of opportunity

With a bang, privatisation is here. After seven years of talking about selling a stake in SAA and three about freeing up electricity supply to competition, the final decisions came suddenly, followed by two announcements one upon the other on Thursday and Friday.

The economic significance of liberalising the electricity supply market by allowing private players not only to generate electricity for their own needs up to 100MW without first obtaining a licence but to sell on is huge. It is the single biggest microeconomic reform in years and will change the electricity market, as we have always known it, forever.

Investing in self-generation is costly and smaller firms are unlikely to do it. By allowing the projects to be of a substantial size — the mines with plans to invest have proposals for 50MW to 100MW — the business case for the investment changes significantly. Being able to sell on the excess and sell on beyond the life of the mine are substantial incentives.

The move will also speed up the vertical disaggregation of Eskom and the resolution of its debt problem. As liberalisation starts to affect Eskom’s revenues as big customers migrate, the government will need to resolve its R400bn debt.

Eskom is making the institutional arrangements for a stand-alone transmission company by December, which will buy excesses from embedded generators. The debt issue also needs to be resolved for the split to occur so that bond investors know where they stand.

Also converging on the government and Eskom are climate change concerns, with the pressure growing to reduce emissions from coal faster and incentives of concessional green financing. These are now coming from all directions: from President Cyril Ramaphosa’s own climate commission, which is to recommend faster decommissioning of Eskom coal than previously anticipated by the Integrated Resource Plan; from financial institutions which now refuse to finance fossil fuels; and the pure economics of using renewable energy rather than diesel or coal, which the presidential economic advisory committee and others advocate.

It will all propel faster change of important processes that have effectively been stuck since December 2019, when Ramaphosa’s expert panel on electricity first advised him to do exactly what has begun to happen.

The political significance is no less huge. It’s an open secret that mineral resources & energy minister Gwede Mantashe had to be compelled to make the change to exempt selfgenerators from the licensing process. Mantashe himself described it as arm-twisting but in reality it has been six months of wrestling in mud as presidency and Treasury officials eventually, with Ramaphosa’s help, got Mantashe on the ground.

Given Mantashe’s stature within the ANC this was not an easy battle for Ramaphosa to take on and win. With Ace Magashule neutralised on the political front and Mantashe subdued on the economic reform front, we are now in a different moment.

The surrender of control of SAA, with the prospect that it will dilute even further, was the cherry on the top. While it was obviously a cabinetendorsed decision, the government has run well ahead of where the ANC stands on privatisation. The party’s position is that private participation should be permitted with majority state control. The same goes for the liberalisation of the electricity market, which the ANC has envisaged as a slow and controlled process in which Eskom is protected and moves into the production of renewable energy so that, for the most part, electricity is socially owned.

Like the suspension of Magashule, the political fallout from both of last week’s decisions has been minimal. The ANC caucus issued a statement praising both; Cosatu issued a pragmatic statement supporting selfgeneration because of the damage being wrought on the economy by load-shedding; and the SACP — which by its own admission drank most of the Pravin Gordhan Kool Aid on why SA needs a state airline — issued a lengthy statement which mostly explained to itself what had just happened. On the 49% ownership, the party said, presumably speaking to its members, the implications are not yet known. It has not lost completely, it said, as some state ownership remains and it will keep up the fight to protect state assets.

Only Numsa now and the SA Federation of Trade Unions are now strongly opposed to the new arrangement.

In the pipeline next are the reforms that Transnet plans to introduce, such as the private concessioning of rail, which will change the game for minerals exporters and unleash a new round of positivity.

It is a sparkling new moment that should send business and citizen confidence soaring.