Financial Mail and Business Day

Ramaphosa takes giant steps towards reform

BUSI MAVUSO ● Mavuso is CEO of Business Leadership SA.

Over just one’ week, President Cyril Ramaphosa s administration took its most important steps so far in its structural reform agenda.

The decision to further liberate the electricity generation space and the sale of a majority stake in the long-ailing national airline, SAA, shifts the dial and will boost confidence in the state’s commitment to deliver on its reform agenda.

The steps should be lauded and add much-needed impetus to the economic reconstruction and recovery plan that government, business, labour and civil society agreed to in October 2020.

As I’m writing this we are again in a period of loadshedding. We’ve had two weeks of power disruptions as generation capacity reaches its limit due to higher demand and operational challenges at Eskom’s coal-fired plants, as well as at the usually reliable nuclear plant, Koeberg, where a 900MW generating unit has not been operating since January.

We have often pointed to the lack of a sufficient, reliable energy supply as being a binding constraint on economic growth and job creation and hence the need to urgently introduce new generation capacity. The decision to increase the embedded generation threshold to 100MW is a game-changer in the country’s 13-year struggle with an electricity deficit.

Eskom’s energy shortages have had a crippling effect on the economy’s ability to expand and have been a big obstacle to investment. We estimate that the economy was losing about R700m a day from loadshedding pre-crisis and is losing slightly less now. This means our already unacceptable unemployment levels continue to increase.

The department of mineral resources & energy had laid out plans to limit the licence threshold for own-power generation to 10MW. The president’s decision to take that threshold to 100MW opens the gateway for a flood of new investments in energy generation and further downstream in the economy.

It is an excellent starting point, and from SA miners alone there’s the possibility to bring on board an additional 1.6GW of largely renewable and private sector-funded embedded generation projects that are already in planning phase. One gigawatt of energy could realistically power 300,000 of SA’s almost 15-million households, according to Stats SA.

The Minerals Council SA’s initial estimates are that the development could lead to additional short- and mediumterm investment by the industry solely in embedded generation projects of about R27bn. This type of investment has the potential to raise SA’s overall growth rate and create muchneeded jobs.

Outside its positive growth effect, the increase in embedded generation capacity will give Eskom the space for muchneeded maintenance to enable the utility to rebuild a reliable fleet of power stations.

With regards to just how fast the additional energy can come on board, we don’t expect the relief immediately. But over the next 18 months — as long as this is expedited as promised without compromising the integrity of the process — we are likely to see the introduction of renewable projects that will reduce our reliance on fossil fuels.

As Africa’s sole representative at the G7 meeting in the UK, Ramaphosa had a good story to tell to the world’s leading democracies on our journey towards a cleaner energy future. He is sure to have fielded many investment enquiries.

On the policy front, the developments brought to mind Vladimir Lenin’s famous quote: “There are decades where nothing happens; and there are weeks where decades happen.”

While we welcomed news on the electricity breakthrough, the state also managed to sell a majority stake in SAA. Billions of rand of taxpayers’ money had been poured into the airline over the past decade, the latest being the R10.5bn allocation in October for its business rescue process, which led to a shifting of the national budget by finance minister Tito Mboweni. We had quite literally run out of options.

The state’s sale of a controlling stake brings to an end 18 months of uncertainty after the airline went into business rescue in December 2019. While all the details are not yet clear and a due diligence is still under way, the consortium will invest about R3bn into the venture, not the state, meeting a promise of both Mboweni and public enterprises minister Pravin Gordhan.

The partial privatisation will send positive signals of a pragmatic approach to dealing with troubled state-owned enterprises (SOEs) like SAA that do not hold strategic importance. It is the sort of approach that may in the long run reduce the sovereign risk many of our SOEs have become.

That will reduce pressure on the fiscus, allowing space for more expansionary policies. We will be watching developments around Denel, an entity also in a dire situation.

THE DECISION TO INCREASE THE EMBEDDED GENERATION THRESHOLD TO 100MW IS A GAME-CHANGER

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2021-06-15T07:00:00.0000000Z

2021-06-15T07:00:00.0000000Z

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