Kusile private investment must set new trend on energy infrastructure development

Sejamothopo Motau, Shadow Minister of Energy
12 January 2010

The Democratic Alliance welcomes the comments made by acting Eskom CEO Mpho Makwana at yesterday's National Energy Regulator of South Africa (NERSA) hearings that Eskom will indeed sell off 30% of the new Kusile power station, as originally announced in December last year.
 
This is a positive sign that Eskom is looking very seriously at proposals to sell off an estimated R40 billion worth of shares in the new Kusile power station. If this principle is expanded to other infrastructure expansion projects and existing parastatals alike, then government would significantly cut expenditure during a time of fiscal deficit - allowing a windfall of private investment, the shifting of state resources to service delivery, and an end to the ongoing and financially crippling bailouts of parastatals. The fact that it is only 30% should also make such a strategy acceptable to all stakeholders, since government is effectively still in control.
 
Notably, in response to a parliamentary question posed by the DA, and with additional information released subsequent to the reply, we know that parastatals have received about R245-billion in financial assistance over the past four years. If serious consideration is paid to securing private investment for some of these entities, enormous volumes of state funds can be saved, and diverted towards the proper delivery of services and infrastructure. Along with this, private investment will bring along with it all of the increased efficiencies of the market, in order to cut wastage and improve the quality of services provided by parastatals.
 
The landmark decision to make space for private investment in Kusile is precisely the sort of action that needs to be taken to expand energy infrastructure with the help of private investment.

With the stakes so high, Eskom has been left with little choice but to make an important decision in the best interest of energy security - rather than to satisfy the ANC's ideological position on the role of the private sector in its 'developmental state'. The outcome is that we now are looking at private involvement in energy generation and possibly other parastatals.

This is precisely what the DA has long been calling for, and so the commitment is certainly most welcome. We have long argued that the natural monopoly of transmission needs to be unbundled from the potentially competitive activity of generation. 

Though this move does not necessarily signal that independent power producers are being given the room they need to operate in South Africa, it nonetheless implies that there is acknowledgment of the fact that Eskom's monopoly is simply not sustainable - and that the inclusion of private investment may become a workable solution to other infrastructure backlogs such as the rail-and-harbour network.

There are sure to be calls against such a move from narrow interests groups, but it is clear that this decision provides Eskom some breathing space for bringing down the tariff hike application to 35%; in other words, electricity tariff increases are already being lowered by introducing private sector investment.