The bill would create an environment conducive to IPPs and encourage investment, but there has to be a willingness to engage
When any bill is introduced in parliament it follows a defined process. The draft legislation is placed before the relevant portfolio committee, which will be briefed on all aspects of the legislation, including the constitutionality of the proposals and the legality of the various clauses. It may be opened up for public comment, and the committee may seek a more comprehensive public participation process.
The committee will debate the desirability of the bill and engage with the substance of the document. They will conclude with a clause-by-clause reading of the bill, wherein they can amend each and every element before the bill is placed before the National Assembly for consideration and a vote.
So when the chief whip of the official opposition, Natasha Mazzone, submitted a private members bill, the Independent Electricity Management Operator (IEMO) Bill — also known as the Cheaper Electricity Bill — to parliament, one would have expected that to be the process followed. Instead, the bill came under attack from the outset.
The ANC and EFF in the portfolio committees of mineral resources and energy and public enterprises “rejected it with contempt” and dismissed it as attempting to reintroduce apartheid discrimination for electricity consumers. Public enterprises minister Pravin Gordhan even went so far as to describe the bill as seeking to expropriate Eskom’s assets without compensation.
Why all the vitriol? Because the DA introduced it? Because it creates a public-private partnership between government and the private sector to manage the electricity grid, its planning, procurement, allocation of resources, system operation and the purchasing of electricity? Because it limits the ability of politically connected cadres and cronies to loot the electricity entity with impunity? The answer is all of the above.
What the bill aims to do is open up the grid, to allow a more competitive electricity generation sector that would see independent power producers (IPPs) treated fairly and permit them to compete on a level playing field with Eskom (which would be limited to being a generation entity. As things currently stand, Eskom has a monopoly from generation through to transmission and distribution, and it can pick and choose which IPPs it wants to allow in, at a price it determines.
The IEMO Bill picks up and builds on from where an earlier process was abandoned in 2014: the Independent System and Market Operator (Ismo) Bill was withdrawn without explanation after most electricity experts and stakeholders had bought into the concept. Ismo was to be the entity responsible for system operation and the purchase of electricity from electricity generators, including IPPs through power purchase agreements. This is the model of choice globally, with more than 30 countries having created transmission system operators (TSOs) in one form or another.
A World Bank report (2002) notes that a TSO “must be independent of the ownership and control of market participants (generators, distributors and suppliers).” It goes on to state that independence is required “so that the TSO does not discriminate in favour of one market participant over another.”
The department of public enterprises has suggested that independence is unnecessary given the unbundling of Eskom into three separate entities (generation, transmission and distribution), all housed under Eskom Holdings and with the government as the sole shareholder.
But the World Bank has a view on this too: “Functional unbundling”, or the idea “that allows the grid operator to remain within a larger power enterprise that owns generation and transmission facilities, but tries to establish detailed conduct rules so that the grid operator will act as if it is separate, even though it really is not” is fraught with problems. It does not work for two reasons: first, it conflicts with the normal incentives of any commercial enterprise to try to protect the profits of its parent/affiliated companies”; and second, “it is virtually impossible for the regulator to enforce the rules”.
One would think we had learnt from earlier mistakes. Eskom is in a death spiral. A CSIR report from earlier in 2020 indicates that the energy availability factor — essentially the uptime of Eskom’s power plants — is down from 94% in 2001 to a record low of 64% earlier in July, and the slope has been trending that way for the last two decades.
Our new build power plants, Medupi and Khusile, are years behind schedule, way over budget and generally unreliable. So anyone thinking that pouring more money into Eskom or splitting it in three — under the same management and with the same political leadership — is going to sort out our electricity crisis is smoking their socks.
We can’t trust Eskom to deal fairly with IPPs, municipalities or customers. We can’t trust the ANC to keep its hands out of the enormous cookie jar that is Eskom’s bank accounts. And we certainly can’t trust them to get their heads out of the sand and deal proactively and progressively with SA’s joint electricity and economic crisis.
Our economy is in the state it is in to a large measure because of our government’s disastrous economic policies and the load-shedding crisis. The authors of the same CSIR report mentioned earlier suggest that SA’s economy has lost between R169bn and R338bn due to load-shedding since 2007. Forecast load-shedding in 2020 could cause losses of up to R149bn, even before we take the effects of the Covid-19 pandemic into account.
IEMO would solve some of those problems. It would create an environment conducive to IPPs and encourage investment. But there has to be a willingness to engage, to compromise, to reach across outdated ideological paradigms that have not worked anywhere and seek real solutions to SA’s problems. Sadly, the ANC and EFF appear unwilling to put the interests of our citizens and our economy ahead of their political posturing. The old adage is true: there are none so blind as those that will not see.
Click here to read more about the DA’s plan to drive the cost of electricity down, introduce competition into the energy sector, and diversify the country’s energy sources to introduce more renewables, as well as our record of action on the electricity crisis over the last 8 years.