Eskom: Urgent Changes Are Approached Half-heartedly
Eskom’s crisis is resulting in even worse anti-social, anti-economic and anti-environmental outcomes, and it is urgent that the national regulator, the state executive, parliament and all of the relevant trade unions, civil society and all of us electricity consumers together address this crisis with the national interest at heart.
Amidst ongoing load-shedding that Eskom threatens will last through the cold winter into September, the latest scandal is the firm’s use of a pandemic-induced economic catastrophe as an excuse to increase tariffs more than three times the current 3.1% inflation rate, starting on April 1.
Eskom now also proposes restructuring its rising block tariffs, so that rich, hedonistic households pay less while poor and working people pay much more, and in the process it will charge a much higher basic constant-connection rate (and lower per-unit consumption rate) explicitly so as to disincentivise the society’s shift to solar energy. Meanwhile, as Finance Minister Tito Mboweni will announce on February 24, yet more taxpayer subsidies are going into the corrupt firms and bankers which are the beneficiaries of ANC-era – and ongoing – corporate favouritism. This is all being done with the ludicrous argument of following cost-reflective policies so as to lower economic inefficiencies – yet our society and environment are screaming out for relief from this ultra-neoliberal logic.
Eskom management and other government officials are engaged in severely damaging policy shifts, as well as maintaining an indefensible reliance on dangerous climate-destroying coal, with threats to renew both fossil fuel and uranium dependencies. These will take the form of proposed new coal-fired power plants (both 1000MW in the Integrated Resource Plan and a 3300 MW plant at Musina-Makhado Special Economic Zone even though it is not in the IRP); offshore oil and gas being drilled by the notoriously corrupt European firms Total and Eni; onshore fracking even in highly sensitive areas, especially the Karoo; and even nuclear generation, as the U.S. and Russia continue to push dubious deals.
And yet our society and environment desperately need for us to take advantage of world-leading solar and wind power, and to capture and generously cross-subsidise that energy so that workers and communities can decentralise it properly, and so that Free Basic Electricity is expanded in greater amounts to all (the current 50 kWh/household/month is just tokenistic). And our energy-sector workers desperately need a genuinely Just Transition, to a post-carbon generation system with appropriate labour intensity so that workers do not become victims of job losses.
But these urgent changes are being pursued only half-heartedly if at all: renewable energy generation continues to be turned over by the state and Eskom to both predatory multinational corporations engaged in Independent Power Production and rich local residents, instead of Eskom rapidly developing its own renewables skills base.
Moreover, Eskom still desperately needs state (taxpayer) bailouts in excess of R25 billion annually and struggles to pay its R450 billion debt. Of that, a vast amount should be considered “Odious Debt”, including brazenly corrupt loans by the World Bank, African Development Bank, China Development Bank, BRICS New Development Bank, German KfW IPEX and private-financier loans made to build Medupi and Kusile. The loans were granted even though it was well known by 2008 that Japanese firm Hitachi bribed the African National Congress via its Chancellor House financial wing, for which the public protector found Eskom chair and ANC finance committee member Valli Moosa acted “improperly.”
And the Odious nature of the deal – and debt behind it – was admitted, in effect, when Hitachi paid a R300 million fine in 2015 to the U.S. Securities and Exchange Commission after Foreign Corrupt Practices Act prosecution. South Africa’s own National Prosecuting Authority and Zondo Commission have so far been too busy – or worse, lazy – to follow the U.S. lead on this blatant corruption, and claw back substantial fines from Hitachi’s boiler contracts that run into tens of billions of rands each at Medupi and Kusile. Hitachi’s work on these boilers was so incompetent that 7000 welds needed to be redone.
Eskom also retains a bizarre pricing structure for its bulk electricity supply, including generous subsidised-power gifts to the world’s largest mining house, BHP Billiton for its capital-intensive South32 Hillside aluminium smelter at Richards Bay. The Aluminium Federation of South Africa acknowledges that back in 1992, this began with Eskom Treasurer Mick Davis offering a cheap-price power deal to BHP Billiton (then known as Gencor, prior to its suspicious early-1990s move offshore when its former and future boss Derek Keys was Finance Minister, and then its merger with both part of Shell Oil – Billiton – and Australian mining house Broken Hill Properties). The deal meant that as the economy suffered from both a depression and prior 1980s-era Eskom overbuilding of power plants, as the Federation admits, “With excess electricity generation capacity available it was decided to build the Hillside smelter. Total production is of the order of 720 kilotons per annum of which about 500 kt is exported.”
In 1994, taking advantage of a suspicious revolving door within the so-called Minerals-Energy Complex, Davis began to work at Gencor and soon became BHP Billiton’s Chief Financial Officer. One attempt by Standard Bank’s chief executive to end the subsidy deal – in 2008 when load-shedding began – resulted in a controversial battle, with BHP cutting its bank accounts with Standard, and maintaining its Eskom subsidy. Attempts by journalists and Earthlife Africa to identify the sweetheart deal’s details were rebuffed but finally the Supreme Court of Appeals compelled Eskom to explain its Special Pricing Agreement with BHP Billiton (as well as one with Anglo). Even though one group of Eskom managers did claim to the National Energy Regulator of SA – a generally useless, toothless body – that they wanted to break the contract (and one board member claimed in 2019 that this was underway), Eskom continued to roll over the deal. Eskom’s price of producing a kilowatt hour of power is around R0.85 but for most of the period since 1992 the BHP Billiton price was just R0.12/kWh, and it is now reportedly R0.22/kWh.
In February 2020, the new Chief Executive Officer, André de Ruyter, committed that a still-undisclosed version of this money-losing deal would continue. He comes from a hardnosed background in the white business sector and has tried various brutal turnaround strategies that reflect a distinct lack of concern for poor and working-class South Africans’ interests, for struggling municipalities, and for the climate. His instincts are to serve the Energy Intensive Users Group of around three dozen large firms, the biggest of which, BHP Billiton’s South 32, uses 5% of our electricity to smelt imported bauxite at Richards Bay, with the resulting aluminium often priced too high for local downstream buyers.
De Ruyter is entertaining new purchases of nuclear energy – e.g., the Donald Trump regime’s attempt to sell 2500MW last year and ongoing Rosatom interest in spite of widespread corruption and extreme dangers as witnessed from 1979-2011 in nuclear accidents suffered by high-tech societies: Fukushima (Japan), Chernobyl (USSR) and Three Mile Island (U.S.). South Africa’s Koeburg reactor suffered its own notorious “loose bolt” – cutting off Cape Town’s power for several days in 2006 – and costing the ANC political control in the next election. The accident was (unconvincingly) claimed to be “sabotage” by the then minister, Alec Erwin, reflecting how tenuous nuclear is as an energy source, and Eskom’s willingness to run Koeburg for another two decades beyond its natural life span is profoundly disturbing, especially because radioactive material continues to be stored in sites where for hundreds of thousands of years it will remain dangerous. The driving force here seems to be Gwede Mantashe, who has various serious corruption allegations against him (acknowledged gifts from the notorious state-capturer Bosasa) and (today) his Mantashe Foundation (a Bidvest contribution).
Showing his most cruel side, de Ruyter used the Covid-19 Lockdown to begin mass “load reduction” disconnections last winter, penalising areas that have many low-income people who cannot afford to pay the 500% price increases Eskom has imposed on them since 2007. There is extensive illegal electricity connectivity in such sites (e.g., a reported 86% in Soweto), but often non-payment follows absurdly incorrect billing. Regardless of whether the Eskom bill is impossible to justify, or whether consumers are paying their bills, Eskom has taken to mass disconnections reminiscent of apartheid-era collective punishment.
De Ruyter doesn’t only engage in this practice in many of the black townships that Eskom serves directly, especially Soweto. In addition, he authorised mass disconnection of everyone in small municipalities which were – due to the apartheid legacy in some cases – never economically self-sufficient. Treasury has been cutting Equitable Share subsidies to these dorpies. There are profound economic crises in many rural areas. But when in some cases, such as Nketoana in the Free State (including Reitz, Petrus Steyn, Ntha and Lindley), or Mpumalanga’s eMalahleni and ThabaChweu municipalities, the Supreme Court of Appeal has recently determiend that “Eskom’s plan to cut electricity supply was irrational, since it was aimed at collecting arrear debt and limiting the rate at which it was escalating, while acknowledging that the municipalities are simply not in a position to pay.” We are happy that de Ruyter has been rebuffed in his viscious attacks on small towns and we hope townships will gain similar victories when challenging de Ruyter’s racist “load reduction” policy.
On January 28, Eskom announced the most nationally-damaging policy shift: penalise solar energy generation (now occurring mainly in wealthier households who can afford R100 000 installations) even though it helps avoid load-shedding for everyone and aids the environment, while lowering prices substantially (around R250/month) for wealthier households who consume at hedonistic levels (more than 1000 kWh/month), and raising prices relatively much more for poor and working-class people (around 150/month is anticipated). South Africa remains the country with the worst inequality in the world; de Ruyter obviously feels no guilt about repeatedly contributing to this, and about Eskom’s ongoing reliance on coal-fired power, making the utility the worst carbon emitter on the African continent.
De Ruyter needs to be replaced urgently, as his mentality when it comes to our economy, environment and society appears locke in the apartheid era. Eskom’s creditors need a “haircut” (to assume joint liability for their corrupt laons). And the rest of the corrupt crew at Eskom and suppliers who are responsible for the firm’s massive financial crisis need prosecution. The Hawks were nesting too comfortably during the Zuma era, and only in late 2019 started prosecuting corrupt officials at Eskom. Some of the world’s largest companies are guilty of extreme corruption in coal-fired power plant corruption and coal acquisitions.
The Zondo Commission is looking into the suspicious Optimum Coal Mine supply deal with the world’s largest commodity firm, Glencore, involving Shanduka, and apparently lasting until mid-2016 when Shanduka was finally sold by Cyril Ramaphosa, who was then Deputy President and head of the Eskom War Room.
Last month, the Swedish-Swiss construction firm ABB paid R1.5 billion in fines for overcharging on Kusile, after the Department of Justice Special Investigating Unit finally became serious about tackling multinational corporations (one contractor of ABB was run by the daughter of the then Eskom CEO Matshela Koko, a firm itself now under investigation).
Others that have made reparations payments for corruption and overpayments involving Medupi, Kusile and coal supplies include McKinsey & Company (R1.1 billion), Deloitte Consulting (R171 million).
PWC (R95 million) is being pursued.
The Gupta family and associates face an Eskom claim (R3.8 billion).
This is probably the tip of the iceberg. Due mainly to the Gupta Leaks and rigorous journalists who learned the shocking details of Eskom’s corruption, its current management is purporting to ask for money back from these corrupt corporations – even though Eskom still maintains close links, so close that de Ruyter refuses the logical blacklisting of ABB because it is so deeply embedded in Eskom’s daily operations.
The sleazy corporate state capture of Eskom is one reason that during the 2010s, the PwC biannual Economic biannual report inevitably assessed South African capitalism as the “world leader in money-laundering, bribery and corruption, procurement fraud, asset misappropriation, and cybercrime.”
For de Ruyter to mismanage this appalling legacy, by amplifying all the most objectionable features of the corrupted Eskom – economically, environmentally and socially – is simply a continuation of the power company’s earlier corruption, when it was born into the crime against humanity that was apartheid – a system that also turned on the power for corporations and rich people and turned it off for black South Africa.
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