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Ramaphosa’s restructuring plans for Eskom might worsen the problem

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President Cyril Ramaphosa and Finance Minister Tito Mboweni have set out two main plans to fix the problem at Eskom. Experts warn the plans could worsen the problem.

Although South Africans have enjoyed a full week without power cuts, following about a week and a half of load shedding varying from Stage 2 to Stage 4, it would seem the country is not out of the woods yet. Analysis has shown that the announcement that Eskom would be receiving R23 billion a year from government to support the power utility is a symptom of future operational and financial crises at the utility.

During the 2019 State Of The Nation Address (SONA), President Cyril Ramaphosa announced that Eskom would be divided into three units: generation, transmission and distribution. This announcement was welcomed with mixed feelings, especially from employees under the National Union of Mineworkers (NUM) who worried about what this announcement meant in terms of their job security. However, some viewed the divide as a means to manage and improve operations and finances, and a means to attract direct private sector funding.

The president, alongside Finance Minister Tito Mboweni, has now announced that National Treasury would aid Eskom with a R23 billion a year cash injection for between 3 to 10 years. This aid would be nothing new, as the state ran costs upwards of R150 billion supporting the power utility in 2015.

Dr Seán Muller, who is a senior lecturer in Economics and Research Associate at the University of Johannesburg, gave commentary on the restructuring of the power utility and what challenges could arise from it.

“A great deal has been written about the restructuring of state-owned enterprises. There have been both successes and failures. International experience across many industries shows that while separation can have a positive effect, it can also lead to breakdown of communication and information flows, distortion of incentives relative to the public interest, decline in operational indicators and excessive profits for private participants.

“A prominent example is the privatisation of passenger rail in the UK. What followed was a deterioration in services and subsequent, large government bailouts,” he said.

Abenathi Gqomo
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