The power struggle SA can't afford to lose

1 December 2014

When the history of South Africa's multiparty democracy is written, Eskom's name should be up in lights.

This thought helps me control my anger during the rolling blackouts that are doing incalculable damage to our economy and our prospects for growth, a pre-condition for job creation.

It is no consolation that our Minister of Public Enterprises, Lynne Brown, says she is "filled with optimism" that Eskom's problems will be behind us by 2018.

I'm sure it has not escaped Minister Brown that 2018 is the year before the crucial 2019 national and provincial elections. And the ANC no doubt remembers those critical days, in the run-up to the local elections of March 1, 2006, when public anger at the first wave of rolling blackouts in Cape Town, enabled the Democratic Alliance to unseat the ANC from a sphere of government through the ballot box for the first time.

It was a turning point for South Africa's democracy. On the basis of a 7-party coalition in Cape Town, the DA was able to win an overall majority in the Western Cape three years later, which provided the platform we needed for growth countrywide, in every subsequent election. 

This was an unintended consequence of the Eskom debacle. And it was the only positive one. For the rest, it has been a disaster for South Africa. The big question is whether we will learn the right lessons from this experience.

The signs are not good.

Just as the blackouts hit last month, Eskom announced that it was offering voluntary severance packages to its 46,000 staff members in order to curb costs and deal with lower than expected revenue.

Am I missing something? Of course there was lower than expected revenue, because Eskom has been at the forefront of campaigns to ensure that consumers use less electricity. Indeed, Eskom pays its major industrial customers a fortune to stop production in order to save electricity. Inevitably, load-shedding means job-shedding.

Dramatically increased electricity prices for other consumers have not compensated for the so-called "industrial savings". On the contrary, the cost of electricity only encourages people to use even less, or find alternative energy sources. These trends will continue, so there is no "increase in revenue" on the horizon.

Secondly, if cost-cutting is crucial, why did Jacob Zuma recently agree to a R1-trillion deal to purchase nuclear reactors that the National Development Plan says we don't need because there are viable and affordable alternatives available?

Thirdly, why opt for the "cost-cutting" mechanism of voluntary severance packages, which always ends up costing more than it saves, by decimating an enterprise's skills base? 

Employees with scarce skills are always the first to take the package, because they have alternative options, while it is often the least productive who remain. And Eskom has only just started recovering from the massive skills shortages that caused the 2006 and 2008 crises.

It is worth reflecting on this for a moment. Many readers will recall how, on the night before the March 1 election in 2006, Alec Erwin, then Minister of Public Enterprises, blamed "saboteurs" for a "bolt" in a generator at Koeberg, which he blamed for Eskom's systems failure. He strongly intimated that this was political sabotage before the election.

It eventually transpired that there was not a "loose bolt" at all (not in the generator, anyway). A subsequent audit report concluded that "loose magnetic material damaged the generator's insulation which in turn damaged the rotor and stator rods".

Although Eskom denied it at the time, it emerged that poor maintenance was the result of a serious skills shortage.

The Human Resource Manager at the time, Ms Mpho Letlape, set out to fix things. In a memorable interview with the Financial Mail, she explained her job descrption and announced she was "meeting [her] targets".

She described an ambitious recruitment drive, necessitating the employment of two new staff members every day for five years. In order to meet her affirmative action targets, she said, one out of every 2 new staff members had to be a black woman.

As she spoke, Eskom was advertising for 45 engineers, 24 technicians, 20 quantity surveyors and 25 buyers.  It would have made far more sense for Eskom to fill these positions with the best available skills (in order to keep the lights on), while simultaneously offering bursaries for women in these fields. These women would have graduated by now and be moving up Eskom's ranks with the appropriate skills set. This approach would have enabled Eskom to achieve a laudable dual objective: doing its job properly while achieving a much more equitable demographic profile.

But the ANC's version of affirmative action involves manipulating outcomes to meet quotas, which trump all other considerations, including (in Eskom's case), the primary goal of generating electricity. This "goal displacement" had predictable consequences.

In order to meet Eskom's quotas, Ms Letlape reportedly spent enormous amounts of money recruiting more than 300 black Americans during 2006/2007. A group of these recruits (sourced through a Nigerian company in New York) alleged that they were registered in Eskom's books as South Africans, as required by the quota policy.  Not long afterwards, only 68 of the 300 remained in Eskom's employ. 

Apart from the R60-million in travel expenses and placement fees paid to the Nigerian consultancy during that year, Ms Letlape's 2008 salary included R2,1-million (basic) and a further R2,6-million (performance bonus shares). This was also the year that marked the start of the second round of rolling blackouts.

And now six years later, we are back to voluntary severance packages, (while Brian Dames, the recently departed Eskom CEO, reportedly earned a cool R23-million in bonuses alone before leaving a wasteland behind him).

Another power station -- Lethabo in the Vaal Triangle -- is reportedly "on the verge of collapse" because of critical equipment failures. This came just weeks after the collapse of a relatively new coal silo at Majuba, an incident that has still not been adequately explained.

Nor has the fact that Eskom's "profit" has reportedly "dropped by 24% to R9,3-billion". Why does a R9,3-billion profit constitute a financial crisis for a state-owned utility, even if it was a lower margin than before? If its costs outstrip its revenue, then it is surely wrong to use the term "profit"?

And above all, why is the state utility being evaluated on its capacity to generate "profits" rather than fulfilling its core function: generating sufficient electricity to power our economy and keep the lights on? If its measure of success is its "profit margin," why should it be a state utility at all? Surely the private sector would do a much better job of generating for-profit electricity? 

Given this, it is inexplicable that the ANC government is still working hard to shelter Eskom from competition from viable alternatives, while pursuing the unaffordable and undesirable nuclear diversion.

With the cost of renewable energy dropping rapidly (wind energy can now be generated at the same cost as coal) surely we should be focusing on harnessing the power of our abundant natural resources -- wind, sun and waves?

Critics of this approach argue that these sources are intermittent (the sun does not always shine, and the wind doesn't always blow). But experts such as Professor Anton Eberhard, have concluded that our "base load" requirements can be met by renewables, supplemented by gas turbines. And we are only just beginning to harness the enormous liquid natural gas resources available off our cost.

The challenges of renewable energies can be overcome if we find a mechanism to store it (so that, for example solar energy can be saved and used when the sun is not shining). A fraction of the trillion Rand nuclear budget could bring together the best brains in the world to solve this problem.

We could turn our current crisis into a real opportunity for growth and jobs by making South Africa the hub of renewable energy production for Africa. In fact, given sufficient commitment, we could leap-frog old technologies and power our continent's development through natural resources, avoiding the pollution and environmental destruction that accompanied the "industrial revolution" in other countries.

There is enormous investment appetite world-wide for green innovation. So far the Western Cape has attracted over R20-billion actual and planned investment in the renewable energy sector, with the projected creation of thousands of jobs. This is only a fraction of the potential.

In order to use it to the full, the Western Cape cabinet last week approved the establishment of a Special Green Economic Zone, around Atlantis, to offer investment incentives to manufacturers in any aspect of renewables, recycling and other "green industries". Our proposal must still be approved by the national Department of Trade and Industries, and the relevant regulations finalised. Then we will have lift-off.

In addition, the City of Cape Town has launched an innovative pilot programme that enables people generating their own electricity to feed their spare capacity back into the grid. Through a system of vouchers, the private supplier is compensated through off-sets on his account against other municipal services. If we could roll this plan out countrywide, it would mean the end of load-shedding and save consumers millions.

To support this momentum in renewable energy, we have, in partnership with the national Department of Higher Education and Training, created the South African Renewable Energy Technical Centre (SARATEC) at the Cape Peninsula University of Technology to train people for the thousands of jobs the renewable energy sector has the capacity to create if we make this a priority.

Everywhere in South Africa where renewable energy investments have been facilitated, the results have been exceptional, and so far, we have merely scratched the surface.

That is why the decision to "go nuclear" is fundamentally irrational -- until you understand what it is really about. The main purpose is to save the ANC from bankruptcy through the lucrative deals that will, no doubt, be facilitated through the ANC's front companies like Chancellor House.

But this may well backfire spectacularly. Having helped the DA to gain power in one city, back in 2006, Eskom's ineptitude and the ANC's greed are setting the scene for a repeat performance on a wider stage.

It would be the ultimate irony if the ANC's attempts to raise money for itself by bankrupting South Africa, led to its fall from power -- because the voters started using their power.

A power cut for the ANC through the ballot box is the only power cut South Africa needs. And it cannot happen soon enough.

This article by Helen Zille first appeared in SA Today, the weekly online newsletter of the leader of the Democratic Alliance.

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