Cutting the reddest tape at Eskom

26 July 2022

Last night President Cyril Ramaphosa announced an overdue plan to reduce load-shedding, which goes some way, but not far enough, towards cutting the red tape that strangles production and jobs in South Africa.

Ramaphosa conceded the need to take on “a pragmatic approach to the local content requirements” in power generation, effectively conceding that regulatory red tape is currently the opposite of pragmatic and will remain so until the newly promised plan is implemented. But will the plan be implemented urgently?

Ramaphosa said: “While existing legislation may be sufficient in ordinary times, the current crisis requires that we act decisively and more speedily. We will therefore be tabling special legislation in Parliament on an expedited basis to address the legal and regulatory obstacles to new generation capacity for a limited period.”

While Ramaphosa’s call for urgency is welcome, the simplest and fastest way to cut the cost of electricity does not lie in waiting for Parliament to pass unspecified laws.

Rather, the 100MW cap on private unlicensed power generation is removeable by the same process that introduced it, namely the flourish of one Minister’s pen, post haste.

Likewise, the Minister of Finance is empowered to exempt organs of state like Eskom from BEE red tape if doing so is in “the public interest”. Minister Enoch Godongwana already applied such exemptions briefly to Eskom earlier this year, and the IRR urges the minister to do so again, particularly for the sake of jobless South Africans who will not exit the unemployment line while load-shedding remains a perennial threat to business.

The State Capture Commission has pointedly urged that procurement officers should prioritize “maximizing value for money” over racial numerical targets. This advice is delivered by the IRR’s petition to end BEE in Eskom procurement to Ramaphosa’s cabinet where it can be implemented by cutting racial red tape right now.

Eskom CEO Andre de Ruyter observes that there is a “strong case” for applying exemptions from BEE to Eskom to avoid “interposing non-value-adding intermediaries” that inflate costs, slow down supply chains, and add risks of corruption.

It is worth highlighting how onerous racial red tape can be, and how far the system’s latest author has distanced himself from current procurement regulations.

In 2017 Pravin Gordhan was the Minister of Finance from which office he passed regulations that allowed organs of state like Eskom to outright ban business with some providers on the basis of race. This was deemed unconstitutional in court, but remains in place until next year.

Gordhan has moved so far from his 2017 position that, as Public Enterprises Minister, he not only accepted without demur the Constitutional Court’s slap down of his former regulations but went further towards pragmatism by welcoming the opportunity to consider rehiring a few experts who were let go from Eskom because of their race. However, genuine pragmatism requires more than symbolic gestures.

Eskom’s procurement spend is over R155 billion and is set to more than double if it buys electricity from independent suppliers at the promised rate. These funds must get maximum value for money.

The IRR projects that most majority black firms contracting with Eskom will remain in business under a BEE-exempt system at a lower dynamic price point after the regulatory race premium is removed. Those that keep contributing in a non-racial, competitive system are dynamic value-adders who deserve the credit. Any businesses that go will have been mere value-grabbers that should never have been allowed to deprive the poor fiscus.

Said IRR Head of Campaigns Gabriel Crouse: “Ramaphosa’s great promise is that firms outside Eskom get to join the project of powering South Africa. The great danger is that these businesses are paid billions extra for the sake of ‘tycoons’ of a particular race, as the Black Business Council has called for. That would not be empowerment; that is crony capitalism. To stop cronyism and fight load-shedding we need to cut the reddest tape of all.”

More details on the IRR’s petition to the Finance Minister to

https://irr.org.za/campaigns/fight-loadshedding-stop-eskom-bee

Issued by Gabriel Crouse, IRR Head of Campaigns, 26 July 2022