Speech by Lance Greyling, DA Shadow Minister of Energy in the Debate on the Department of Energy's Budget Vote Debate, Parliament, July 21 2014

Eskom holds South Africa's economy to ransom

21 July 2014

Honourable Minister, this is my maiden speech as a fully fledged DA Member of Parliament and as convention would dictate I am supposed to make it non-controversial.

It is not my intention to be controversial any way, merely to point out how we are going to resolve one of the most important challenges facing this country, namely our protracted energy crisis. 

The DA is happy that the government has finally recognised that we are in the midst of a major energy crisis as expressed by the President in his State of the Nation address.

It's one thing admitting that we are in a crisis, but it is quite another thing to implement the solutions that can sustainably get us out of it.

As Einstein once said, you cannot solve a problem with the same level of thinking that created it.

Unfortunately that is precisely what I see happening in this instance. So before we talk about solutions let us first analyse the kind of ANC thinking that contributed to this crisis in the first place.

I have heard a great deal said about the NDP in these budget votes, but the manner in which the ANC dealt with the first NDP for the energy sector, namely the Energy White Paper of 1998 gives us an indication of where things started to go wrong.

It was this White Paper that accurately predicted that we would experience blackouts in 2006 if new energy generation was not brought on stream.

In order to create the conditions conducive for this to happen though, the White Paper strongly argued for Eskom's monopoly dominance to be broken through the introduction of a Transmission Systems Operator that would take the transmission grid out of Eskom and place it in a separate independent entity.  

The ANC chose to ignore that part of the White Paper just like it is conveniently ignoring those aspects of the NDP that do not fit snugly with its old outdated ideological thinking.

Instead the ANC government prevented Eskom from building any new generating plants while simultaneously refusing to reform the electricity sector in a way that would make it conducive for the private sector to enter this monopoly dominated market.

It was this illogical approach by the ANC that predictably led to the blackouts which started in 2006 and the ushering in of an electricity crisis that we continue to suffer from till this day.

Over the last fifteen years, all we have seen from the ANC is what can best be described as a Rocky Horror Time Warp dance. It is just a jump to the left, and then a step to the right, put your hands on your hips and bring your knees in tight.

It all looks very impressive until you realise that we have just been dancing in the same spot for the last fifteen years while the energy sector has fallen apart around us.
First it was the REDS policy, which was meant to solve the crisis in municipal distribution. This was abandoned when it was considered to be unconstitutional and since then we have seen nothing new from the government to address this burning issue.

The backlog on the maintenance of municipal electricity grids has since grown to close on R50 billion and many municipalities are starting to experience localised blackouts as a result.

Instead of Smart Grids we have broken grids, and the situation is only getting worse. Quite simply we need to rethink the entire institutional structure at the municipal level and find novel ways of funding local government differently.

The DA therefore welcomes Minister Gordhan opening the broader debate on this in his budget vote, but we would also argue that DORA funds must incentivise achieving certain national objectives like energy efficiency and the uptake of renewable energy and solar water heaters.

Instead the ADAM programme of the Energy Department, while responding to an emergency need in municipalities, is simply rewarding the practices of municipalities that have led to an underinvestment in their electricity grids. 

Then there was the infamous ISMO Bill, which was supposed to remove the operations of the grid out of Eskom and create a more level playing field for Independent Power Producers.

It was first  announced in the President's State of the Nation address in 2010, debated and passed by the full energy committee in 2013, only to have ministerial interference prevent it from being debated in the House.

At the time I was called a pathological liar for simply pointing out what many ANC members and in fact what the Chief Whip confirmed to me at the time, that powerful ministerial interests did not want this Bill to be passed. I am sure I will be called many more things while I continue to speak truth to power.

As that Minister is precisely what we all have to do if we truly want to address this energy crisis.

Minister you need to build a shared consensus around a so-called end state vision for our electricity sector, something which Minister Brown called for in her budget debate.

The DA has a clear vision of what that end state should be, but it will require taking on vested monopoly interests.  And for the sake of the EFF I am talking about State monopoly interests and not what you derogatively refer to as white monopoly interests.

Monopoly power must certainly be challenged in our economy, but the biggest and most inefficient monopoly is in our energy sector. Eskom currently accounts for 95 percent of electricity generation, it owns and operates the country's entire transmission grid and is responsible for about 42 percent of electricity distribution.

The painful fact is that Eskom's monopoly stranglehold of this sector is holding our whole economy ransom and it has become a model of perverse economics. It is encouraging its customers not to consume its product and even paying businesses huge amounts of money not to do so.

At the same time it is selling large amounts of its product at below the cost of producing it to other customers. In addition, it is paying one of its suppliers vast sums of money for inputs that it couldn't use. It has also racked up R250 billion in debt with very little to show for it, and now thinks that the answers to its woes is to force Nersa to hike its electricity prices in order to pay for its enormous inefficiencies.

Clearly this is a huge hole that has been dug for South Africa, and requires a fresh new approach to solving this crisis. So let me now outline what that approach should be.

In fact we can see small glimmers of it in the one huge success of this department, namely the Renewable Energy Independent Power Producers Programme.

This programme has seen over R150 billion of private investment flow into the energy sector, and the average price of generated electricity fall dramatically over the three bid windows, with each one being massively oversubscribed.

In fact the average price of wind generated electricity has now fallen to 74c per kilowatt hour, significantly cheaper than what it will finally cost from Medupi, whenever it finally comes on line.

It has also only taken two years to construct these plants and some of them are now already adding electrons to the grid and helping to alleviate our energy crisis.

The success of this programme shows that we have to increase the allocated amounts to it, and we should have been using the South African Renewables Inititiative that was signed at COP 17 to utilise grant funding from developed countries to institute a far more ambitious renewable programme.

Honourable Minister you must also convince your colleague in Land Affairs to change the tenure system in the communal areas so that communities in areas like the Eastern Cape can also benefit from investments into large scale renewable projects.

The fact is though that this programme is still too small to threaten Eskom's monopoly control and that is probably why it has been allowed to proceed.

We now need to see major IPP procurement programmes for base load energy, especially in the gas sector along with the long awaited cogeneration programme that has close on 2500 megawatts it has been wanting to supply to the grid.

A new grid operator must also facilitate wheeling through the grid so that IPP's can contract directly with companies, thereby removing the risk from the State.

Instead what we see unfolding in the background is more of the ANC's outdated State monopoly thinking in the form of the proposed nuclear build programme. This programme could cost the country upwards of R1 trillion and will push up electricity prices to completely unaffordable levels,  which in turn will drive down economic growth and with it electricity demand.

We could have the absurd situation whereby after spending vast sums of money on this programme and over ten years building these nuclear plants, there will no longer be the customers willing to buy the energy from them. This is the Arms Deal and the eToll debacle rolled into one and then magnified by ten.

Almost everyone I speak to from the business sector to civil society has huge concerns over this programme, and which are in fact explicitly outlined in government documents like the IRP Update and the NDP.

It seems the only person truly in favour of this programme is the President himself, and given the huge potential for corruption in this programme I suppose it is not difficult to understand why.

The DA will not stand idly by though and let the ANC dig this country into an even bigger hole than it has already dug in the energy sector. Honourable Minister it is time to stop digging and embrace a radically different energy future for South Africa. 

The DA wholeheartedly agrees with the latest IRP update that states we need a flexible energy policy that gives priority to smaller generation technologies with shorter lead times. This fits with our open opportunity vision for South Africa. Open up the grid and give every South African the opportunity to contribute to finding the solutions  to our energy crisis. Instead of big State controlled build programmes, the DA will radically overhaul the institutional architecture of our energy sector and unleash the dynamism of our households and companies in responding to this crisis. We will make it easier for households and companies to feed power back into the grid, like Cape Town is in the process of doing.

We will also turn all of our diesel powered generators over to gas and ensure that there is a conducive environment for investments to flow into putting in place the needed infrastructure to take advantage of the major gas finds in the Southern African region.

The DA will also replace the MPRDA with legislation that actually makes it attractive to invest in the oil and gas sector. Instead of the broken municipal grids we have now the DA will invest in new Smart grids that can help us prepare for the uptake of future energy technologies. We will also implement a household energy policy that will sustainably migrate households away from dangerous energy sources like paraffin and coal and into safer and more appropriate technologies.

Ultimately the DA will replace our current wholly outdated institutional and infrastructural energy framework with one that is able to take advantage of the major global advances that are being made in the energy field. The time for dancing around this issue is over as we run the risk of being stuck in an energy paradigm that will render our country uncompetitive. If you are prepared to stop the ANC's dance and spend the next five years pushing forward significant energy sector reforms that can get us to a more competitive, dynamic and diverse end state for the sector then the DA will play its part in helping to overhaul our creaking energy system. For the sake of our shared future lets focus on finally getting this done.

Thank You.

Issued by the DA, July 21 2014

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