Pros And Cons For Privatizing Eskom, One Of The World’s Largest Monopolies

To privatize or not to privatize? It’s a polarizing topic when you’re talking about Eskom, South Africa’s massive — but struggling — state-run power utility.

Eskom generates almost all the electricity in South Africa, and nearly half that produced in all of sub-Saharan Africa. The utility is the largest electricity producer in Africa, among the top seven in the world for generation capacity and among the top nine in the world for sales. It operates the only nuclear power plant in Africa. That makes it arguably one of the world’s largest monopolies.

These days, electricity blackouts are common in South Africa as Eskom deals with the consequences of failing to maintain important infrastructure for the past 20 years, according to VOA. Billions of dollars are needed. Illegal hookups mean as much as 7 percent of the country’s electricity is stolen, according to BusinessTech.

Tasked with finding a solution to the crisis, the country’s treasury department is looking at several options including a proposal to partially privatize Eskom or sell some of its assets in order to secure further funding to expand generating capacity.

Here are some pros and cons in the case for privatizing Eskom.

Sources: TheAfricanReview, SouthAfric.info, Fin24, Democratic Alliance, BusinessTech.

Privatizing would supply revenue

How much money does Eskom need? Eskom’s funding gap through 2018 is estimated at 200 billion rand ($16.86 billion US), Fin24 reported. The utility expects to receive 23 billion rand ($1.9 billion US) from the government this year and has asked to raise power prices.

If the South African government sells assets in Eskom partially or completely, it has the potential to raise money that could be reinvested in the remaining publicly owned part of the company or be invested in other government initiatives, according to TheAfricanReview.

From TheAfricanReview, DailyMaverick, Fin24

Privatizing could increase competition

There is potential for competition between future private utility service providers, which could raise standards and drive down costs for consumers. Investors will compete for potentially lucrative opportunities arising from a sale of assets.

Source: TheAfricanReview

Privatization could make the utility run more like a business

Politicians aren’t necessarily great business people. Sometimes they make decisions that win them votes but don’t necessarily make business sense. Full privatisation of Eskom could ensure that the utility is managed more in line with modern business practices with CEOs of private companies making long term decisions.

Source: TheAfricanReview

Privatization could improve efficiency

The challenge for a project as large and complex as Eskom lies in being able to expand cheaply and efficiently. Private companies have built-in incentives to increase profits by making operations more efficient and streamlined. This drives down costs.

Source: TheAfricanReview

What the government said it won’t do

The National Treasury said it was considering ring-fencing and selling stakes in the state power utility as it sought to secure funding for the power producer and resolve an energy crisis.

Minister of Public Enterprises Lynne Brown said load shedding will continue for three more years but ruled out privatization of basic services such as providing electricity and water. “Basic services must be provided by the state,” Brown said. However she also said there are discussions about how the private sector interacts with the public services.

Although Eskom is a commercial venture, it’s the government’s responsibility to carry out the developmental responsibility, Brown said. “(Eskom) can’t be driven by capital… or profit,” she said.

From SouthAfrica.info

Labor unions say they’ll oppose partial privatization

South African labor unions said they’ll oppose partially privatizing Eskom. Unions see any form of privatization as a threat to jobs, Fin24 reported.

“Eskom…has a key mandate to electrify the country. We don’t believe it should be in the hands of the private market,” said Castro Ngobese, a spokesperson for the National Union of Metalworkers, which represents many Eskom workers, Fin24 reported.

The National Union of Mineworkers, which also has members at Eskom, said in a statement, “any intention whatsoever to sell Eskom or part of Eskom will be resisted. Eskom is not for sale.”

Bart Stemmet, an economist at research firm NKC, said there is money to be made selling assets, and if the price is right and the regulations are favorable, there will be buyers.

Source: Fin24

The Democratic Alliance supports privatization

The leading opposition Democratic Alliance party says “privatize now.”

“The D.A. has always advocated for the privatization of electricity supply generation, and the unbundling of Eskom’s supply monopoly,” the party said at its website.

Here’s why the D.A. says it wants to privatize: “It would be hugely beneficial to our economy. It would take financial pressure off the state by getting private investors to help fund electricity supply generation. It would also increase efficiency in the sector by introducing competition. And as the industry grows, it has real potential to also create a large number of jobs, particularly in the renewable energy sector.”

The ANC is opposed to total privatization

The ANC said it is not in favor of totally privatizing the country’s power system despite Eskom’s problems, BusinessTech reports.

“Electricity remains a public good and therefore, if you totally privatize it, it will have problems,” ANC secretary general Gwede Mantashe told reporters.

Source: BusinessTech