South Africa cannot afford for Johannesburg to fail, and the city’s electricity supply is now genuinely at risk. The R5.3-billion debt that the city owes to Eskom is not being resolved in a sustainable way, and the consequences became more concrete last week.
Eskom granted Joburg a brief reprieve, agreeing to delay by 30 days its Promotion of Administrative Justice Act (Paja) process – the legal procedure Eskom must follow before it can cut electricity supply to the city. The delay was brokered by energy minister Kgosientsho Ramakgopa. But in announcing the delay, Eskom noted that Joburg missed a 5 June deadline to pay its current account, despite having paid R1.2-billion towards its accounts since the Paja process began. Because the city missed that deadline, Eskom is now resuming the Paja process, which could ultimately mean cutting electricity supply to City Power.
The city’s weak financial position makes settling the legacy debt extremely difficult. Our analysis shows Joburg is nearly a year late on average in paying its suppliers, and Eskom is no exception. The Business Leadership South Africa council is meeting this week to consider analysis of Joburg’s predicament and discuss how business can support its recovery. There is much to be done.
The city has consistently been unable to collect the revenue it forecasts in its own budgets. It spends far too little on maintaining its infrastructure, let alone investing in new infrastructure. Its budget is consumed by consumption spending but it fails to provide the services that business needs to be competitive and contribute to the growth of the South African economy.
Joburg is one of many local government entities indebted to Eskom, but it is the largest, and resolving this debt is critical to Eskom’s own financial recovery. This debt is one symptom among many of the city’s mismanagement that organised business has flagged as a critical risk to the broader economy.
Independent operator
Restoring Eskom’s financial position matters beyond Joburg. It is essential to stabilising Eskom and delivering the competitive electricity market we have been working toward. Business is committed to supporting a resolution to Eskom’s municipal debt crisis. However, at the same time we must make progress on the wider electricity reform road map that the national electricity crisis committee has driven over the past several years. That road map leads to a competitive electricity marketplace with multiple suppliers competing for customers.
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Central to that road map is the requirement for an independent transmission system operator (ITSO) that serves as a neutral intermediary providing access to the grid. The policy is clear that this intermediary must own the grid’s assets, not merely operate them on Eskom’s behalf. Ownership matters because it removes any possibility that the entity running the network could favour itself or a related party over competitors.
President Cyril Ramaphosa backed this interpretation in the February state of the nation address, after Eskom signalled it intended to establish an ITSO while retaining ownership of the assets. That position was reiterated in a presidency statement earlier this month.
Asset ownership matters for two practical reasons. First, it is the clearest route to attracting major new investment into the grid infrastructure South Africa urgently needs. Second, it is essential to a genuinely fair market – suppliers need confidence that they can access the grid on equal terms, without a competitor enjoying preferential treatment by virtue of owning the network they all depend on. An operator that runs the grid but doesn’t own it is like asking a competitor in a race to also act as the umpire.
The unbundling of the ITSO has been much delayed, and there is still no firm implementation timetable. A task team established by Ramaphosa to finalise the unbundling has been given an extension to publish its report by the end of June. That extension came alongside the presidency’s announcement, earlier this month, confirming that the ITSO will own the transmission assets.
The unbundling itself is not straightforward – Eskom has numerous lenders who need assurance that restructuring will not undermine their creditor rights. But utility restructurings of this kind have been achieved successfully elsewhere in the world. Where there is genuine will, a way can be found.
Business has that will, because the prize is significant: not only improved electricity reliability, but downward pressure on prices over time. Since load shedding first struck 18 years ago, electricity prices have increased tenfold, far outpacing inflation. Electricity prices were unsustainably low before that period, which was part of why we saw such chronic underinvestment in generation capacity. But the answer now is a genuinely competitive market that lets price discovery happen properly, with multiple providers competing for customers. That competitive dynamic is essential to restoring the competitiveness of our economy.
Not in name only
Years of steep electricity price increases have eroded the competitiveness of many energy-intensive manufacturing sectors, accelerating deindustrialisation we can ill afford. Reversing that requires both a competitive electricity market and an independent transmission operator that all suppliers and consumers can genuinely trust.
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Business stands ready to support credible public sector partners who are prepared to deliver – whether that is the City of Johannesburg or Eskom and other state-owned entities. But that support is premised on a real commitment to following through on established policy, because policy follow-through is what will restore economic growth. We will support Eskom in recovering the debts it is owed. But we remain equally focused on ensuring the electricity market that emerges from this process is one that is genuinely, structurally competitive – not reform in name only.