When André de Ruyter became CEO of Eskom, South Africa’s state energy monopoly, someone warned him that he was now the head of the country’s largest crime syndicate. De Ruyter, who stepped down from the role in December after three hard years, says: “Looking back, I think he might have been right.”
Eskom is a miniature study of what has gone wrong in South Africa. A utility company that can’t keep the lights on is gradually draining the life blood of the country’s economy. It’s riddled with corruption, hopelessly inefficient, and losing experience on a daily basis.
Without reliable power, South Africa cannot generate the economic growth necessary to address the problems of poverty and social injustice that are a bitter legacy of apartheid. Yet the ruling African National Congress appears unwilling to reverse Eskom’s decline and with it South Africa’s drift toward calamity.
South Africa is experiencing the worst power outages in its history. Eskom imposed at least 100 days of continuous blackouts last year. Power is often cut for five hours, sometimes 10. Without electricity, factories are brought to a standstill, meat rots in slaughterhouses, and police stations are attacked under cover of darkness.
However, far from tackling the problem, the government seems intent on prolonging it. The Treasury recently blocked the purchase of diesel to run backup generators despite the enormous cost to the economy of not doing so. Severe power outages cost an estimated R4bn (around $235mn) per day in lost economic activity. The Treasury softened its objections to buying diesel, at a fraction of the cost of lost production, after De Ruyter resigned. That suggests that his objections were political, not rational.
Even more inexplicably, up until six months ago the government was severely restricting the amount of energy (mostly renewable) that private providers could feed into the grid, the policy equivalent of banning people from collecting rainwater during a drought.
What could explain such crazy decisions? The common thread is vested interests and the dysfunction—born of South Africa’s deep racial divide—of its political economy. In short, the ANC is willing to sacrifice the country for the benefit of a minority, in this case the coal industry and assorted hangers-on.
Under apartheid, coal was controlled by large white-owned companies. Since 1994, black empowerment rules have gradually transferred ownership to black South Africans, who now own more than half the industry. Unlike many other areas of the economy, where whites have maintained control, coal has been a success story in terms of wealth redistribution and opportunity.
But it has come at a cost. The ANC is now reluctant to see any challenge to the supremacy of coal, on which the country depends for 85 percent of its sporadic energy. President Cyril Ramaphosa supports a transition to abundant solar and wind power. But strong forces within the ANC oppose anything that could threaten jobs in the coal industry. Many of these are concentrated in Mpumalanga province, where unemployment is even higher than the horrendous national average of 34 percent.
Gwede Mantashe, a former coal miner and now energy minister, has declared himself a “coal fundamentalist”. In fact, he stopped private companies, which the ANC remains morbidly suspicious of, from supplying large amounts of power, a position finally overturned by Ramaphosa in July.
Coal’s entrenched position has been solidified by open criminality. When coal was dominated by a few large mining companies, power plants were built next to coalfields. Coal was transported via conveyor belts.
Now, as De Ruyter recently explained, it is trucked in from small mines, often hundreds of miles away. On the way, it can be stolen. Good coal sells abroad at a premium. Bad coal, including waste and scrap, finds its way into power plants, reducing generating capacity and causing breakdowns.
When De Ruyter tried to fix this and other problems, he was sabotaged from within, presumably by Eskom employees profiting from bad practices, including corrupt recruitment. Like many state institutions, Eskom was “captured” during the presidency of Jacob Zuma, infiltrated by people prepared to loot the state for private gain. It has not been easy to eradicate them.
There is a way to fix power problems. It implies a massive increase in privately produced electricity and the loss of Eskom’s generation monopoly. Eventually, as coal is replaced, Eskom will wither away to become a less powerful and less lootable transmission company.
This is the roadmap that De Ruyter was trying to follow. His work became untenable. It is not clear that the ANC has the stomach to do the right thing. There are still good people in Nelson Mandela’s party. But they are drowning in the swamp that will eventually swallow them all.
david.pilling@ft.com
