Jaws drop at Tito’s privatisation plan

Economists at odds over whether it can fix energy and transport

● A dramatic proposal by the National Treasury to boost private sector participation in Eskom’s coal-fired power stations as well as SA’s ports and rail infrastructure is likely to face stiff opposition.

Plans in the 2000s to involve the private sector in managing state assets fizzled out after president Thabo Mbeki was ousted.

But this week finance minister Tito Mboweni sought to revive the idea, surprising his colleagues and the nation with a discussion paper titled: “Economic transformation, inclusive growth and competitiveness: Towards an economic strategy for SA.”

It was prepared by the economic policy unit in the Treasury and was apparently due to be discussed first at a cabinet meeting. But Mboweni released it on Tuesday night and immediately called for public comment.

Trade union Cosatu openly criticised the plan, and proposals in the document drew mixed reactions from economists.

On Eskom, one of the suggestions in the plan is to sell its coal-fired power stations, possibly by auction. The sale would include staff contracts, coal-supply contracts, supplier contracts and environmental obligations, together with a power purchase agreement at a predetermined tariff.

The new owners would supply a specific amount of electricity annually to Eskom over the remaining lifetime of the power stations. The revenue generated “depends on tariff assumptions, but assuming cost-reflective tariffs the sale of these assets could raise around R450bn”. This would limit the fiscal and economic risk Eskom poses and provide a gateway for new entrants into the electricity space, the economic plan says.

Ted Blom, an energy analyst, said the document was welcome but reflected “some errors and assumptions”.

He said the power stations that could be sold would need to be “cleaned up” first and have their technology updated. This meant they could not be sold now for more than R1.

Duma Gqubule, director at the Centre for Economic Development & Transformation, said the Eskom proposal was “basically a wholesale privatisation … complete destruction of Eskom over maybe the next 15 years. It takes it far beyond anything that has ever been proposed by anyone else.”

Gqubule said Eskom’s R450bn debt related mainly to the new power stations Kusile and Medupi, which were unfinished and could not be privatised in the near future. The functional separation of Eskom could also take five to 10 years to complete.

“It’s not like we’re going to raise R450bn immediately and wipe out the debt.”

He said the issue was complex and could result in problems by fragmenting the industry. “It will be a Wild West model of electricity provision, it will result in huge job losses and sky-high prices. I don’t think it’s something we should look forward to.

“But to be frank, I don’t think it’s going to happen. What I heard is that nobody has heard about this report. He [Mboweni] dropped it out of the blue like a record, like a new release. Like Beyoncé,” Gqubule said.

“This is a free-marketeer’s wet dream. It’s just unbelievable. This is definitely the National Development Plan repackaged in a new bottle.”

Gqubule said another questionable feature of the broader plan was the envisaged creation of a total of 142,000 jobs in three years based on GDP growth of 0.8% a year. But every year the number of job-seekers grew by 700,000.

He dropped it out of the blue, like a new release. Like Beyoncé

Duma Gqubule

Director, Centre for Economic Development

“In three years the labour force will grow by 2-million people and you’re going to create 142,000 jobs? C’mon,” he said.

The plan says transport costs are high due to a lack of competition, flourishing monopolies and the presence of state-owned companies in the sector.

It proposes stringent regulation to improve pricing and service quality in the freight rail and port system.

Third-party access to the core rail network is crucial to promote private sector participation in rail and concessioning of branch lines, the Treasury document says.

Competition should be introduced between port terminal operators and in warehousing and logistics to boost performance.

Lumkile Mondi, senior economics lecturer at Wits University, said privatisation was crucial to reduce administrative costs that burdened households and companies.

Mondi was chief economist at the Industrial Development Corp during the 2000s when it and a consortium of mining companies approached Transnet to introduce concessions to ports and rail infrastructure. But Transnet was reluctant.

He said mining companies, particularly those producing manganese, would still be interested in pursuing this.

Economist Iraj Abedian said to think in terms of a stark choice between privatisation and nationalisation was a “false dichotomy”.

“There are segments of our national infrastructure that should never be privatised for both strategic and very good economic reasons.”

A solution, he said, would be to offer fixed-term concessions, so that an underperforming operator could be replaced.

Sipho Maseko, Telkom’s group CEO, said policy certainty was compromised by the plan. “It does not speak well of the government nor our ability as a country to attract and retain investment if the Treasury issues policy position papers that gainsay a government policy adopted only a month ago.”

Maseko said the minister of communications & digital technologies gazetted the policy in July on high-demand spectrum.

The Treasury’s paper suggested a small amount to be set aside for a governmentcontrolled network, yet the policy says the network should not be government-controlled and the network should receive enough spectrum to be competitive.

“That is only the beginning of the paper’s incoherent, ill-thought and ultimately chaotic intervention in the area of telecoms and ICT,” said Maseko.

● ➽ See Sunday Times Opinion pages