Privatisation of distribution

4 July by Dick Forslund


An important step in the privatisation of electricity sales in South Africa is about to be taken. The process the government has embarked on is in effect a privatisation of sales, as in any privatisation of public property. Private investments have to produce a steady and secure income stream for shareholders, and that is of course about sales to the market.

Selective privatisation
This is why on 9th June the government and the Board of Eskom announced that the “unbundling” of Eskom into three parts – generation, transmission and distribution – will start by creating the “National Transmission Company of South Africa” (NTCSA). This will run the electricity grid. This is the most cumbersome and costly part of Eskom, especially when hanging over electricity production from coal and oil to renewable energy (RE), like wind and solar power. So this part of Eskom will stay public and carry all the new infrastructure costs.

Meanwhile, the distribution part of Eskom is much more lucrative, especially in areas where there is enough money to pay bills. So private capital will flock around the distribution of electricity to affluent areas like Sandton, Constantia, and gated communities in general. And of course to members of the “Energy Intensive Users Group”, like the scandalised Glencore and Anglo American. Meanwhile Eskom’s “unbundled”, publicly-owned distribution company will be welcome to deal with bankrupt municipalities and Soweto, that owe the parastatal over R40 billion.

Next up are Prasa and Transnet. A Private Public Partnership (PPP) policy was agreed in the “Country Partnership Framework” (CPF) with the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

in June last year. And as for trains, private capital prefers to sell the tickets. Responsibility for investment in rail and rail maintenance will no doubt be public.

Cities, towns, townships and informal settlements have broken water pipes, sewage systems and roads. For example, during The Nelson Mandela Bay water crisis , an estimated “29%” of its fresh water leaks out into the ground and flows in the streets. The government’s response? “Smart cities” which will require tens of billions of rand in investments

The CPF document say that the World Bank will “assist four cities to develop credible smart city strategies”. Why not use that money to repair what is broken everywhere else, like repairing communities in KZN after the floods?

Only profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. matters
The answer lies in the difference between investment for private profit and public investment for social purposes. Private, for-profit logic involving billions of rand demands profit now. As far as capital is concerned, the job of the state is to create the conditions for it to make profit – transmission lines for it to make profit selling electricity; a functional rail network for it to make profit selling train tickets.

Repair of water pipes, sewage systems, local roads or the more than half of our failing water treatment works are typical public sector projects. But provincial and local governments no longer have their own workers to maintain public infrastructure, on which both household and business production depend. That would compete with the project to build a black business class via tender and procurement. And it is not a part of economic policy to expand the reach of the public sector. So repair and maintenance of basic infrastructure are outsourced, begging to be looted.

Small and medium sized business (SMMEs) can accumulate capital and owners can bolster consumption by over-charging for services and taking short cuts. At the end of the day, however, it is not in maintenance and repairs that the big money is found. Big capital has no taste for pothole or water pipe contracts in broken towns.

When billions of private capital are invested in a “new” city, a stable and secure income stream can be generated. Return on investment will be 15-20%. The investment will be paid back in 5-7 years. Then it will give dividends to shareholders for decades to come from rents from posh flats, interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. on house loans, fees for “smart” internet and security, profits from malls and whatever else can be extracted from the upper middle class and the rich, who can pay.

Sewage in the streets on the one hand. Government raving about “Smart Cities” on the other. They coexist. But it is the smart cities they dream of. And they say that capitalism will save South Africa.




Dick Forslund

is an economist at Alternative Information and Development Centre (AIDC), Cape Town, South Africa.

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