PETER ATTARD MONTALTO: Don’t pop the champagne yet — energy reform is still a hazy plan

This column was first published in Business Day.

What happens when (if) reforms start happening? When there is change, implementation shifts forward. The question is important for businesses’ thinking — generally sceptically — about the recovery. The hurdle is high, so might take some convincing, but equally, one doesn’t want to be “late” in recognising a turning point.

There is a first-mover advantage to a business recognising a turning point early, though there are costs if the business gets it wrong.

The last week has felt like a blur.

First, there was the disappointment of the delay, by three months, to the Independent Communications Authority of SA’s spectrum auction timetable as a complex mix of vested interests and capacity constraints swirled. Given the rare event of President Cyril Ramaphosa personally deploying political capital on the issue within the National Economic Development and Labour Council (Nedlac) at the end of 2019, this seemed like a particularly poignant regressive step.

We then had a shift of gears on Tuesday, when the president held a webinar with the SA National Editors’ Forum. There was some subtle spark — a sense of deep frustration we have not really heard so explicitly before, calling out specific issues such as disappointment on the spectrum issue, bemoaning the lack of capacity to implement and the time taken to move the dial.

Yet it was the shift in language that caught my ear. The president normally has a grating habit of using the “collectivist we” in the ANC’s tradition, which seems to make him aloof to the issues he has as state (not ANC) president. This time it was personal. It was “I want”, and it gave the impression of Captain Ahab valiantly battling the (state capture-damaged, capacity-lacking state) whale.

Just as at the last ANC national executive committee meeting, the president was spurred into action by personal accusations that he didn’t care about corruption, and now it seems the accusations that he doesn’t care about reform have got to him. This is positive.

Rhetoric is important for gaining (and not losing) support and momentum. But it is no substitute for action, especially in a capacity-deprived state that is hampered by vested interests, corruption and obsolete ideology.

The never-ending disappointment has set the perception of probabilities against the president and, as such, businesses will be more willing to wait for actual action and maybe miss the turning point.

Has such a turning point come? We have a negative mark from spectrum, an interesting shift in language that we are reluctant to give a positive mark to, and then we have Renewable Energy Independent Power Producer Procurement (REIPPP) round 5.

Spectrum and REIPPP round 5 have taken on a life of their own far beyond their direct economic impact. They have the ability to drive animal spirits, to get businesses recognising a turning point in the wider reform agenda, earlier.

Yet what happened on Friday evening was odd. Deputy President David Mabuza buried in a statement by the Eskom war room that REIPPP round 5 would be “completed” by December.

The statement is nonsensical — there is no way you can “complete” REIPPP round 5 by December. What it meant to say is that the request for proposal (RFP) for the round will be published in December. This is still positive, given the Independent Power Producer (IPP) office specifically announced at the Sustainable Infrastructure Development Symposium that it would only launch the RFP in June 2021.

So what to make of it? Can business trust it?

It will still mean new energy is only likely to come online from the middle of 2022 at the earliest, and so there are still two years of an “energy hole” that will restrain the recovery.

But most important is capacity. The IPP office is still expected to be snowed under by the Risk Mitigation Independent Power Producers Procurement Programme “emergency” procurement round, as it says it will award preferred bidder status in December, only three weeks after final bids are submitted. How can it run two complex processes in parallel with budget cuts and a likely deluge of legal challenges around RMIPPP and the expected prevalence of vested interests there?

Herein lies the rub.

Reform is not a single event. Each reform comes with a hugely complex set of regulatory, bureaucratic and administrative actions that must each proceed smoothly and swiftly to get a reform to “happen” on time. As such, a date for an RFP launch is welcome, but it is only the first step, open to delay and attention that turns to the terms, ability to get generation licences, Nersa’s ability to shift paperwork, and Eskom’s ability to speedily work on its parts (which have been key delay points in previous REIPPP rounds) and the required guarantees.

The question arises from last Tuesday’s presidential exposition on capacity of what will be done? No answers were given at that time.

What happens if there isn’t an answer? If it is impossible to create the capacity in any reasonable amount of time in a fiscally constrained state?

The answer, of course, is to remove “access” regulators from vast swathes of the economy and liberalise. As yet, however, this endpoint is not even up for discussion, whether on energy policy or anything else.

Until a sensible debate on the topic of liberalisation is had, it will be very much “believe it when we see it” on reforms, just as for REIPPP.

• Attard Montalto is head of Capital Markets Research at Intellidex.