PETER ATTARD MONTALTO: Energy solutions take off as we get off the roundabout

It’s funny how things shift. A small intervention here, a little comment there, a line in an energy crisis speech buried there.

Sometimes things seem completely obvious once they take a step forward. The problem of course in contested terrain — and in particular SA’s political economy — is that the “clown car around and around the roundabout” phase of public discourse can go on for what seems forever.

Many issues in the energy crisis plan had that flavour, though none more so than the Eskom debt deleveraging operation that will be forthcoming in the medium-term budget policy statement (MTBPS).

Madnesses can appear as one goes around the roundabout on an issue, and this was particularly the case during the recent period since 2019 when a deleveraging was so close and almost signed off until political actors got cold feet. The idea back then was simple enough: a voluntary transfer of Eskom’s debt onto the sovereign balance sheet with a plan (that is conditions) for how the unbundling operation should happen.

In the interim, however, all manner of crazy has been forthcoming, from listing Eskom on the JSE (how on earth would that be politically feasible?) to the infamous debt-for-equity swap. Union members should ask their baron overlords exactly why such an idea ever made sense to play around with their pensions? Why should a union member’s pension be sacrificed “Thuma Mina” for worthless equity in a company that was going to see its assets rapidly fall as it approaches net zero in the years ahead?  

Of course in many ways nothing has changed since 2019. All that the delay has meant is that Eskom has been refinancing itself closer to 9.6% on the R200bn not transferred off as opposed to about 6.7% on the sovereign balance sheet. This is a deadweight loss of about R2.9bn per year to the sovereign, on top of which it has been having to pay out bailouts of R21bn-R33bn per year.

Delays have costs. But all will be forgotten as we take a step forward at the MTBPS, and finally SA will be able to get some positive sentiment support from investors for solving a knotty problem.

The energy plan is much the same. We will look back as energy starts pouring onto the grid with increased momentum in the next two years and wonder what on earth went on before.

The energy plan may be a little different though. The power of liberalisation — an individual small, medium and micro enterprises (SMME) getting not only energy security from a bank structuring a lending package to buy some rooftop solar but also the ability to pay down the debt for it faster by selling electricity back into the grid and then actually making a small return out after a short while — will be something to behold.

This is a genie that will not be able to be put back in its bottle and will hopefully strengthen SMME, household and other business balance sheets.

This issue is linked to the first, however. The 100MW licensing threshold being gazetted in August 2021 was the starting gun to something much bigger. I still don’t think many people — business leaders included — really get how fundamentally the change is that can come from pulling on this piece of string.

As more people start producing their own electricity (including corporates), as municipalities and metros and traders and other corporates buy it rather than from Eskom, so the need for Eskom assets will start to fall, and fast. This demand tipping point is already nearly here —  given load-shedding  — as energy efficiency of companies has been rising. But it could happen very quickly.

This is not a negative if appropriately planned for. If we have a vibrant and dynamic National Transmission Company of SA spun out as an independent entity, we have the appropriate legislative environment (on the way). Eskom, however, may well need to accelerate its decommissioning — not for climate change reasons or anything else, but simply as the cost of supply from old power stations (driven up by maintenance requirements) will simply not match the cost of private-to-private power buying. This will be nothing to do with conditions or otherwise from funders but simply the natural, least cost, jobs maximising, security of supply maximising direction the electricity supply system will be taking.

Other things can suddenly seem obvious once changed. The collapse in the pretence around chicken import duties being one. This is an issue almost like electricity that affects such a large number of ordinary South Africans where the balance between the ordinary consumer need (cheap and ready supply) and the producer (as well as the developmental need, say, of employment potential domestically) clash. 

Productivity ultimately wins out, however, as trade happens on comparative advantage.

Other issues are less clear. The direction of change for the car industry is highly uncertain as foreign forces (the banning of sales of internal combustion engines) and the domestic policy issues (no policy support implemented from the department of trade, industry & competition for the subsidised industry and high import tariffs stymying the creation of demand for electric vehicles domestically) combine to make the status quo completely untenable.

It is useful to think on this example and what might appear obvious later on looking back. The creation of demand domestically would seem an obvious thing with hindsight. This is what we are about to see when there is successful implementation of the crisis energy plan.

One of the least complicated and most organic outcomes of the plan — yet not mentioned in it at all — will be the creation of a large number of SMMEs to install and service rooftop solar for other small businesses and households that will be able to sell electricity back to the grid. This will require no lists from departments of where pencils should be brought from, no subsidies and no master plans.

This is perhaps why the plan is so exciting. The economy has not had this type of shock liberalisation, which can actually shift the dial on the wider economy, the way it works and how smaller firms can latch onto a new seam of demand.

No doubt in a few years — when successfully implemented — we will look back and think it was all entirely obvious.

• Attard Montalto is head of capital markets research at Intellidex, a SA research-led consulting company. This article first appeared in Business Day.