I am certainly not one to shy away from strong or controversial views. Indeed, I got into an argument with a senior executive last week for saying I thought Johannesburg had better restaurants than Cape Town. Or having the view several months before each occurred, that both Nene-xit and PG-xit would happen.
So I can appreciate others taking a similar line. The difference perhaps is whether they are researched well or not. I’ve eaten in enough restaurants in Joburg and Cape Town to be able to say with some certainty that my view is based on data. And the tea leaves in the political darker corners were evident to any analyst that bothered to look on Nene-xit and PG-xit.
So part of me appreciates our (powerless) electricity minister not being afraid to push the boat out. We need to constantly question the status quo of energy and why various things are being done to make sure we understand and solve the complexity of SA’s energy transition.
His interventions come at an interesting time, given the work being done on the IRP in the department of mineral resources & energy (DMRE). Questions raised about decision-making processes and reasoning for Eskom plant life are important in the IRP context.
Yet here ends my sympathy. That everyone now seems a lot happier and relieved with the prospect of mineral resources & energy minister Gwede Mantashe doing energy procurement and energy policy decision-making is quite some feat.
Others elsewhere have focused on the misalignment of the minister’s pronouncements against myriad existing policy. This is all true, though the need to stress prior choices isn’t a bad thing. Doing them only after talking to a lot of workers shows little credibility, however.
What really shocked though was the clear lack of understanding of how the budget process works or how investment in a tied private sector mine might work over what period. The plans are completely incoherent.
There is no way the National Treasury would fund upgrading of private sector mines. The finance minister has confirmed that, leaving, egg on his colleague’s face. This is not like the wort of marginal spending issue of a few million for this or that which can be argued through cabinet structures. The whole idea was completely counter to the way the budget process of the Public Finance Management Act (PFMA) or procurement would work.
Upgrading to extend life is a calculation Eskom has done. It would cost about R400bn for a five-year extension of just a small set of power stations, Eskom said previously. No-one — not Eskom, not the fiscus — has this money. The minister seems to have no idea which taxes he would raise; or maybe electricity prices or debt raised or cuts to other spending would be necessary to fund all this.
More than that, even if this was possible it might take (optimistically) five years to upgrade mines or power stations. And you would still need to procure the fastest and cheapest electricity in those five years anyway: renewables, battery, a little bit of gas, rooftop solar and so on
This is the central issue with the proposals that everyone seems to have missed: the minister’s job is to end load-shedding, yet his plan would fail to do that even if the money was available from the magic money tree.
Some might ask why I am running over old ground here, but I don’t think the level of backlash from funders, bondholders and others to what has happened is widely understood. Madnesses are also like the undead in our energy debates in SA and need to be bludgeoned.
The president clearly realised the damage that was being done by his minister and rowed back at the investment conference.
Indeed, the central baseline to hang on to in the past week is that none of the madness will come to pass. Yet damage can be done. This is the classic SA affliction oft commented on here in the past — whether it be about Reserve Bank nationalisation or expropriation.
The IRP, by contrast, is a crucial moment to show a fact- and data-based guide to the new capacity the country will need — and so land a credible and widely accepted centre of gravity within our messy and fraught energy debates.
Here decommissioning should be an output, not an input. The mix of cost to refurbish can be transparently put in and balanced against its ability to aid the end of load-shedding versus other technologies. The exogenous input of decommissioning to IRP simply doesn’t help either side of the debate to gain clarity.
Eskom has already shown what an IRP exercise can look like. This exercise was done credibly and professionally and has set a benchmark for the coming DMRE IRP. The stakes here for all sides, including vested interests and rent extractors, are enormous and hence the success of last Friday’s Presidential Climate Commission (PCC) colloquium on the IRP which (given the PCC’s credibility and independence) forced all sides into one room despite some poo-pooh-poohing of the PCC document from DMRE and others.
There will be serious issues if the IRP is seen to be skewed with vested interests, or impossible to finance. Build time, and time to financial close, as well as inefficiencies of the IPP Office also need to be considered.
A sensible IRP should allow a narrowing of our madnesses and be a firecracker to implementers and policymakers to move at speed.
If things go to plan, then this winter should be the worst point of the load-shedding crisis, albeit a particularly bad one and worse than people generally expect. The end of load-shedding, supported if there is a credible and sensible IRP, may well take a few years longer. We will get there quicker — taking investment sentiment along with us, if we can keep the madnesses at bay.
Attard Montalto leads on political economy, markets and the just energy transition at Intellidex. This article first appeared in Business Day.