The Political Economy of the Municipal Electricity Supply Industry (ESI) in South Africa

Abstract

South Africa as a mid-income developing country best known for its mineral wealth and history of socio-economic inequality, is electrified by Eskom, a single vertically integrated national utility. The economy, built around mining activities, is highly energy intensive, making the nation’s fortunes acutely sensitive to Eskom and its ability to meet demand, which it has not been able to do reliably since 2005.

Eskom’s domination of ESI however, is not total. Municipalities are the sole distributors in their area of jurisdiction, from which they derive trading surpluses – a major contributor to municipal revenue and a municipal function protected by the 1996 Constitution. This was not always the case. Municipalities owned and operated large generation plants; and indeed in the 1950s and 1960s, Eskom was often only able to meet industrial demand by taking supply from Johannesburg. By the mid-1960s however, most of its new plants had come online, and having served its purpose, national government stopped municipal generation at Eskom’s behest.

Historically, South Africa’s is a municipal context where local government, even prior to the formation of a Union in 1910, was expected to be self-sufficient; and two revenue instruments were provided to achieve this: property taxes and surpluses from services (electricity by far the biggest contributor). The revenue contribution from surpluses cannot be over-stated; and electricity undertakings have always been put under internal political pressure to maximise returns, as the revenue was sorely needed to cross-subsidise other municipal functions. This has however often been to the long-term detriment of the municipal undertaking business, and more recently, to national policy energy conservation objectives such as supply shortages and climate change emissions targets.

Ultimately, the development of South Africa’s ESI to supply mining and industry, (Eskom and its predecessors), and its role in the economy, has been the subject of much academic research. Little literature exists on municipal ESI however, which commenced at the same time. This research – grounded in the theoretical framework of historical institutionalism – thus attempts to reduce the literature deficit. The interplay between the need for municipal electricity undertakings to maximise profits; decentralised local government; a monopolistic national utility with vested interests; and national government’s attempts to control and reform the industry, are traced from 1880; in providing fresh contextual analysis of the current crisis, from the historical and institutional perspective of municipal electricity undertakings.

Bio

Theo founded Unlimited Energy, an energy consulting company in 2006. The company, specialises in energy efficiency and renewable energy public policy research and analysis. Its clients include Government ministries and international agencies, such as World Bank, UNDP, GIZ and IEA. In addition to South Africa, Theo has worked in Kenya, Botswana and Nigeria.

In 2016, the company won the South African National Energy Association’s Project of the Year Award for the work done in convincing national government and industry to raise the mandatory minimum energy performance standards for electric water heaters. It is estimated that this will save 3.82TWh of electricity by 2030.

Theo is a part time student at the University of Cape Town’s Energy Research Centre, where he is working towards completing a PhD, which is the topic of this presentation.

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