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Longer, analytical article.  South Africa: Eskom’s war on the poor

Summary & Comment: What’s really going on in the electricity sector? In short, cheap energy for wealthy corporations is being locked in with new government policies. E.g. the electricity contract for ALCAN’s proposed aluminum smelter at Coega will be for the next 25 years. It is for 1350MW of electricity, enough to power a medium city and the tariff could be as low as 12c/kWh. Indirect financial subsidies (building of transmission lines and externalised costs of generation) to ALCAN top over R12 billion. Civil society is therefore challenged to unite, work for a progressive energy policy, and force change. DN

Author: Tristen Taylor Date Written: 26 February 2008
Primary Category: Economic Justice Document Origin: SANGO Net
Secondary Category: Southern Region Source URL:
Key Words: South Africa, Eskom, poverty, electricity,


Printable Version

Eskom’s war on the poor 

http://www.sangonet.org.za/portal/index.php?option=com_content&task=view&id=8938&Itemid=1 

[The views expressed in this article are not necessarily those of Earthlife Africa Johannesburg.]

Any civil, religious, or military official in government employ, who serves the state from vanity, or, as is most often the case, simply for the sake of the pay wrung from the harassed and toilworn working classes (all taxes, however raised, always fall on labor), if he, as is very seldom the case, does not directly rob the government in the usual way, considers himself, and is considered by his fellows, as a most useful and virtuous member of society.”
 - Leo Tolstoy

On 22 November 2007, the National Energy Regulator of South Africa (NERSA) held its last public hearing on Eskom’s massive rate hikes. The outlook for poor users of electricity is grim and marks yet another salvo in the Government’s unrelenting war on the poor. Eskom and municipalities are planning to increase dramatically electricity tariffs to poor households (defined by NERSA as domestic low users, 100kWh of usage), often at rates above that of domestic high users (800kWh). The new average tariff for domestic low users, based on the projected 16.5% rate hike, will be 48.17c/kWh. For domestic high users, the average tariff will be 45.5c/kWh.

Earthlife Africa Johannesburg, an environmental and social justice NGO, opposed this rate hike for poor users in written submissions to NERSA and made an attempt to speak at the public hearing in Pretoria. When an Earthlife Africa representative (Sibusiso Mimi) tried to make a presentation, NERSA officials denied him the right to do so. Mimi summed up the public hearing as, “A NERSA and Eskom tea party.”

The proposed tariff increases (which look as good as approved) will bite heavily into domestic budgets putting further constraints on other basic social goods such as water, housing, food, education and clothing. It is intolerable that the poorest users in society have to have increases on a social service which they cannot afford already. The NERSA documentation on the price hikes quite clearly states that these users are indigent, and, hence, it is peculiar that increases for this bracket are even considered. The question then is, why? What’s really going on in the electricity sector? With Eskom’s spokesman, Fani Zulu, spinning the facts quicker than a DJ burning on tik, the truth is in danger of being permanently distorted.

So, here are the key facts:

Despite the Government and Eskom’s repeated boasts about electrification, 30% of South Africans are still without electricity. Of the 70% who do have electricity, many poor users suffer from disconnection. David McDonald has calculated that there were two million disconnections by 2002.  Furthermore, users of prepaid meters disconnect themselves (due to lack of funds to feed the meter), thus transferring the onus of disconnection from the state to the citizenry. The Free Basic Allocation of 50kWh a month per household is widely regarded to be inadequate; 50kWh does not stretch that far between six to eight people.

Many South Africans turn to alternative energy sources due to lack of access and/or affordability of electricity. These alternative sources include coal, firewood and paraffin, often at high costs to human health. For example, in 2000, there were 46 000 paraffin fires, 50 000 paraffin burns, and at least 4 000 children died from drinking paraffin. The total cost to the economy of paraffin-related incidents is R100 billion a year. Our children are being physically scarred for life or are dying because the state refuses to supply adequate electricity to its poorest and most marginalized citizens.

Over the past months, Eskom has been engaged in load shedding and encouraging domestic users to conserve electricity. In the process, a few key facts have been conveniently omitted. The greatest users of electricity are not domestic users, but industrial (mining, manufacturing and commercial) users. According to the Energy Intensive Users Group, an industry lobby group, 25 companies account for 40% of all electricity consumption by sales.  These users are termed “Contestable Customers” and receive their electricity directly from Eskom, often at very low prices. Eskom’s profit for 2006/2007 was R6.454 billion, up from R4.641 billion in 2005/2006.

One of the problems stalking analysis of electricity sales and revenue is that the supply contracts between Eskom and its contestable customers, who include smelters, are seen as state secrets and not for public consumption. These contracts are often for decades, have penalty clauses if Eskom turns off the power (i.e. Eskom pays these customers if it shuts down power for a period longer than what is defined in the contract), and include tariffs much lower than domestic or municipal tariffs. Essentially, a large portion of Eskom’s electricity goes to a few wealthy corporations at rates lower than domestic users. It is not clear if Eskom’s proposed rate hikes will affect its contestable customers.

This is a reflection of South Africa’s economy; inherited from Apartheid, sharpened to a razor’s edge by GEAR, and sanctified in the blood of the unemployed and working classes. The backbone of the economy has and continues to be energy intensive industries whose large profits (including extravagant CEO bonuses) depend upon cheap and dirty electricity from Eskom’s coal-fired power stations. Government elites have designed and maintained an economic structure that is designed to provide low-cost energy for their fellow elites in big business. It is South Africa’s poor that bear the real costs through polluted environments, restricted access to electricity, and dangerous and back-breaking labour in coal mines.

Electricity generation is a political power relationship and reflects the general power relations between the thin elite strata who control the economy and the masses. Within a centralised and tightly controlled energy system such as South Africa’s, the citizenry already gets as much electricity as it needs, according to the system. Because the South African energy system is controlled entirely by an elite class, electricity is granted to non-elites in accordance with their ability to serve the elite class. By way of example, middle class individuals receive a fair amount of electricity because: 1) They provide a form of revenue for Eskom; 2) They need a fair amount of electricity to fulfil their roles as the technicians of the modern economy. One cannot be an effective engineer or doctor if one does not have electricity. The poor receive a more limited amount (or none at all) precisely because the system does not require them to be electricity-rich. In fact, the value of the poor for the system, besides the role of consumers, is to depress wages.

This economic model - cheap energy for wealthy corporations - is being locked in with new government policies. In December 2006, Eskom and the Government signed a raft of deals with the Canadian aluminium smelting corporation, ALCAN, under the Developmental Electricity Pricing Programme (DEPP). The DEPP, which was never sent to Parliament, provides a special tariff for foreign corporations that want to build high electricity usage, industrial plants in South Africa. The DEPP ensures that tariffs will be cheaper than anywhere else in the world (or, at least, on par with the next cheapest supplier of electricity) and will be low enough to guarantee the corporation a profitable internal rate of return. Contracts signed under the DEPP are subject to confidentiality clauses, meaning that the exact tariff will not be subject to public scrutiny.

What we do know is that the electricity contract for ALCAN’s proposed aluminum smelter at Coega will be for the next 25 years and is for 1350MW of electricity, enough to power a medium city. The tariff could be as low as 12c/kWh. The indirect financial subsidies (building of transmission lines and externalised costs of generation) to ALCAN top over R12 billion.

This comes at a time when Eskom is short of generating capacity, raising domestic tariffs, and is embarking on R300billion CAPEX plan, 50% financed through debt. This R300 billion will have to be recovered through revenue; that means you, me, and millions of other South Africans will pay for the cheap and dirty electricity that will generate obscene profits for local and foreign corporations.

What is to be done?

The madness of stealing from the mouths of poor children must stop - Eskom and Treasury need to increase the Free Basic Allocation to 100kWh per person per month, the DEPP should be scrapped, the heaviest users of electricity have to pay their fair share, and the Apartheid culture of secrecy within Eskom must be banished. This will require all of civil society to unite under the banner for progressive energy policy and force change.

The alternative to action is that those virtuous and useful people at Eskom and Government will continue to feed upon our carcasses.

*Tristen Taylor is the Energy Policy Officer at Earthlife Africa Johannesburg.

Notes:   
i. Leo Tolstoy. 1894. The Kingdom of God is Within You, Chapter XII.
ii. David A. McDonald. 2002. “The Bell Tolls For Thee: Cost Recovery, Cutoffs,
   and the Affordability of Municipal  Services in South Africa”, Municipal Services
   Project, pg. 3
iii. groundWork. 2007. “Peak Poison – The elite energy crisis and environmental
    justice”, pg. 60. Available here (PDF File)
iv. http://www.eiug.co.za/membership.htm  
v. Eskom Holdings Limited Annual Report 2007, pg. 74

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Disclaimer: Opinions expressed in this article are those of the writer(s) and not do necessarily reflect the views of the AfricaFiles' editors and network members. They are included in our material as a reflection of a diversity of views and a variety of issues. Material written specifically for AfricaFiles may be edited for length, clarity or inaccuracies.

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