South Africa’s labour minister said he’ll oppose any move to privatize the beleaguered power utility Eskom Holdings, as it struggles to generate power, avoid outages and repay $23-billion of debt.
Privatizing the company would be detrimental to the poor, Employment and Labour Minister Thulas Nxesi said in an interview. While President Cyril Ramaphosa’s government has previously denied any plans to sell the company, there have been calls to divest from the asset. S&P Global Ratings said privatization may be the best option to resolve the power crisis in Africa’s most-industrialised nation.
“I am not a proponent of privatization of key state assets,” said Nxesi, who’s also a leader of the South African Communist Party. “If you privatize electricity, you can forget about the majority of people having access to electricity, it is going to be very expensive for them. That’s why government steps in when there is market failure.”
Eskom poses a significant risk to South Africa’s economy and its public finances, with the government guaranteeing as much as R350-billion of its debt. The utility has been intermittently cutting 6,000 megawatts from the grid since last month, leaving the country in darkness for hours at a time and further constraining industrial output and growth.
“I see the energy issue as an economic crisis,” Nxesi said.
Operational issues at Eskom pose a risk to South Africa’s economic outlook and the utility’s revenue is insufficient to reduce it’s R396-billion of debt, according to S&P Global Ratings. Shifting the company’s obligations onto the state’s balance sheet would precipitate a marked deterioration in the state’s debt.
“These utilities typically tend to be a problem, but then the ones that have done better are the ones that have done some kind of a wholesale privatization,” Zahabia Gupta, S&P associate director of sovereign ratings in the Middle East and Africa, said in an interview. “Then the problem at least is no longer the government’s and typically the utilities run better.”
The administration is in the process of breaking up Eskom into three separate entities -- power-transmission, generation and distribution.
Ramaphosa has also announced policy changes to cut excessive bureaucracy and enable private investors to build their own power plants with up to 100 megawatts of generating capacity without requiring a license. The state has also encouraged more support for renewable-energy projects to supplement the country’s needs.
Nxesi said the governing African National Congress could upset South Africans if it’s unable to resolve the energy crisis by 2024, when the next general election is set to take place.