The ANC: The big squeeze is on

RW Johnson writes on the meaning of the recent beheading of the top Eskom leadership

What Is the meaning of the beheading of Eskom?

The suspension of the CEO and three other key executives of Eskom on 12 March is difficult to understand - or so Business Day argued, pointing out that all the issues mentioned by the responsible Minister, Lynne Brown (instability at power plants, financial liquidity, the lack of credible information from Eskom, the insecurity of supply, the pricing of coal and diesel and the delays in the building programme for new power stations) have actually been around for many months. Moreover, the idea that what is needed is another major fact-finding probe is peculiar - a number of inquiries have already been held.

All of which is true. It would be truer to say that Eskom's management is in a chaotic state for the same reasons that SAA, the SABC, Denel, the railways and various other state-owned enterprises are, that the ANC has simply no idea how to run such enterprises, has used them as experimental test-beds for the most extreme forms of affirmative action, has continually interfered with them politically, has parachuted into office key political clients who have no expertise in the organization's key functions and, of course, the organizations themselves have been repeatedly plundered by the new political elite put in charge of them. They also pay absurdly high salaries to their numerous top executives, allow huge wastage of money on such things as sport sponsorship and hidden subsidies to New Age and typically provide a theatre for internecine wars between their directors and executives.

This has, however, been the case for almost twenty years now and ANC governments have never seemed to be much bothered. In general the government has cast a benevolent blind eye over looting by the new elite because that is assumed to be par for the course and one of the principal things that the ANC government is in power to promote. In the past this was even true about Eskom. So why the panic now?

Obviously, the fact that Eskom is more and more responsible for damaging the rest of the economy creates its own urgency, particularly since the ANC is keenly aware that load-shedding is costing it votes which it cannot afford to lose as the 2016 municipal elections loom closer. Quite clearly, Eskom could cost the ANC control of Port Elizabeth, Pretoria and Johannesburg. Nothing that happens at SAA or the SABC can do that. Already Pravin Gordhan is busy gerrymandering municipal boundaries and the IEC is being "fixed" to help head off this dread prospect.

But there is something much more basic. As Deep Throat advised during Watergate, "follow the money". Already Eskom bonds enjoy junk status and bond yields are rising towards 7%. However, Eskom is now in such a ropey state that if the market thought that Eskom itself was going to pay off those bonds, the yield might be 17% or 27% because everyone can see that Eskom is chronically short of cash and in no position to repay. The yield is still under 7% simply because everyone now assumes that the whole of Eskom's massive debt has been shifted across onto the government's shoulders. This has a horrible effect on the government's indebtedness - if you add in (as you surely must) the debts of the other SOEs the national debt jumps from 47% of GDP to 58%. And rising.

That is bad enough but if Eskom is now to raise money (as it must) then it will be doing so more and more expensively as its yield rises. And all of this could get much worse very quickly if Eskom shows further signs of organisational collapse or the government itself suffers any further ratings downgrade. If the latter happens, any bonds the government guarantees - its own, let alone Eskom's - will face rising yields, adding still further to the debt.

But another horrible fact has soon to be faced. The government has agree to give Eskom a R10 billion grant payable in June in order to help it through its troubles. But Eskom faces a funding gap of R225 billion, making that R10 billion seem almost pitiful. And nobody at all knows where the other R215 billion is supposed to come from. This is what the Treasury is now having to face up to and as it does it suddenly realises that all its plans for deficit reduction have been nixed. It cannot, after all, allow Eskom to fail and since no one else can pay the government must pick up that tab for the extra R215 billion. The very fact of the state assuming this huge extra debt could cause a ratings downgrade.

It is not difficult to imagine the discussions in Cabinet that this is causing. As poor Mr Nene realises just what a terrible hand he has been dealt he will understand that he, the first African finance minister, has been set up to fail. Inevitably, the Treasury now has to warn all other ministers that they can't do what they want. Petro SA would like to build a giant new refinery at Coega? Cancelled. Petro SA would like to buy Engen so that a state oil company can compete on the nation's forecourts. Cancelled. Mr Nzimande would like more money for student loans and for "university transformation"? Sorry, no. Prof Makgoba, the prince of transformation, has actually ruined UKZN and left it with a R2 bn debt? The Treasury really doesn't want to take that on, the Education budget must.... As for NHI, well, please just forget that. As for Russian nuclear reactors, just don't start talking about that.

Every minister would like to spend more and can't. On top of which Nene says he will have to stop "corrupt and wasteful expenditure" which, everybody knows, always includes a large slice of what our political tenderpreneurs are doing to make themselves seriously rich. Even trickier, Nene says that there is no way that the civil service unions and SAMWU can have their 10% increases. The Mail and Guardian is floating the strange line that Cosatu's weakness may help the government in this regard, but that is obviously nonsense. Numsa may have fled but the civil service unions are as strong as ever and, indeed, they have more or less been left in control of Cosatu. This is all very awkward. A presidential review of public sector salaries has just begun and it is bound to recommend increases, which Treasury will have to veto. And how to be tough with SAMWU when its help is desperately required for the 2016 elections?

As these constraints become ever clearer, the shoe pinches. Up until now the solution to everything was higher taxes but Nene has done all he can on that front and it's nowhere near enough. So, the great squeeze is on. Perhaps the most striking speech of last week was by the ANC's economic spokesman, Enoch Godongwana, in which he bitterly castigated the unions for thinking only of those already in work and having no regard for the jobless. If only they would be satisfied with a little less, we could afford to pay more workers. This is, of course, hardly a new thought: Loane Sharp would have said the same for years. But it is entirely new in the mouth of the ANC. One awaits with interest for the question of increases to the welfare grants....

So, as the Great Squeeze begins there is general government irritation with Eskom, perceived as the cause of it all. The government's response is marvellously irrational. Really, it should be going for all those who ruined Eskom ever since 1994. Who ordained such crazy affirmative action that they couldn't appoint an engineer unless she was a black woman? Well, that would be the Employment Equity Act passed under Mandela. Which government vetoed the building of new power stations? Well, that would be Mr Mbeki. Which government was so incompetent that after the power failures of 2008 it couldn't bring any new power stations on stream even seven years later? Well, that would be Mr. Zuma. In other words, the big culprit is the ANC over time, everyone from Mandela to Zuma.

No one wants to hear that. So, instead as the ANC loses its temper it takes it out on those who man Eskom now. The result is an ever-increasing turnover at the head of Eskom. Since 2012 it has lost a CEO, a financial director, a head of strategy, a chief of staff, an acting financial director, a Group Executive and a head of legal and regulation - plus two senior general managers. And now it has lost a whole lot more. These musical chairs cannot possibly help. Even before that the government had put Mr Ramaphosa in charge of all loss-making parastatals. This was quite crazy, a complete failure to understand that no one man could possibly turn round Eskom, SAA, the SABC etc. when whole teams of others were failing year on year. Again, he has been set up to fail. On top of that the cabinet inaugurated a "government war room" to oversee the parastatals. So for industries failing partly as a result of government interference the solution is ....heightened government interference.

The fact is that the government has no idea what to do and so it is thrashing around, making the matter worse. Dimly, in the background, one should register the fact that Nigeria last year privatised all its power supply industries in a desperate attempt to solve the country's power supply problems. If this works we will see a great wave of emulatory privatisations right across Africa. South Africa is still some way from that. But the Great Squeeze has only just begun and it will have some remarkable results before it is finished.

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