New electricty regulation bill shows state still wants to hold the power

While independent producers can now generate up to 100MW sans licence, minister and Nersa get more clout

SA rightly welcomed, with much fanfare, President Cyril Ramaphosa’s announcement that we may now generate up to 100MW of electricity without requiring a licence. This rare moment of soberness represents an important decentralisation of electricity generation and might go some way to alleviate the rolling blackouts SA has faced since 2008, a crisis in many ways the result of state-driven caps on generation.

However, the new Electricity Regulation Amendment Bill shows that the government’s centralist ideology is far from broken. Alongside the partial liberalisation of up to 100MW electricity generation comes additional regulatory burdens and an unequivocal centralisation of power in the hands of the mineral resources & energy department and the National Energy Regulator of SA (Nersa).

Centralisation is a very risky business the political equivalent of the proverb, “Do not put all your eggs in one basket”. Unlike other states that have experienced varying degrees of energy market liberalisation, SA has been living this proverb with its electricity crisis for 15 years. All of the country’s electricity eggs are in the single basket that is Eskom. If that basket is crushed, so are all the eggs, which necessarily spells disaster for the economy and society.

Decentralisation of electricity has become imperative. Omnipresent state failure means the proposed intrastate decentralisation is likely to just reorganise the pattern of failure. Indeed, the Electricity Regulation Amendment Bill proposes the establishment of yet another state-owned enterprise, the Transmission System Operator, which we may expect sooner or later to be plagued by the same mismanagement, perverse incentives and central regulation that has characterised Eskom.

While paying some lip-service to generation decentralisation, transmission remains under the exclusive control of the state. It would be far wiser for the government to take steps to decentralise the management and control of the grid or, at the very least, to allow for that possibility. For instance, it could make the central government only one party in a consortium of private electricity generators who together oversee the grid. At least in this way political incentives for corruption and mismanagement are tempered. It would also be beneficial if private actors were at least allowed to establish their own transmission grids, if possible independent of the main grid.

PRIZED NEGOTIATION

The potential for competition could at least temper the worst excesses of state control of energy. The Electricity Regulation Amendment Bill also introduces some worrying provisions out of left field. The ones that stand out are those that allow the minister to expropriate private property on behalf of electricity generation utilities, which includes Eskom but could in future include private firms. Once the minister has expropriated that property, the power-generating company becomes the owner.

It used to be the case that society prized negotiation and persuasion in the place of coercion. The ability to say “no” about matters concerning one’s property used to be something collectively regarded as imperative. The minister’s bill is yet another blow to that principle.

If someone says “no” to a power-generating company when the latter seeks to buy the former’s property, all the company needs to do is apply to the minister, who may then use the force of the state to dispossess the owner of their property. This is not how markets and societies flourish. In a market economy “no” is a valid answer. What we have here is a thinly veiled patronage “market” where economic success often depends on acquiring political favour from the holders of state power.

The bill also allows the transmission system operator to expropriate property for its own purposes. The rule of law is meant to be an animating factor in SA’s constitutional order. This legal doctrine holds that the government must legislate and govern according to time-tested legal principles, and not arbitrarily according to passing political whims. Those subject to the law must be certain that they will be treated fairly, and that they do not constantly have to worry about predation by the state.

LINGERING ATTACHMENT

The rule of law also demands that ministerial and regulatory discretion be strictly circumscribed and limited by objective criteria, not merely the minister or Nersa s political considerations in the moment.

The Electricity Regulation Amendment Bill, in addition to enabling predation on private property owners, throws caution to the wind regarding discretion. The minister is empowered to make regulations on any aspect of electricity, even on issues only remotely related to its transmission, generation and distribution. There are no guiding criteria that participants in this sector might have recourse to, to determine what kinds of decisions the government would make in future.

South Africans should be glad that small-scale power generation will soon be allowed. However, whether this slight liberalisation on paper translates into stable real-world energy capacity might be undermined by the lingering attachment to harmful centralist sentiments by politicians. Beholden to things like national resource plans, the domestic electricity sector is still far from being a welcoming space for private initiative, innovation and free enterprise.

It is these lingering sentiments that must drive South Africans towards seeking solutions to their problems outside the formal structures of SA politics.

To whatever extent possible, South Africans should be actively engaging in what Sakeliga refers to as “state-proofing the activity of lessening one’s exposure to risky and irresponsible state decisions and control. This naturally includes electricity.

For now, South Africans should try keeping off-the-grid options open to safeguard their and their families’ prosperity. Beyond that, a key pillar of balancing central state power will require an organised and concerted effort to decentralise energy markets in practice, on the grounds of basic necessity and vital interest. The alternative a perpetually decrepit and dysfunctional energy system is unthinkable.