Author: Gary Moore

Date: 13 June 2019

This memorandum considers legislation[1] governing electricity provision, and Eskom in particular. It is concluded that the legislation violates the Rule of Law in some respects.

Before Eskom was established, the provision of electricity was dominated by municipalities and private companies.[2]

An electric telegraph system between Cape Town and Simon’s Town was introduced in 1860. Cape Town railway station was lit by electricity in 1881. In 1882, the Colonial Parliament[3] started using electric lights, Table Bay docks started using electric-arc lamps[4] and Kimberley electric streetlights, and Port Elizabeth opened a telephone exchange. Lights in mines, private lighting and electric motors came into use from 1884.

In 1888 Table Bay Harbour Board resolved that a central station to supply light to public and other buildings by transformers would be more efficient than individual plants,[5] and in 1891 established the country’s first central generating station and distribution system, which supplied, not only the Harbour, but also New Somerset Hospital, Royal Observatory, Public Library,[6] Houses of Parliament, Old Somerset Hospital, Cape Town Railway Station, New Post & Telegraph Office and the Grand Hotel.

Lighting plants were built at Rondebosch in 1892 and Wynberg in 1893, and the City of Cape Town commissioned a central power station in 1895.

Municipal electricity supplies started in Durban in 1897, Pietermaritzburg in 1898, East London in 1899, Bloemfontein and Kimberley in 1900, and Port Elizabeth in 1906.

In 1896, City Tramway Co commissioned a central power station in Cape Town, and overhead trolley-wire-operated electric trams came into service. Cape Electric Tramway Co opened a tramway in Port Elizabeth in 1897, and East London inaugurated an electric tramway in 1900. Camps Bay Tramway Co opened a tramway from Sea Point to Camps Bay in 1901, and from Camps Bay over Kloof Nek to the city in 1902. A power station was built at Camps Bay.

Electric tramways were inaugurated at Durban in 1902 and Pietermaritzburg in 1904. De Beers Consolidated Mines Ltd commissioned a central generating station at Kimberley in 1903 and an electric tramway was inaugurated at Kimberley-Alexandersfontein in 1905.

In Johannesburg, City & Suburban Tramway Co Ltd applied repeatedly from 1895 to electrify the horse-drawn tram routes, but Pres Kruger’s government refused, apparently because farmers would then be unable to sell forage. Electric trams did not operate in Johannesburg until 1906, and in Pretoria until 1910.

Gold was discovered on the Witwatersrand in 1886. Johannesburg installed its first electric lighting plants in 1889 and an electricity-reticulation system in 1891. In 1899, Johannesburg Lighting Co installed street lighting.

Power generated by small lighting plants was inadequate for pumping water from deep-level mining shafts. Larger “central” power stations were built. In 1897, Simmer & Jack Mines were awarded the rights to supply electricity to five Consolidated Goldfields mines.

A subsidiary company, General Electric Power Co Ltd, was formed to deal with this concession. In 1898 it commissioned a power station at Driehoek (near Germiston).

An adequate supply of cheap power became essential as exploitation of gold deposits became more complicated and mining companies’ power requirements increased after the 1899-1902 War. Expert opinion recommended that large centralised power stations would supply more reliable and cheaper electrical power than small dedicated power stations. In 1905, Rand Central Electric Works Ltd installed a generating station.

In 1906, Victoria Falls Power Co Ltd,[7] incorporated in Southern Rhodesia,[8] purchased Rand Central Electric Works and General Electric Power Co Ltd.[9] In 1908 VFP formed a subsidiary, Rand Mines Power Supply Co, to supply electricity[10] to Rand Mines Group and Hermann Eckstein & Co.[11]

In 1910,[12] Transvaal Colony passed the Power Act, 1910,[13] which authorised Victoria Falls Power’s operational expansion, but deemed electricity to be a public service, and empowered the government to expropriate private electricity undertakings after 35 years.[14]

By 1915, Victoria Falls Power had established power stations at Brakpan, Simmerpan, Rosherville and Vereeniging,[15] and a system-control centre at Simmerpan which became Eskom’s national control centre and today directs its entire transmission network.[16]

South African Railways & Harbours Administration had been considering electrical instead of steam power for railways. Having determined that the erection of its own power station was necessary to electrify the lines, in 1918 the Railways invited London consulting engineers Merz & McLellan to provide advice. In 1919 Charles Merz, a recognised expert in power-station design,[17] visited South Africa.

At the request of the South African government, Merz devoted part of his visit to study of the country’s electrical power needs.[18] In 1920 SAR&H submitted Merz’s report[19] to the Union Government, which formed a committee to investigate how the country should proceed with electrification.

The committee findings led to enactment of the Electricity Act, 1922.[20] The Act empowered the Governor-General to establish a juristic person to be known as the Electricity Supply Commission (“ESCOM”) to generate and supply electricity,[21] as he duly did.[22]

From then, the electricity industry would be “ultimately run […] by a parastatal”.[23]

In the early 1920s, railways across the country were being electrified, and ESCOM was tasked with taking over electrification of the Glencoe to Pietermaritzburg rail link, as well as the Cape Town suburban railways.  It also began work on the establishment of new power stations in Cape Town, Durban, Sabie and Witbank.

In 1925 ESCOM erected the Malieveldspruit hydro station as a temporary measure while a bigger hydro station was being built at the Sabie​ River Gorge, which became operational in 1927.  These two power stations were the first to be built and used by ESCOM.

Victoria Falls Power, by far the major Transvaal electricity supplier, had applied to erect a power station at Witbank. ESCOM opposed this on the grounds that VFP did not sell electricity at cost and consumers would be enriching its shareholders. After Prime Minister Smuts intervened, it was agreed that ESCOM would finance and own the power station, but Victoria Falls Power would design, build and operate it, and transmit all surplus electricity capacity to the Witwatersrand. Witbank power station was commissioned in 1926.[24]

In 1929, despite the Depression, ESCOM still enjoyed strong demand and expanded Witbank’s capacity to be the country’s largest, producing the world’s cheapest electricity.

In 1925, ESCOM obtained power supply licences to establish Central Natal and Cape Town undertakings. A year later Colenso power station was commissioned. Two years later Congella and Salt River (the first coal-fired power stations to be both built and operated by ESCOM[25]) were commissioned.

The first station designed by ESCOM engineers, Sabie River Gorge hydro station, came into operation in mid-1927 to meet Eastern Transvaal gold mines’ power needs.

In 1932, gold was discovered at Randfontein on the West Rand, making new power stations necessary. In 1934, ESCOM obtained licences to establish Klip power station[26] and substations and transmission lines for this new Rand Extension undertaking.[27] Yet only Victoria Falls Power had expertise to build or run a massive power station, so ESCOM provided the capital for Klip power station but ceded the licences to Victoria Falls Power, who designed, built and operated the power station and the new undertaking.[28] Klip power station[29] was the Southern Hemisphere’s largest, and more economical than Witbank, proving that the way to provide cheap power was to locate a large power station on a coal mine.

In 1938 work commenced on Vaal power station,[30] to feed into the grid system of ESCOM and Victoria Falls Power.[31] Vaal power station[32] (like Witbank and Klip) was financed by ESCOM, but built and run by Victoria Falls Power.

In 1946 ESCOM built the Hex River power station at Worcester in the Cape. It acquired by agreement the city of East London’s West Bank power station in 1947, King William’s Town and Alice’s power stations in 1948,  and Kimberley’s central power station from De Beers In 1950.[33] It set up a Rural Electrification Department in 1951 to provide power to small consumers outside municipal supply areas.

In 1947, Anglo American chairman Sir Ernest Oppenheimer wrote to ESCOM chairman Dr H J van der Bijl urging him to expedite Victoria Falls Power’s expropriation i.t.o. the 1922 Electricity Act, and advising ESCOM to offer the shareholders a price slightly above the ruling market price.

Dr van der Bijl was keen to expedite the expropriation. He believed that in future power expansion should be developed, not by Victoria Falls Power to benefit its shareholders but by ESCOM, which was not set up for profit but merely to cover its costs.[34] ESCOM had by 1948 contributed half the capital for the supply of power to the mining industry.[35]

In 1948 ESCOM by agreement purchased Victoria Falls Power’s assets,[36] and undertook to protect the interests of its staff affected by the takeover.

ESCOM acquired four power stations (Rosherville, Simmerpan, Vereeniging and Brakpan)[37] and other plant and equipment[38] and more than quadrupled its staff.[39] The system became ESCOM’s Rand undertaking.[40]

The Electricity Act, 1958[41] replaced the 1922 Act and provided for the Electricity Supply Commission’s continued existence.

The 1950s were a time of prosperity.[42] ESCOM embarked on massive expansion. Electrical appliances came widely into use. ESCOM commissioned eight new power stations.[43] Capacity was added to others.[44]  ESCOM interconnected power stations and extended its transmission system. New transmission technology allowed ESCOM to send blocks of power large distances and achieve economies through generation pooling. In 1955, ESCOM pooled generation on its Rand, Eastern Transvaal and Cape Northern undertakings, and on its Natal Southern and Central undertakings. Many municipalities abandoned expensive local generation and bought bulk from ESCOM.[45]

The abundance of coal in the Eastern Transvaal highveld led to it replacing the Vaal Triangle as the centre for generation. In 1962, Komati power station was commissioned.​ In 1963, ESCOM incorporated Sabie Undertaking into Witbank Undertaking and retired Sabie River power station (its first permanent power station). In 1963, Ingagane power station (near Newcastle) was commissioned and connected to the Natal system, because the Rand and Natal systems were not yet linked. In 1967, 1969 and 1970 respectively the major power stations Camden, Grootvlei, and Hendrina began commercial service. They used generation sets which had become obsolete because they did not include the latest reheat-cycle technology, so were costlier to build and less reliable.[46]

The difference between the cost of coal in the Cape (R7/ton) and Eastern Transvaal (R2/ton) was a factor in ESCOM’s developing an interconnected network. In 1970, the transmission line from Camden power station near Ermelo to Cape Town was completed. In 1971, a line linking Camden to Ingagane in Natal was completed. Transmission technology had advanced sufficiently to make long transmission lines viable.

ESCOM acquired statutory authority[47] to amalgamate the power resources of two or more undertakings and to supply electricity from one undertaking to another. This allowed ESCOM to establish the Central Generating Undertaking (CGU) in 1972, enabling it to operate all its power stations as an integrated system. In 1973,[48] the network was extended to the Eastern Cape, and a national grid was achieved. ESCOM transferred all its power stations from the regional undertakings to the CGU.[49] This pooling meant that ESCOM could benefit from economies of scale and charge lower prices. The country could run mainly off cheap Highveld coal; expensive coastal stations could be used for peak load and emergencies.

ESCOM could now decommission some older stations, starting with Rosherville in 1966[50] and Brakpan[51] in 1970. Simmerpan, Victoria Falls Power’s control centre since 1912, was revamped and became the country’s grid control centre in 1968.[52]

The 1922 Electricity Act had given control of municipal undertakings to provincial Administrators, who had however not prevented municipalities from building power-stations.

In 1962, a Commission of Enquiry into relations between the central government and local authorities recommended that municipalities should not expand their generating capacity in future, but should instead undertake retail power distribution to consumers.

The national government accepted this recommendation, and instructed provincial Administrators that Escom must generate power as far as was possible.[53]

The recommendation was resisted, particularly by Johannesburg. In 1969, it applied under the Electricity Act for permission from the Administrator of Transvaal to build its own power station.[54] Johannesburg applied three times, but was refused three times.[55]

Johannesburg believed it had a legal case, but did not press the matter because insufficient time was left to build a power station. From 1972 the city took a partial bulk supply from Escom, but kept its existing plant in operation to limit the maximum demands from Escom during winter. The remaining major generating municipalities (Pretoria, Cape Town, Bloemfontein and Port Elizabeth) were forced to follow suit.[56]

In the 1970s South Africa had its greatest growth in electricity consumption.[57] It lacked oil and gas, so ESCOM relied heavily on coal[58] and built ever-bigger coal-fired power stations in the Eastern Transvaal.

ESCOM needed capital for its expansion programme, but there was a world capital shortage, interest rates were high, and South Africa’s apartheid reputation meant increasing isolation from capital markets. Because ESCOM’s efforts to bring down the cost of power was being eroded by the high cost of borrowing, the 1971 Electricity Amendment Act allowed ESCOM to use revenue to raise capital. ESCOM set up a Capital Development Fund and began to use tariffs to build up capital and protect consumers from large future increases.

Arnot began operating in 1971 as ESCOM’s first “six-pack”.[59]

In 1975, a relay malfunctioned at Hydra Substation near De Aar and much of the country was without power for 24 hours. ESCOM reviewed its interconnected transmission system. In 1976 it built a gas-turbine station near Cape Town and another near East London.

In the 1970s, ESCOM built the Drakensberg hydro station to supply electricity in peak periods, together with the Pumped Storage Scheme to supplement the contents of the Vaal Dam south of Johannesburg with water from the Tugela River in Natal.

In 1976, Hendrina power station was completed. Hendrik Verwoerd and Vanderkloof hydro-power stations were commissioned in 1976 and 1977 on the Orange River.​

In 1976, Matla coal-fired power station commenced construction near Kriel and was fully commercial in 1983. When completed, Matla was the country’s biggest power station and one of the largest in the world. It was designed for an operating life of 30 years, but coal reserves have extended its life to 50 years.

In the 1970s, ESCOM feared that, if it did not expand the country would run out of power. ESCOM had to finance most of its own growth and, when the price of electricity started to rise,[60] many began to see it as inefficient.

In 1976, ESCOM commissioned Acacia and Port Rex gas-turbine power stations.

In 1977 the Minister of Economic Affairs asked the Board of Trade & Industries to investigate electricity supply. ESCOM co-operated with the Board to find the best solution for ESCOM and the economy. ESCOM abandoned the Central General Undertaking and modernised its accounting. Its Capital Development Fund and insistence on large reserve plant margins came under attack, but were defended by the government.[61] ESCOM argued that, unless it spent on expansion, South Africa would face an electricity shortage.

In 1979 ESCOM built Kriel on the Eastern Transvaal highveld, which began commercial operation as one of the largest coal-fired power stations in the southern hemisphere, the world’s first to receive its coal from a fully-mechanised coal mine, ESCOM’s biggest power station at the time, and its second “six-pack”.[62]) Kriel had problems from the first: Its boilers were susceptible to slagging[63] and new foundations had to be built because the heavy milling machinery created dangerous vibrations.

Duvha, built near Witbank, was the third and final “six-pack” power station.[64] Its boilers proved more reliable than Kriel’s, but there were environmental challenges.  The precipitators on Duvha’s first three units did not reduce emissions to acceptable levels.[65]

In 1979, ESCOM’s general manager[66] lambasted the Board of Trade & Industry for referring to ESCOM’s “profits”, which were not used to enrich private investors but to expand the electricity system.

In 1980 ESCOM’s then chairman[67] retired and the general manager[68] succeeded him. The new chairman[69] over-estimated future electricity needs, which were aggravated by delays in building Koeberg. In the early 1980s ESCOM planners were predicting electricity demand to grow at seven to eight percent a year, which required a doubling of capacity every decade. ESCOM urgently began building Lethabo, Matimba, Majuba and Kendal power stations. This would create a problem that then seemed almost unthinkable, masses of excess electricity.

Yet in 1983 ESCOM’s power stations were running at an average availability of 72 percent, and interrupted supply was common.

Consumers were becoming increasingly impatient with ESCOM, which was seen as wasteful and unreliable. In 1983, the government appointed the De Villiers Commission to enquire into “The Supply of Electricity in the Republic of South Africa”. The Commission started investigating costs, planning and plant performance.

ESCOM management sought their own expert advice:  U.S. consultancy Ernst & Whinney studied ESCOM and concluded[70] that it should keep to its original purpose of ensuring reliable supply, but that the economics of electricity supply had changed, that tariff increases were necessary to maintain supply yet the necessary increases were “likely to lead to extreme customer discontent with resulting press and government action.”

The De Villiers Commission recommended that ESCOM should recover five percent in revenue more than its expected expenditure. Tariffs should be more cost-effective and differentiated. ESCOM should be run by two boards, one to control and the other to management. The regional undertakings should be done away with.[71]

In 1984, the government accepted the Commission’s recommendations. It announced that an Electricity Council (of 15 members, including government officials, independent experts and consumer representatives) would determine guidelines, policy and objectives for the running of ESCOM on business principles.

Accordingly, the Electricity Amendment Act, 1985[72] amended the Electricity Act, 1958 to provide for establishment of the Electricity Council. The Amendment Act also changed the name of ESCOM[73] to Escom. Pres P W Botha appointed John Maree as chairman of the Council. Maree made Ian McRae chief executive.

In 1984 Koeberg’s first unit was synchronised onto the grid, and unit 2 in 1985.

After Pres Botha’s Rubicon speech in Aug 1985, increasing international isolation caused the rand to fall. The government ordered a freeze on repayments of foreign debts.

Because the country’s projected growth did not materialise, Escom no longer needed all the foreign capital equipment it had ordered.  Contracts were delayed or cancelled where possible and capital expenditure was significantly reduced.

Council chairman Maree determined that morale was low in ESCOM and that it was out of touch with the public. He convened a conference of ESCOM’s top leadership[74] which formulated a mission:

To provide the means by which customers’ electricity needs are satisfied in the most cost-effective way, subject to resource constrains and the national interest.

ESCOM would also be guided by a corporate strategy:

To develop ESCOM as a business that maximises the value of its products and services to South Africa.

When Maree took over in 1985 Escom had 66,000 employees.[75] He believed that it would be as efficient with fewer and by the end of 1986 he had reduced staff numbers to 60,800, and by the early 1990s to 50,000.

In 1986 Maree established an equal-opportunity committee to investigate and determine how to become a non-discriminatory employer.[76] Escom bound itself to educating and training black entrants to the workforce and substantially increasing its black managers.

The next year the Electricity Act, 1987[77] and Eskom Act, 1987[78] were enacted. The latter provided for Escom’s continued existence under the name of Eskom. The “no profit, no loss” principle was scrapped. Accounting was brought in line with standard business practice.

Eskom started using price incentives to attract the energy-intensive ferro-alloy and aluminium industries and others away from less-efficient municipal power providers. It planned another pumped storage scheme, Palmiet, at Grabouw.[79]

Kendal power station was commissioned in 1993.[80] Majuba[81] went into service in 1996 and was completed in 2003.

In the 1990s, Eskom focused on connecting the unserved.[82] In 1987 only 40 percent[83] of the population had electricity. In 1993 were 300,000 electrifications, two-thirds by Eskom and the rest by municipalities. In 1995 Eskom and municipalities made 450,000 new connections, and in 1997 half a million.

Eskom needed more power stations, but was bogged down in pressure to electrify the masses, and a wrangle over distribution.

In municipal distribution, there were wide disparities in costs, tariffs, and service levels. Distribution needed restructuring to ensure sustainability.

Eskom proposed that municipalities separate electricity cost and supply from other services and charge price tariffs that reflected costs. But consensus could not be reached.

Municipalities started to default on their Eskom bulk accounts. Eskom offered to take over distribution in certain municipalities, But the offer was rejected because the sale of electricity was a lucrative generator of municipal income.

In 1994, Eskom was owed R920 million in arrears, and by 1999 Eskom’s customer arrears were R2 billion. Municipalities account for over 40 percent of Eskom’s sales.

Distribution, and municipal levies on electricity charges, remain controversial.

The government set Eskom the goals of reducing the electricity price by 15 percent between 1995 and 2000, electrifying 1,75 million homes by 2000, implementing far-reaching affirmative action, and upgrading employee skills.[84]

In 1999, Eskom achieved its 45% managerial, professional and supervisory black employment-equity target. In 1999, it reached the targeted 1,75 million connections.

Eskom became more efficient,[85] It brought the price of electricity down to the point that South Africa had the cheapest electricity in the world.

Eskom had been considering whether to privatise services not directly related to the core business of providing electricity.[86] In 1999, Eskom Enterprises was registered as a wholly-owned Eskom subsidiary to focus on non-regulated business activities.[87]

In 1998, the Eskom Amendment Act, 1998[88] amended[89] the Eskom Act, 1997[90] to give the responsible Minister power to issue binding directives to Eskom’s controlling body[91] regarding national policy about the generating and supply of electricity, and the funding of electrification by Eskom:[92]

(3) The Minister may from time to time after consultation with the Minister of Minerals and Energy reserve matters, including matters relating to—

(a) national policy in connection with the generating and supply of electricity in the Republic; and

(b) the funding of electrification by Eskom in the Republic,

and in respect of such matters issue directives to be followed by the Electricity Council.

In late 1998, the government released a White Paper on Energy Policy.[93] Regarding electricity, the White Paper provided[94] the following overview:[95]

In 1997, Eskom generated 96 per cent of South Africa’s production of electrical energy and transported it over its national transmission network to distributors countrywide. More than 400 distributors, mainly municipal electricity departments, supplied electricity to end customers. Eskom was also the largest single distributor in the country in terms of energy sales for final consumption and number of customers. Eskom was governed by a stakeholder-based Electricity Council, while municipal distributors were under the direct control of their elected local councils. All electricity utilities were subject to regulation by the National Electricity Regulator.

The full extent of the policy problems and challenges facing the electricity sub-sector had only begun to emerge recently. Government had identified these primary challenges[96] that would have to be addressed:

The distribution sector was highly fragmented, with more than 400 distributors, resulting in low efficiencies, high costs, wide disparities in tariffs, and financial viability problems in many distributors;

The distribution industry continued to experience high levels of non-payment and electricity theft, resulting in increasing arrears and payment defaults;

Apart from a few notable exceptions the electrification programmes of most municipal distributors were limited by difficulties in accessing affordable finance;

Municipal electricity departments were expected to make a contribution towards the funding of other municipal services, particularly in the major urban areas, but were also faced with the burdens of non-payment and the need for significant expenditure on electrification;

Although growth in electricity demand was only projected to exceed generation capacity by about the year 2007, long capacity-expansion lead times required strategies to be in place in the mid-term, in order to meet the needs of the growing economy; and

Whilst a number of the challenges presented above could place inflationary pressure on prices, South Africa had to maintain the competitive advantage of low, stable and cost-reflective electricity prices.

The White Paper set out the government’s vision for the electricity-supply industry:[97]

Government believed that the operation of the industry would have to be constantly optimised to maximise the potential for adequate, reliable, and low-cost electricity to serve the people and industries of South Africa. To ensure this result, as an initial goal the distribution sector of the electricity supply industry would have to be rationalised, by reducing the number of distributors to a much smaller number. As investigations had demonstrated, it was the distribution sector that was most urgently in need of reform. But changes would also be needed in the generation and transmission sectors in due course.

To ensure the success of the electricity supply industry as a whole, various developments would have to be considered by government over time, namely:

  • giving customers the right to choose their electricity supplier;
  • introducing competition into the industry, especially the generation sector;
  • permitting open, non-discriminatory access to the transmission system; and
  • encouraging private sector participation in the industry.

The White Paper noted that the Constitution gave municipalities authority i.r.o. electricity reticulation, and stated that government would investigate municipalities’ rights w.r.t. electricity distribution and propose parameters for the local government–utility relationship.[98]

Regarding power generation, the White Paper said:[99]

For many decades Eskom had carried the responsibility of supplier of last resort, effectively enjoying a de facto monopoly on construction of new generation capacity. Power station construction was based on projections of historic demand growth. By 1980 it became apparent that Eskom had committed itself to expensive over-capacity, a situation that prevailed for the last fifteen years. Since customers ultimately had to bear the costs of poor investment decisions, it was government’s intention to ensure greater public participation in future decisions on public expenditures of this magnitude. Government also intended to steadily increase competitive pressures in the generation sector in order to improve efficiencies and reduce electricity prices.

Regarding electricity-market structure, the White Paper observed:[100]

The rapid changes in the political and economic context of the electricity-supply industry world-wide in recent years raised questions about the continued ability of South Africa’s monopolistic electricity industry to meet customers’ electricity service needs in future.

Various initiatives to establish competitive electricity markets had been undertaken internationally in recent years but much remained to be learnt about the net benefits of this course of action, the circumstances under which competition would be beneficial and the problems that were being encountered. Some of the benefits that had been observed with the introduction of competition include:

  • increased opportunities to exploit cheaper generation options;
  • the potential to increase the level of supply security, at a lower cost, through a regionally integrated and diversified supply base;
  • the potential for efficiency improvements; and
  • the potential for downward pressure on electricity prices.

Concerns were, however, being raised in some countries about the ability of a competitive market to ensure sustained investment and security of supply at low prices in the long term.

Tentative steps towards enabling competitive pressures in South Africa had already been taken with the establishment of Eskom’s own initiative to establish an internal national power pool, and the open-access conditions included in the transmission licence issued to Eskom by the Regulator.

Government realised that competitive models and private sector participation held the promise of benefits for electricity consumers and would therefore be closely following developments in countries implementing these new arrangements. Government would initiate a comprehensive study on future market structures for the South African electricity supply industry.

In light of the above, it was clear that Independent Power Producers (IPPs) would be allowed into the electricity market. Any fundamental market restructuring was likely to be delayed for some years while the distribution-sector restructuring and the bulk of the electrification programme was undertaken.

Mechanisms would be put in place to ensure that equity and environmental goals are achieved, and possibly even accelerated, throughout the market restructuring process and thereafter. In the meantime, the initial exploratory steps would include the unbundling of Eskom’s generation and transmission groups, increased non-utility generation, policy research into the desirability of competition for the South African situation, and strengthening of the Regulator’s ability to regulate private players and a competitive market.

As to restructuring Eskom, the White Paper observed:[101]

Present restructuring initiatives in the distribution sector, and future plans for restructuring generation, indicated that it had become necessary for Eskom to be restructured as a preparatory step for competition in the electricity supply industry.

In the long term, Eskom would have to be restructured into separate generation and transmission companies.

For future restructuring, government intended to separate the power stations into a number of companies. Such a step would assist the introduction of competition into electricity generation.

Regarding transmission, the White Paper observed:[102]

In order to move to a competitive market, open access to the transmission lines would be a prerequisite. Government would legislate for transmission lines to provide for non-discriminatory open access to uncommitted capacity, transparency of tariffs, and disclosure of cost and pricing information to the Regulator.

Finally, the White Paper spelt out government policy[103] regarding electricity supply:[104]

The distribution industry faced a number of challenges if it was to meet electrification targets and continue to provide low cost, equitably priced, quality supplies to consumers. The distribution industry would accordingly be restructured into regional electricity distributors. Government would establish a transitional process that would lead up to the establishment of independent regional electricity distributors.

Government was committed to implementing reasonable legislative and other measures, within its available resources, to progressively realising the goal of universal household access to electricity.

Government expected electricity tariffs to become increasingly cost-reflective at all levels of the industry. Approaches to meeting growth in electricity demand were also discussed. In future government would expect greater public participation in decisions on large public sector electricity investments, and would require evaluations using integrated resource planning (IRP) methodologies.

Government supported gradual steps towards a competitive electricity market while investigations into the desired form of competition were completed. Eskom would be restructured into separate generation and transmission companies.

In a competitive power system, the transmission system and market operators must be able to make decisions independently of generators to ensure equal, non-discriminatory access to the high-voltage grid and the marketplace.[105]

Generating companies, investing their own money in new generating plants with no government guarantees except open access to the transmission system and market, would make decisions as to what plant to build, not government planners. Cost over-runs would be absorbed by plant owners, and their selling prices would not be determined by officials.[106]

Independent Power Producers (IPPs) have had to enter into a commercial agreement with Eskom, which is still the sole owner of the transmission lines to transmit power onto the system. Eskom, as the only purchaser of electricity, determines the price at which it will buy power from IPPs, regardless of the high cost of generation for independent producers. Eskom’s interests in both generation and transmission thus directly affects investment.[107]

Because electricity pricing was unrealistically low, there was no financial incentive to encourage new producers, or investment in generation, transmission, and distribution.[108]

Realistic electricity prices are characteristic of a market, not necessarily cheap prices. Bad pricing has led to failure to move to a more sustainable privatised generation model.[109]

In 2000, government announced that it intended to privatise all state-owned companies by 2004, and there was talk of creating an electricity market allowing IPPs to sell direct to large customers and to contract with distributors.

But, in 2004, the plan was deemed unviable for various reasons and shelved. Eskom was to remain at the centre of the electricity industry, with IPPs merely augmenting supply.

The “standard” model of power-sector reform (unbundling vertically and horizontally, wholesale and retail competition, privatisation) was, in effect, abandoned.

Eskom was seen as an important instrument of government policy, an apparently-well-performing infrastructure industry that supported the government’s economic and social programme. The government also faced resistance against privatisation from organised labour, which picked Eskom reform as the battleground.

The government stated that Eskom would remain in state hands. The government reasserted the lead role of the state in infrastructure investment. Security of supply was once again the top policy priority. Private investment might be possible on the margins.[110]

The National Energy Regulator Act, 2004[111] established the National Energy Regulator for the regulation of[112] the electricity industry.[113]

Members of the Regulator must—

Act in a justifiable and transparent manner when exercise of their discretion is required;

not act in sectoral interests;

act independently of any undue influence or instruction; and

act in the public interest.[114]

A decision of the Regulator must be consistent with the Constitution.[115]

The Electricity Regulation Act, 2006[116] states that the Regulator must consider applications for, and may issue, licences for the operation of generation, transmission or distribution facilities, the import and export of electricity, and the buying or selling of electricity as a commercial activity;[117] and must regulate prices and tariffs.[118]

The Regulator must issue separate licences for—

The operation of generation, transmission and distribution facilities;

the import and export of electricity; or

trading.

The Regulator is not obliged to issue a licence.[119]

Licences issued prior to commencement of the 2006 Act[120] continue in force as if they had been issued i.t.o. the Act.[121]

The Minister of Minerals and Energy may, in consultation with the Regulator—

Determine that new generation capacity is needed to ensure continued uninterrupted supply of electricity;[122]

determine that electricity thus produced may only be sold to the persons or in the manner, and must be purchased by the persons, set out in such notice;[123]

require that new generation capacity must be established through a tendering procedure which is fair, equitable, transparent, competitive and cost-effective; and

provide for private sector participation.[124]

The Regulator in issuing a generation licence is bound by such a Ministerial determination.[125]

The Minister may[126] make regulations regarding[127]

New generation capacity;

the participation of the private sector in new generation activities;

the criteria for (or prohibition of) cross-ownership or vertical and horizontal integration by licensees in generation, transmission and distribution assets.[128]

The Minister (citing these enabling provisions[129]) made Regulations on New Generation Capacity, 2011.[130] The Regulations state that—

The Minister (before determining that new capacity is needed) may obtain a feasibility study which must consider[131] whether the generator should be Eskom “as part of its services as the national electricity producer,” another state organ or an IPP;[132]

should the Minister determine that new capacity is needed and that Eskom should establish it “as part of its services as the national electricity producer,” Eskom must enter into a power purchase agreement with the buyer.[133]

In 2006, Electricity Distribution Industry Holdings was established to create the White Paper’s proposed six Regional Electricity Distributors (REDs) by 2010. It reportedly spent R1.2-billion before being unwound without establishing the REDs. Municipalities refused to surrender their profitable electricity-distribution networks.[134]

The Constitution, 1996[135] states that municipalities have executive authority i.r.o.[136] listed local government matters[137] which include electricity reticulation,[138] and may make[139] by-laws for the effective administration of those matters.[140]

Municipalities’ executive authority i.r.o. electricity reticulation refers to the establishment and operation of an electricity distribution network. It means that a municipality is entitled to set up its own electricity reticulation network, and that it is the only organ of State entitled to administer that network, since the administration of its own electricity reticulation network is a necessary element of municipal autonomy.[141]

The national and provincial governments have legislative and executive authority, says the Constitution, to see to the effective performance by municipalities of their functions i.r.o. those matters, by regulating municipalities’ exercise of their executive authority i.r.o. the matters,[142] but may not compromise or impede municipalities’ ability or right to exercise their powers or perform their functions.[143]

This means, say the courts, that it is impermissible for the national or provincial spheres to pass legislation giving them power to exercise the executive authority of a municipality. The national and provincial spheres may exercise their legislative and executive powers to enable municipalities to exercise their own powers and perform their own functions, but may not take over or arrogate to themselves the exercise of the executive authority of a municipality. The national and provincial spheres are limited to capacitating municipalities to manage their own affairs and to regulating how this must be done.[144]

This power of “regulating” is afforded to national and provincial government in order to see to the effective performance by municipalities of their functions; “regulating” means creating norms and guidelines for exercise of a power or performance of a function. It does not mean the usurpation of the power or the performance of the function itself.[145]

The Constitution envisages a degree of autonomy for municipalities to exercise their original constitutional powers free from undue interference from the other governmental spheres.[146] The national and provincial spheres may not usurp the municipal sphere’s functions[147] except in exceptional circumstances, temporarily and i.a.w. strict procedures.[148]

The central government then proposed a Constitution Amendment Bill to transfer electricity distribution to the national government, but withdrew it in the face of municipal opposition[149] when it became clear that the National Assembly would not pass it.[150]

In 1999, Eskom told the government that, unless there was urgent large investment in new power stations, the country would experience electricity shortages in 2007. But the government failed to finance new build.[151]

In late 2007, Eskom introduced widespread rolling blackouts (“load shedding”[152]) as supply fell behind demand [153] and threatened to destabilize the national grid.[154] In early 2008, blackouts were halted due to reduced demand[155] and maintenance stabilisation.

There has been a shortage of electricity generation capacity because independent power producers (IPPs) have been denied access to the transmission grid. IPPs have had to sell any electricity they produced to Eskom. Eskom would not agree to purchase the electricity that IPPs produced at a price that would justify their investments.[156]

In 2012, the government introduced the Independent System and Market Operator Bill, 2012.[157] Its accompanying memorandum said the industry had a monopolistic structure which did not provide for the independent purchase of power from the private sector.

The Bill would create the Operator as a state-owned company to operate the system, purchase electricity from electricity generators, and sell it at a wholesale tariff to distributors and large customers. The Operator would be independent from electricity generators, to avoid a conflict of interests and ensure equal treatment of all generators.[158]

A parliamentary committee invited public comments, conducted hearings and compiled a report on the Bill, which then went to second reading.[159]

The Bill was said to have then been withdrawn “pending further work or putting in place conducive conditions for its effective implementation”.[160]

In 2014, load shedding was reintroduced. Majuba power plant[161] lost its capacity after one of its coal-storage silos collapsed and a second developed a major crack, halting delivery of coal to the plant and causing it to shut down.

In early 2019, boilers at some power stations failed due to burning poor-quality coal, which led to long-running “Stage 4”[162] load-shedding across the country.[163]

The Companies Act, 2008[164] states that a company must not carry on business recklessly.[165] Recklessness may consist of blameworthy conduct characterised by a failure to take any due care in the management of a company that results in detriment to the company and others and exhibits a high degree of disregard for the standards observed by honest and diligent men of affairs, say the courts.[166]

The Constitution stipulates that the Republic is founded on values which include—

Human dignity, the achievement of equality and the advancement of human rights; and

supremacy of the Constitution and the Rule of Law.[167]

The Constitution also stipulates that public administration must be governed by the principles that efficient, economic and effective use of resources must be promoted; public administration must be development-oriented; services must be provided impartially, fairly, equitably and without bias; and people’s needs must be responded to.[168] These principles apply, not only to administration in every sphere of government, but also to every organ of state and public enterprise.[169]

(The Public Finance Management Act, 1999[170] refers to any “public entity” listed in schedules to the Act,[171] which may include a “national public entity”,[172] defined as[173]

(A national government business enterprise (viz., a juristic person that is under the national executive’s ownership control, has been assigned financial and operational authority to carry on a business activity, provides goods or services i.a.w. ordinary business principles as its principal business ,and is financed fully or substantially from sources other than the National Revenue Fund or by way of a tax, levy or other statutory money[174]); or

(a company[175] established i.t.o. national legislation, funded[176] from the National Revenue Fund or a levy[177] imposed i.t.o. national legislation, and accountable to Parliament.

(Eskom is listed in a schedule to the Act.[178] Eskom is an organ of state, say the courts.[179])

The Bill of Rights in the Constitution[180] also binds organs of state,[181] which include institutions exercising a public power or performing a public function i.t.o. legislation.[182]

The Bill of Rights, in its provision about freedom of trade, declares that every citizen has the right to choose their trade[183] freely.[184]

The Constitutional Court has held that, while the Bill of Rights does not expressly promote competition principles, the right to freedom of trade enshrined in the Bill of Rights is consistent with a competitive regime in matters of trade and the recognition of the protection of competition as being in the public welfare.[185]

The Bill of Rights protects fundamental rights to[186] equality, an innocuous environment and adequate housing. It stipulates that everyone—

is equal before the law,[187]

has the right to an environment that is not harmful to their health or well­being,[188] and

has the right to have access to adequate housing.[189]

The Bill of Rights does not deny the existence of other rights or freedoms.[190]

The Constitution also states[191] that the objects of local government are[192] to—

Ensure the provision of services to communities in a sustainable manner;[193] and

promote social and economic development, and a safe and healthy environment.[194]

In conclusion, in light of all the considerations above, the legislation that governs Eskom and the provision of electricity violates the Rule of Law in a number of respects:

First, Eskom’s statutory monopoly has led to enduring interruptions in the supply of electricity, violating the public’s right to basic services and the principle of the Rule of Law that laws must afford adequate protection of fundamental human rights:

As a monopoly Eskom is blind to the market and cannot gain information from price signals, consumer actions or competitors.[195] Eskom has a monopoly on information required to understand the implications of its investment choices and has operated under unusual secrecy, leading to information asymmetry. In contrast, a properly functioning market would benefit from numerous independent analysts scrutinising companies’ decisions.[196]

In a monopolistic model, risks and costs of poor investment decisions are passed on to consumers. Competition would provide better apportioning of utility investment risk.[197]

When electricity restructuring and competition programmes are designed and implemented well, sector performance can be expected to improve significantly i.t.o. operating costs, generator and service availability, investment and price levels,[198] compared to either the typical state-owned or private regulated vertically-integrated monopoly.[199]

Eskom’s statutory monopoly has thus led to enduring interruptions in the supply of electricity, violating the principle of the Rule of Law that laws must afford adequate protection of fundamental human rights:[200]

The Madras high court has held that access to electricity should be construed as a human right, and denial of it would amount to violation of human rights: Lack of electricity supply is a determinative factor affecting education and health and a cause of economic disparity and inequality in society leading to poverty. Electricity supply is an aid to obtaining information and knowledge, and children without it cannot compete with others.[201]

(Acts of the executive which directly and injuriously affect the person or property or rights of the individual should in general be subject to review by the courts.[202])

The International Covenant on Economic, Social and Cultural Rights, 1966[203] declares that the States parties to the Covenant recognise the right of everyone to an adequate standard of living for himself and his family, including adequate food, clothing and housing, and to the continuous improvement of living conditions.[204]

Eskom’s monopoly and the consequent electricity-supply interruptions undermine this right to an adequate standard of living and continuous improvement of living conditions.

Second, as stated, the Constitution stipulates that the objects of local government[205] are[206] to ensure the provision of services to communities in a sustainable manner,[207] and promote social and economic development, and a safe and healthy environment.[208] Eskom’s monopoly and the consequent interrupted supply impair municipalities’ ability to carry out its Constitutional objects.

This violates the principle of the Rule of Law that public bodies must exercise powers conferred on them reasonably.[209] The Constitution is the supreme law, and conduct inconsistent with it is invalid.[210]

Third, the government and Eskom selectively forgive certain municipalities’ indebtedness to Eskom. Soweto reportedly owes Eskom as much unpaid debt as all other municipalities combined. Soweto’s debt has been scrapped twice in the past, so its debt is current debt. But Soweto has never been cut off, although poor rural municipalities are cut off regularly.[211] The 20 municipalities most indebted to Eskom have owed it R 4,3bn (76 percent) of total arrear municipal debt.[212]

This selective treatment of defaulting municipalities violates the principle of the Rule of Law that the laws of the land should apply equally to all,[213] and the fundamental right of everyone to equality before the law, and to equal protection and benefit of the law.[214]

Fourth, the Electricity Regulation Act, 2006 is impartial about who should be the preferred producer of any needed new generation capacity and does not mention Eskom. But the Minister’s Regulations on New Generation Capacity, 2011[215] made pursuant to the Act state that he may obtain a feasibility study which must consider whether the generator of new capacity should be Eskomas part of its services as the national electricity producer[216] and that he may determine that Eskom should establish new capacity as part of its services as the national electricity producer.[217]

Those Regulations imply that Eskom should be the preferred producer of any needed new capacity, and thus treat the parastatal more favourably than private-sector suppliers. This violates the principle of the Rule of Law that the laws of the land should apply equally to all,[218] and the fundamental right to the equal benefit of the law.[219]

The Regulations also violate the principle of the Rule of Law that public bodies must exercise statutory powers conferred on them without exceeding the limits of those powers.[220]

Fifth, the Companies Act, 2008[221] says, as mentioned, that a company must not carry on business recklessly.[222] Recklessness may consist of a blameworthy failure to take due care in managing a company that results in detriment to the company and others and exhibits a high degree of disregard for standards observed by honest diligent men of affairs.[223]

Eskom has reportedly been negligent in the exercise of its statutory authority as licensee to construct and operate generation facilities at Kusile and Medupe by issuing numerous tenders and having to manage diverse contractors rather than appointing, as is usual, a single Engineering, Procurement and Construction contractor to engage subcontractors for plant design, procurement, construction and commissioning, and by carrying out allegedly insufficient or hasty scoping and inadequate risk management thereby contributing to project delay and cost overruns.[224]

These negligent acts and omissions violate the principle of the Rule of Law that public bodies must exercise the powers conferred on them reasonably.[225]

Sixth, the Constitution stipulates, as mentioned, that public administration must be governed by the principle that efficient, economic and effective use of resources must be promoted,[226] and that this also applies to public enterprises and organs of state,[227] which would include Eskom.[228]

Eskom’s negligent acts and omissions thus also violate the principle of the Rule of Law that public bodies must not exercise powers conferred on them otherwise than in strict accordance with the law.[229] The Constitution is the supreme law and obligations imposed by it must be fulfilled.[230]

 

[1] Both past and present, as well as other material.

[2] Wikipedia, “Eskom”, History.

[3] In Cape Town.

[4] Cape Times, May 1882.

[5] Some wealthy citizens had their own electric lighting plants at their homes including in Cape Town Chas Rudd (Newlands) and Geo Moodie (Rondebosch), Jimmy Logan (Matjesfontein) and Sammy Marks (near Pretoria).

[6] Now the National Library.

[7] VFP intended harnessing the power of Victoria Falls to generate the electricity requirements of the expanding industries of the Witwatersrand and Southern Rhodesia. For technical and financial reasons this was abandoned.

[8] Now Zimbabwe.

[9] In 1909, VFP was renamed Victoria Falls & Transvaal Power Co Ltd. Yet it continued to be known as the VFP, although its entire operation was now based on exploitation of Transvaal Colony’s coal deposits.

[10] And compressed air.

[11] Also known as Corner House. “Einzeleinwanderer” (German immigrants to South Africa).

[12] In May 1910 just before Union on 31 May.

[13] Power Act 15 of 1910 (T).

[14] Eskom, Eskom Heritage, ESCOM 1923–1929, The Years of Establishment, “Electrifying our beloved country”.

[15] At one stage VFP was the largest power-supply undertaking in the Empire.

[16] VFP pioneered long-distance high-voltage electricity transmission for the Witwatersrand’s severe climatic conditions.

[17] And railway electrification.

[18] Eskom, Electricity in South Africa – Early Years.

[19] Merz and McLellan, Electric Power Supply in the Union of South Africa, 1920.

[20] Electricity Act 42 of 1922.

[21] Electricity Act 1922 chap I s 1 read with s 2.

[22] Govt Notice 408 of 6 Mar 1923.

[23] ESCOM 1923–1929—The Years of Establishment  “Electrifying our beloved country”.

[24] Also, ESCOM constructed Doornpoort Dam (on Great Olifants River), which meant Witbank enjoyed abundant water and electricity supply, allowing development of the area’s coal-mining industry.  ESCOM also designed and installed Witbank’s street-lighting system.

[25] Eskom heritage, Congella Power Station.

[26] At Vereeniging.

[27] Covering 29,000 sq km from Klerksdorp in the west to Delmas in the east.

[28] Eskom, Eskom Heritage, ESCOM 1930 – 1939 – Roots were Established – “All that glitters is gold”.

[29] Commissioned in 1940.

[30] South of Vereeniging, the first ESCOM station in the Orange Free State.

[31] Eskom1938 Annual Report, pg. 6.

[32] Operational in 1945.

[33] And became sole supplier to the new Cape Northern undertaking of 40,000 sq km, the size of Switzerland.

[34] Eskom, Eskom Heritage: ESCOM 1940-1949 – The years of suffering – “Into the darkness”.

[35] Eskom, Eskom Heritage: VFP–Victoria Falls Power Company Ltd.

[36] For £14,5 million. Victoria Falls Power had valued its  assets at £14 million, but ESCOM reckoned that their replacement value would be almost double that.

[37] With a total generating capacity of 298 MW.

[38] 2,100 km of transmission lines, 1,444 km of pilot and telephone lines, a thousand transformers, 18 distribution substations and 304 consumer substations.

[39] By 6,158, from 1,692 people to 7,850.

[40] This was later changed to “Rand and Orange Free State undertaking”. Eskom Heritage: VFP–Victoria Falls Power Company Ltd.

[41] Electricity Act 40 of 1958.

[42] Soaring demand came from industrial growth in the Vaal Triangle (Vereeniging/Vanderbijlpark/Sasolburg), the Witwatersrand, the big cities and Northern Transvaal.

[43] Hex River, Vierfontein, Umgeni, Wilge, Salt River 2, West Bank 2, Taaibos, and Highveld.

[44] Central, Colenso, Klip, Vaal, Vereeniging, and Witbank.

[45] Eskom, Eskom Heritage: ESCOM 1950-1959 – The years of Growth – “The wonder years”.

[46] Eskom, Eskom Heritage: ESCOM 1960 – 1969 – The years of blossoming – “And then there was one”.

[47] By way of a 1971 amendment to the Electricity Act.

[48] ESCOM’s 50th year.

[49] Under the guidance of Ian McRae (Manager Central Generating Undertaking, as he then was). Eskom, Heritage, Dr Ian Mcrae, First Chief Executive of Escom/Eskom – 1985 – 1994, “A Lifetime of Service”.

[50] And turned into a central workshop complex.

[51] Victoria Falls Power’s first power station.

[52] Simmerpan also had laboratories and workshops for monitoring and maintaining the transmission network.

[53] The national grid’s cost-saving economies of scale arguably meant that municipalities were better off abandoning their own base-load power generation and buying in bulk from ESCOM.

To implement the policy of building pit-head power-stations to meet national demand, it was necessary to prevent municipalities from erecting further power-stations to which coal would have to be carried by rail.

[54] A 1,000 MW station at Liefde en Vrede.

[55] This was the last time a municipality applied to build its own base load station.

[56] Electricity, Industry and Class in South Africa, Renfrew Christie, 1994, p 164.

[57] In 1973 demand grew by 12 percent, and 13 percent in 1974.  The average annual growth for the 1970s was almost nine percent, which would entail ESCOM needing to double capacity every eight years. There was strong global demand for South Africa’s gold, minerals, iron ore, steel and coal, in spite of growing isolation.

[58] Particularly low-grade coal or “black-painted” rock, as some power-station operators called it.

[59] So-called because of their six tall and very prominent boiler houses. Kriel featured new “once-through” technology, where steam bypasses the turbine while the boiler is warmed up or when the turbine is shut down.

[60] In 1977 consumers paid 166 percent more for electricity than in 1971.

[61] Who shouldered some blame for sharp price increases.

[62] So-called because of their six tall and very prominent boiler houses. Kriel featured new “once-through” technology, where steam bypasses the turbine while the boiler is warmed up or when the turbine is shut down.

[63] The production of deposits of slag (a mixture of shale, clay, coal dust, and other mineral waste produced during coal mining).

[64] Duvha’s boilers, unlike Kriel’s, were of conventional design and used natural circulation, not once-through.

[65] The pollution problem was only solved in 1984 when the offending units were retrofitted with pulse jet fabric filter plants – a world first.

[66] Jan H Smith.

[67] Reinhardt Straszacker.

[68] Jan H Smith.

[69] Although he was a top-class planner.

[70] In a preliminary report.

[71] Eskom Heritage, ESCOM/ESKOM 1980-1989 – The years of expansion and change – “Electricity for all”.

[72] Electricity Amendment Act 50 of 1985.

[73] I.e., the Electricity Supply Commission.

[74] The “Top 30”.

[75] Projected to increase to 72,000.

[76] Eskom publication “Five Years On”.

[77] Electricity Act 41 of 1987.

[78] Eskom Act 40 of 1987.

[79] Eskom heritage: ESCOM/ESKOM 1980-1989 – The years of expansion and change – “Electricity for all”.

[80] As the world’s largest indirect dry-cooled power station.

[81] Another large dry-cooled power station.

[82] Eskom adopted the slogan “electricity for all”. In 1993 distribution specialist Allen Morgan succeeded Ian McRae as chief executive.

[83] Fewer than 13 million people.

[84] Eskom achieved much. By 1999 nearly half managerial, supervisory and professional staff were black, coloured or Indian. In 1999, it spent almost R1 billion on black-empowered companies. Eskom dramatically increased the literacy of its workers. In 1999, 480 black bursars and trainees graduated.

[85] From 1985 to 1995, the ratio of gigawatt-hours (GWh) sold per employee rose from 1.7 to 2.7. In 2000, it was up to 5.1 GWh sold per employee. In 1983, Eskom power stations had a 72% unit-capability factor (UCF, which measures a power station’s availability and indication how well it is operated and maintained), not a good rating. It improved to 80% in 1993, but had to get a lot better to achieve the goal of world’s lowest-cost producer. Under executive director of generation Bruce Crookes, in 1998, UCF reached 92.7.

[86] Such as IT, construction, aviation, and servicing and maintenance of equipment.

[87] Eskom. Eskom heritage: ESKOM 1990 -1999 – African Renaissance – “Powering transformation”.

[88] Eskom Amendment Act 126 of 1998.

[89] Eskom Amendment Act, 1998 s 2.

[90] Eskom Act, 1997 s 4 (control over, and management of the affairs of, Eskom).

[91] The Electricity Council.

[92] Eskom Act, 1997 s 4(3).

[93] White Paper on the Energy Policy of the Republic of South Africa, Dec 1998, Dept of Minerals and Energy.

[94] The White Paper’s content reproduced here has been put in the past tense and slightly abbreviated.

[95] White Paper on Energy Policy, supra, § 7.1 Electricity.

[96] Those less relevant are not reproduced here.

[97] White Paper on Energy Policy, supra, § 7.1.1 Vision for the electricity supply industry.

[98] White Paper on Energy Policy, supra, § 7.1.3.7 Local authority rights with respect to electricity distribution.

[99] White Paper on Energy Policy, supra, § 7.1.5.5 Meeting growth in electricity demand.

[100] White Paper on Energy Policy, supra, § 7.1.6 Electricity market structure.

[101] White Paper on Energy Policy, supra, § 7.1.6.1 Restructuring of Eskom.

[102] White Paper on Energy Policy, supra, § 7.1.6.2 Transmission.

[103] White Paper on the Energy Policy of the Republic of South Africa, supra, Ministerial foreword.

[104] White Paper on the Energy Policy of the Republic of South Africa, supra, Executive summary, Supply sectors, § 3.4.1 Electricity.

[105] “Lessons from California’s Power Crisis”. J E Besant-Jones, B Tenenbaum. Finance & Development [2001].

[106] “Government must take steps to unbundle Eskom,” 4 Mar 2019. J. Urbach. Free Market Foundation.

[107] “Should Eskom still hold monopoly over South Africa’s electricity supply?” CompareGuru, 28 Jun 2015.

[108] “Whistling in the dark: Inside South Africa’s power crisis,” S. Patel. Power, 11 Jan 2008.

[109] “How government failed to privatise Eskom.” 13 Dec 2017, N. Woode-Smith. Free Market Foundation.

[110] “From State to market and back again: South Africa’s power sector reforms.” A Eberhard. Economic and Political Weekly Dec 10, 2005.

[111] National Energy Regulator Act 40 of 2004.

[112] And piped-gas and petroleum-pipelines industries.

[113] National Energy Regulator Act, 2004 s 3 read with s 2.

[114] National Energy Regulator Act, 2004 s 9(a), (b), (c) and (f).

[115] And applicable laws. National Energy Regulator Act, 2004 s 10(1)(a).

[116] Electricity Regulation Act 4 of 2006.

[117] Electricity Regulation Act, 2006 s 4(a)(i)(aa), (bb) and (cc) read with s 1 sv “trading”.

[118] Electricity Regulation Act, 2006 s 4(a)(ii).

[119] Electricity Regulation Act, 2006 s 13(4).

[120] I.t.o. the Electricity Act, 1987 or deemed to have been issued i.t.o that Act.

[121] Electricity Regulation Act, 2006 s 36(3).

[122] Electricity Regulation Act, 2006 s 34(1)(a).

[123] Electricity Regulation Act, 2006 s 34(1)(c) and (d).

[124] Electricity Regulation Act, 2006 s 34(1)(e)(i) and (ii).

[125] Electricity Regulation Act, 2006 s 34(3)(a).

[126] By notice in the Gazette.

[127] Inter alia.

[128] Electricity Regulation Act, 2006 s 35(4)(j), (m) and (p).

[129] Electricity Regulation Act, 2006 s 34.

[130] Govt Notice R399 of May 2011. Regulations on New Generation Capacity, 2011.

[131] Inter alia.

[132] Regulations on New Generation Capacity, 2011, reg 5(2)(e).

[133] Regulations on New Generation Capacity, 2011, reg 9(3).

[134] Creamer Media’s Engineering News, “The Reds are dead.” 17 Aug 2012 (A Eberhard).

[135] Constitution of the Republic of South Africa, 1996.

[136] And the right to administer.

[137] Constitution s 156(1)(a).

[138] Constitution Sched 4 (areas of concurrent national and provincial legislative competence) Pt B (local government matters).

[139] And administer.

[140] Constitution s 156(2).

[141] NCP Chlorchem (Pty) Ltd v National Energy Regulator and others [2017] 1 All SA 950 (GJ) pars [46] and [48] per Kathree-Setiloane J.

[142] Constitution s 155(7).

[143] Constitution s 155(7).

[144] City of Johannesburg Metropolitan Municipality v Chairman of National Building Regulations Review Board and others 2018 (8) BCLR 881 (CC) pars [32]–[35].

[145] Minister of Local Government, Western Cape v Habitat Council and others (City of Johannesburg Metropolitan Municipality as amicus curiae) and a related matter 2014 (4) SA 437 (CC) par [22].

[146] City of Johannesburg Metropolitan Municipality v Gauteng Development Tribunal and others (KwaZulu-Natal MEC for Local Government and others intervening; SA Property Owners Assoc and ano as amici curiae) 2010 (9) BCLR 859 (CC) pars [44], [50].

[147] Minister of Local Government, Environmental Affairs and Development Planning of the Western Cape v Lagoonbay Lifestyle Estate (Pty) Ltd and others 2014 (2) BCLR 182 (CC) para [46].

[148] The Constitution empowers a provincial government, subject to conditions, to intervene in the affairs of a municipality which cannot or does not fulfil an executive obligation i.t.o. the Constitution. The province may then take appropriate steps to ensure the obligation is fulfilled, including assuming responsibility itself or the obligation or dissolving the municipal council and replacing it with an administrator. Constitution s 139(1)–(3).

If a municipality due to a financial crisis is in serious or persistent material breach of its obligations to provide basic services or meet financial commitments, or admits it is unable to meet those obligations or commitments, the provincial executive must impose a recovery plan aimed at securing the municipality’s ability to meet them and, if the municipality cannot or does not approve a budget or revenue-raising or other legislative measure necessary to give effect to the plan, dissolve the Municipal Council or assume responsibility for implementing the plan to the extent that the municipality cannot or does not otherwise implement it. Constitution s 139(5).

If the provincial executive cannot, or does not adequately or at all, exercise or perform these latter financial-recovery powers and functions, the national executive must intervene in its stead. Constitution s 139(7).

[149] See e.g., “Why the Regional Electricity Distributors (REDs) concept is bad for Cape Town”.[149]

[150] Creamer Media’s Engineering News, “The Reds are dead.” 17 Aug 2012. A Eberhard (supra).

[151] Apparently because it could not raise the necessary finance from the private sector.

[152] Also known as “rotating outages”. (Ausgrid: Outages: “Load shedding”.)

[153] Pres Mbeki apologised for not having heeded Eskom’s call for capital expansion.

[154] With a reserve margin estimated at 8% or below, load shedding is implemented whenever generating units are taken offline for maintenance, repairs or (in the case of nuclear units) refuelling.

Eskom will have a constrained power system until substantial new power capacity is available. In the meantime, to meet demand, its older power stations and infrastructure are being used to full capacity, and routine and necessary maintenance of plant and infrastructure is carefully scheduled to limit compromising supply capacity during periods of high demand. Eskom has also strengthened the distribution network to reduce the incidence of localised outages when the power trips because of overload in local areas such as suburbs.

Load shedding, or load reduction, is done countrywide as a controlled option to respond to unplanned events to protect the electricity power system from a total blackout. (Eskom: “What is load shedding?”)

[155] Due to many mines shutting down or slowing to help alleviate the burden.

[156] Free Market Foundation, “2012 Comment on the Independent System and Market Operator Bill”, pt 3.1 (ownership/control of the transmission system). E Davie.

[157] Independent System and Market Operator Bill 9 of 2012.

[158] Memorandum on the objects of the Independent System and Market Operator Bill, 2012, pars 1.2 and 3.1.

[159] Independent System and Market Operator Bill 9B of 2012.

[160] Parliamentary Monitoring Group: Independent System and Market Operator Bill [B9 of 2012]: “Bill history.”

[161] Which delivers about ten percent of the country’s entire power-generating capacity.

[162] The scheduled frequency of load shedding increases with each successive Stage:

Stage 1 requires the least amount of load shedding, three times, either over a four-day period for two hours a time or over an eight-day period for four hours a time;

Stage 2 doubles the frequency of Stage 1, which means an area is scheduled for load shedding six times, either over a four-day period for two hours a time or over an eight-day period for four hours a time;

Stage 3 increases the frequency of Stage 2 by 50 percent, so an area is scheduled for load shedding nine times, over a four-day period for two hours a time or over an eight-day period for four hours a time;

Stage 4 doubles the frequency of Stage 2, so an area is scheduled for load shedding 12 times, either over a four-day period for two hours a time or over an eight-day period for four hours a time.

If more load needs to be shed than is scheduled in these Stages, an area will experience additional load shedding. (Eskom: “Interpreting Eskom load-shedding stages”.)

[163] Wikipedia. Eskom: Controversies: “Power shortage: 2007—ongoing”.

[164] Companies Act 71 of 2008.

[165] Or with gross negligence or intent to defraud or for a fraudulent purpose. Companies Act, 2008 s 22(1).

The predecessor Act was similar in providing that, when it appeared, in winding-up, judicial management or otherwise, that any business of the company was being carried on recklessly (or with intent to defraud creditors of the company or any other person or for any fraudulent purpose), the court may (on application of the Master, liquidator or judicial manager, or a creditor, member or contributory of the company) declare that any person who was knowingly a party to the carrying on of the business in that manner shall be personally responsible for such debts or liabilities of the company as the Court may direct. Companies Act 61 of 1973 s 424(1).

[166] Engelbrecht NO and others v Zuma and others [2015] 3 All SA 590 (GP) par [19], [43] per Bertelsmann J.

[167] Constitution s 1(a) and (c).

[168] And the public must be encouraged to participate in policy-making. Constitution s 195(1)(b)–(e).

[169] Constitution s 195(2)(a)–(c).

[170] Public Finance Management Act 1 of 1999.

[171] Public Finance Management Act s 3(1)(b) read with Scheds 2 and 3.

[172] Or a provincial public entity. Public Finance Management Act s 1 svv “public entity”.

[173] Public Finance Management Act s 1 svv “national public entity”.

[174] Public Finance Management Act s 1 svv “national government business enterprise”.

[175] Or commission, board, corporation, fund or entity (other than a national government business enterprise).

[176] Fully or substantially.

[177] Or tax or other money.

[178] Public Finance Management Act, Sched 2 (major public entities).

[179] Afriforum NPC and others v Eskom Holdings SOC Ltd and others [2017] 3 All SA 663 (GP) par [8] per Murphy J.

[180] Constitution, Chap 2 Bill of Rights (ss 7–39).

[181] Inter alia. Bill of Rights s 8(1) (application).

[182] Constitution s 239 (definitions) svv “organ of state” par (b)(ii).

[183] Or occupation or profession.

[184] The practice of a trade, occupation or profession may be regulated by law. Constitution s 22 (freedom of trade, occupation and profession).

[185] Phumelela Gaming and Leisure Ltd v Gründlingh and others 2006 (8) BCLR 883 (CC) par [36] per Langa CJ (Moseneke DCJ, Mokgoro, O’Regan, Sachs, Skweyiya, Van der Westhuizen and Yacoob JJ concurring).

[186] Inter alia.

[187] And has the right to equal protection and benefit of the law. Equality includes the full and equal enjoyment of all rights and freedoms. Bill of Rights s 9(1) and (2) (equality).

[188] Bill of Rights s 24(a) (environment).

[189] Bill of Rights s 26(1) (housing).

[190] That are recognised or conferred by common law, customary law or legislation, to the extent that they are consistent with the Bill. Bill of Rights s 39 (interpretation of Bill of Rights).

[191] Constitution s 152 (objects of local government).

[192] Inter alia.

[193] Constitution s 152(b).

[194] Constitution s 152(c) and (d).

[195] Or adequately account for shortages and surpluses. Eskom has many contradictions. It is meant to be independent, but be state supervised. It has needed to expand electrification, but without profit. It is meant to run like a business, but is not allowed to raise its price. For a while, Eskom did manage to function without profit, due its use of South Africa’s cheap coal and labour. “An Austrian approach to Escom-Eskom’s downfall.” 3 Mar 2018. N. Woode-Smith, and sources there cited.

[196] “Eskom: Are we missing the opportunity to learn from history?” Graduate School of Business, Univ of Cape Town. Mar 2006. G Steyn.

[197] “Rationale for restructuring and regulation of a ‘low priced’ public utility: a case study of Eskom in South Africa”. A. Eberhard, M. Mtepa. International Journal of Regulation & Governance 3(2) [2003] 77–102.

[198] Inter alia.

[199] “Lessons learned from electricity market liberalization.” P. L. Joskow (prof of economics and management,  director of Centre for Energy & Environmental Policy Research, Massachusetts Institute of Technology. The Energy Journal [2008].

[200] The Rt. Hon Lord Bingham of Cornhill KG, Sixth Sir David Williams Lecture, Centre for Public Law, University of Cambridge, 2006, “The Rule of Law”, fourth sub-rule.

[201] Per Manikumar J, in an application by 180 families of launderers living along Girivalam path in Tiruvannamalai against Tiruvannamalai district administration and Tamil Nadu electricity board. “Electricity supply is a legal right, Madras high court says.” The Times of India, 10 Oct 2013 (A Subramani).

[202] The Rule of Law in a Free Society: Report on International Congress of Jurists held at New Delhi, Jan 1959 (Declaration of Delhi, read with Principles expressed in Conclusions of the Congress. Conclusions: report of committee II: executive and the Rule of Law: cl IV. International Commission of Jurists, 1959.

[203] International Covenant on Economic, Social and Cultural Rights, adopted by General Assembly res. 2200A (XXI), 16 Dec 1966; opened for signature and ratification or accession 19 Dec 1966; in force 3 Jan 1976.

[204] International Covenant on Economic, Social and Cultural Rights, 1966 art 11(1).

[205] Constitution s 152 (objects of local government).

[206] Inter alia.

[207] Constitution s 152(b).

[208] Constitution s 152(c) and (d).

[209] Bingham, “The Rule of Law” (supra), sixth sub-rule.

[210] Constitution s 2 (supremacy of Constitution).

[211] This double standard is because Soweto is a massive voting bloc for the ruling party: “4 reasons the ANC has only itself to blame for the Eskom crisis,” News24, 15 Feb 2019, J-B Styan (author of Blackout: The Eskom Crisis (2015)).

[212] “Eskom not constitutionally obliged to provide power – judge”, Fin24, 4 Jan  2017, L Omarjee, M Raborife.

[213] Save to the extent that objective differences justify differentiation. Bingham, “The Rule of Law” (supra), third sub-rule.

[214] Bill of Rights s 9(1) (equality).

[215] Govt Notice R399 of May 2011. Regulations on New Generation Capacity, 2011.

[216] Regulations on New Generation Capacity, 2011, reg 5(2)(e).

[217] Regulations on New Generation Capacity, 2011, reg 9(3).

[218] Bingham, “The Rule of Law” (supra), third sub-rule.

[219] Bill of Rights s 9(1) (equality).

[220] Bingham, “The Rule of Law” (supra), sixth sub-rule.

[221] Companies Act 71 of 2008.

[222] Or with gross negligence or intent to defraud or for a fraudulent purpose. Companies Act, 2008 s 22(1).

The predecessor Act was similar in providing that, when it appeared, in winding-up, judicial management or otherwise, that any business of the company was being carried on recklessly (or with intent to defraud creditors of the company or any other person or for any fraudulent purpose), the court may (on application of the Master, liquidator or judicial manager, or a creditor, member or contributory of the company) declare that any person who was knowingly a party to the carrying on of the business in that manner shall be personally responsible for such debts or liabilities of the company as the Court may direct. Companies Act 61 of 1973 s 424(1).

[223] Engelbrecht NO and others v Zuma and others [2015] 3 All SA 590 (GP) par [19], [43] per Bertelsmann J.

[224] “Kusile and Medupi were destined to fail from the start,” Business Day, 1 May 2019. Prof M. Tshehla (Unisa Graduate School of Business Leadership).

[225] Bingham, “The Rule of Law” (supra), sixth sub-rule.

[226] Constitution s 195(1)(b).

[227] Constitution s 195(2)(b) and (c).

[228] Afriforum NPC and others v Eskom Holdings SOC Ltd and others [2017] 3 All SA 663 (GP) par [8] per Murphy J.

[229] Bingham, “The Rule of Law” (supra), sixth sub-rule.

[230] Constitution s 2 (supremacy of Constitution).

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Gary Moore

Gary Moore BA LL.B. (Witwatersrand) LL.M. (UC London) is a South African lawyer and Senior Researcher at the Free Market Foundation.

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