It’s now time for political decisions

1. It’s now time for political decisions Mike Muller Visiting Adjunct Professor Graduate School of Public and Development Management Wits University

2. What more can be said? And done? • After extensive hearings, little new to be said about the specifics of ESKOM’S tariff proposal • Broad consensus: • Proposed increases unacceptable, but • Two key questions not resolved: • How to fund capacity to avoid future blackouts? • Who should fund? • (Loan funding red herring – how will it be repaid?)

3. What should now be done? • Submit that the NERSA process is now • Deeply flawed • Unreasonably constrained • Indicative of systemic problems • The correct alternative: • Return the matter for political decision

4. May 2008 submission ….If electricity had adopted water sector approach… (… long-term, smoothed tariffs) • ESKOM would not need current increase • Home users would not be threatened • Economy and jobs would not be undermined • Industrial plans would reflect real energy costs • Historic mistakes! • Electricity was priced by NERSA for surplus • When sector clearly moving into scarcity • Prices made no provision for new capacity • Applied short-term thinking to long-term process

5. May 2008 suggestion: • Since crisis caused by: • Government policy failure • Indecision on generation model • Unclear mandate to ESKOM and NERSA • Regulatory failure • NERSA’s failure to identify obvious trends and threats • Consequent failure to provide sustainable pricing • Stabilisation costs • appropriately borne by Government as shareholder • through recapitalisation of ESKOM.

6. May 2008 conclusions:Key matters to refer to Government:- • Recognise & compensate financially for incorrect policy and regulatory decisions • through capital grant (increased equity) • Then begin to price for future scarcity • 20 months later, decisions still not taken!!! • Framework remains uncertain!!!

7. Why the current process is dysfunctional • New option tabled to resolve the problem • Cabinet considering “part-privatising” some generators • An alternative to increasing Government’s equity • This option not mentioned in NERSA’s issue paper • Yet could have dramatic impact on tariffs • Option not adequately interrogated or consulted • Notwithstanding key function of independent utility regulators: • bridge information gap between public and private • (& create predictable conditions conducive to private investment)

8. Implications of new developments… • Public interest implications not adequately publicised, analysed or consulted; • Specifically • Competitive issues of ad-hoc part-privatisation? • Pricing for electricity from part-private generating entity? • Take-off guarantees to such a generating entity? • Will preferential treatment reduce use of least cost supplies? • Cost of guarantees for the price of electricity to the public? • Evidence that private engagement will increase efficiency? • No framework in place to evaluate public interest

9. The appropriate way forward • These matters require political guidance • Without this, NERSA not competent to make a determination • Since , • This impasse created by failures of commission and omission, on the part of both NERSA and Government • Key option a choice between government or private equity • Implications not analysed or presented to the public ...

10. The appropriate way forward Submit that : • Appropriate for NERSA to recuse itself from these decisions, • Request that Government either • Rapidly, establish a framework for NERSA to use, or • Consider the issues tabled, the limited options that remain, and • Make a direct political decision, in the national interest

11. Thank you - and good luck!