South Africa inaugurates its first new power plant in 20 years

After many months of negative economic results, South Africa can use some good news. The announcement August 30 of the inauguration of the nation’s first new power plant in twenty years is significant for South Africa’s anemic economic health.

ESKOM, the state owned electric utility, has been suffering from poor management and poor planning for over a decade. As a result, the expansion of electric power has not met the growing needs of both industrial and household users. Unprecedented rolling power outages have become the norm. New industrial investments have been discouraged because of the power deficit. The decline of ESKOM has done significant damage to the overall economy.

The new “Medupi” coal-fired power plant inaugurated by President Zuma in Lephalale looks like the beginning of a turn around for electricity. The plant’s initial output of 750 MW will go a long way toward the reduction of outages. It is expected to reach its maximum output of 4,764 MW by the end of 2017. South Africa is one of the biggest producers of coal in the world, and has wisely opted to use coal to make up some of the power deficit. At the same time, renewable energy investments are being encouraged.

After the African National Congress was elected to office in 1994 under the leadership of the late Nelson Mandela, one of its promises was to bring electric power to the working class citizens who were deprived under the apartheid regime. In addition, the end of the white minority regime opened the door to new investors who were waiting for a political settlement. Unfortunately, the surge in power usage was not anticipated by the management of ESKOM, leading to a crisis beginning a decade later in the year 2005. 

On the basis of my own involvement in electric power in Africa as a consultant to the New York firm Contour Global, I know that there is a lot of private investment activity in South Africa going on at the present time. I expect that the power problem should be overcome within the next ten years or earlier because the private sector is enthusiastic about making investments in the power sector.

The ESKOM experience in South Africa is illustrative of a wider problem under the post-apartheid leadership of the African National Congress during its 21 years in power. The political leadership under Presidents Mandela, Mbeki, and Zuma decided to continue the policies of their white predecessors who preferred government ownership of the main economic institutions, especially in infrastructure and transportation. Unfortunately, management practices under the ANC regime have been highly politicized at the expense of efficiency and profitability. Reform of ESKOM should set a precedent for the entire system of state-centered economic governance. Hopefully, privatization will accelerate, the contrary wishes of the powerful labor unions and the South African Communist Party notwithstanding.