Comments on Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa
9 September 2019 3:29 p.m.
Dear Portfolio Committee on Economic Development,
This policy adjustment proposal by Treasury is partly well written and researched and partly misled. There are 3 main points which I think will either make the proposed reforms fail or the envisioned outcome fail to be realized.
1) First and foremost is ENERGY availability and generation: The policy adjustment proposal fails to recognize that without Energy expansion, the economy will never grow. This is not only the basic law of economic growth, it's also the fundamental law of physics. I have made a strong argument that you can not expect to have say 5% economic growth if your energy generation and distribution did not growing by 5% prior to your economic growth (mark the word PRIOR). The proposed selling of ESKOM coal fired power station assumes that the country has sufficient generating capacity to cater for further economic growth. This notion is either devoid of basic principles or is deliberately disingenuous. Bottom-line is without expansion of power generation and distribution, further economic growth is impossible. The policy proposal should first and foremost insist on further expansion of power generation and reticulation on a more urgent basis, private sector should only be involved by creating new generation capacity, not by swooping captains of the existing ship and think energy will miraculously be created from thin air to grow this economy. The report also points out the need of least cost version of IRP. It refers to the model revised by CSIR from the DOE base case IRP model of November 2016. Treasury proposals and inferences have failed to recognize that although CSIR model removed constraints on DOE model yet miraculously or naively introduces ASSUMPTIONS in the CSIR model that made their renewable case less expensive. Even employment figures quoted are largely based on renewable construction and manufacturing (and assumes that the inevitable mechanization in manufacturing will not happen), and also assumes that none-renewable sources do not have construction and manufacturing components as well (see the attached report for more objective comparison of all of these technologies). The assumptions that were introduced by CSIR were not only unrealistic, but they were impossible to ignore if their model was to be considered. To highlight two of these assumptions: CSIR did not consider the cost of new distribution network that will be required to connect these renewable to the current grid. The other major assumption of CSIR was the ignoring of the cost of storage (either by battery or other means such as pumped storage dams). Majority of renewable such as solar is generated during the limited time frames of the day, weather permitting, and all of solar generators are rated at peak generation. CSIR used peak generation of solar panels and applied it throughout the day, which is a fundamental error in their model which will significantly change the output of their model. CSIR ignored the peak demand of power by industry and failed to cater for the fact that industrial and mining machines will not be sustained by operating power demand only. To cater for peak demand, installed capacity will have to be significantly increased, either by more renewable capacity than they have proposed or other generators such as gas, coal and nuclear. CSIR did not include the cost of life span of renewable generators which is mostly 20 - 25 years at best. There are lots of defects on CSIR model that still need to be factored in, in order to determine the least cost version of IRP, therefore is not correct for Treasury to consider CSIR model as an appropriate model to follow. Treasury also failed to recognized that business and mostly household that have solar PV panels on their roof tops are heavily subsidized by their country men and women that do not have such luxury. Effectively one is able to have guaranteed power when his/her own system can no longer generate required power such as after sunset, yet such consumer is paying nothing towards maintenance and availability of such guaranteed power, thereby ensuring the poor subsidies the rich. The cost of renewable is not the cost of production when we can generate it (i.e during the daylight or windy times) but the cost of renewable is actually when we can have power when the sun is gone and the wind is not blowing. The attached report shows that at the moment renewable important as they may be for future sustainability of the planet, they are NOT the least levelized cost of generation.
Treasury criticizes the increasing costs of high electricity for the consumers, especially the poor, yet criticizes ESKOM for not approving independent renewable PPA programs claiming PPA costs are covered by the levies and will not affect ESKOM financial position, the two arguments are actually mutually exclusive, one cannot have lower electricity costs while including the independent renewable PPA. Currently renewable energy is only viable if the cost of electricity is artificially elevated. It is important to subsidize the development of renewable energy in this country for future generations, but not at the scale that Treasury seem to suggest, this already has untold misery to the poor as it is.
2) The second fallacy in this policy proposal is private sector aptitude towards infrastructure roll out to democratize access: The USA has chosen largely to depend on private sector to roll out internet broadband. The reality in the USA to date has shown and proved that these private firms have successfully divided the USA into their own private markets. The map of broadband roll out in the USA clearly shows that there are not a single overlap of any company broadband roll out. Each company has its own well defined market defined by geographical boundaries. Clearly showing these private firms have sub-divided the USA into their own respective markets. The current broadband roll out map in the USA also clearly shows that the lower income and poor communities have been avoided by these private firms and if covered at all, they are only receiving substandard service in terms of speed and service reliability. In fact most municipalities in the USA are beginning to take on this responsibility of rolling out broadband to their citizens despite fierce opposition from the broadband private companies as well as getting stiff opposition from the communication regulator, suggesting both the regulator and the private company are in cahoots to only implements broadband roll out programs that cover the communities that will maximize their profits. It is a fallacy to expect private firms to take responsibility of democratizing access to resources. In the USA it was found that poor communities require private firms to spend more on infrastructure roll out but receive lower returns afterwards. The same is true anywhere in the world much so in South Africa where the poor in the extreme majority.
3) The third fallacy is the silence treasury has shown in reforming PMFA Time and again the small business and black industrialists have shown and complained about the PMFA as it stands. This act promotes the exclusivity of well connected firms either by virtue of incumbency or political connectivity. It is disingenuous for Treasury to propose policy adjustments, claiming they are geared towards SMME's for their potential to increase both economic participation and economic growth and yet remain silent about the act within its own sphere that impedes any form of reforms. Even government departments that claim they want to include SMME's in their procurement endeavors, they quote PMFA as their greatest obstacle. No one says there should be inadequate financial management, but this act should be bias towards SMME's and start-up suppliers. This act is the biggest red tape there is in the republic and is the biggest elephant in the room of Treasury. Treasury cannot talk about red tape without talking about PMFA. Most of the clauses in the act are well meaning, but it has few clauses that makes it impossible for any small business to participate in the government procurement, and it does not promote transparency, because only the incumbents have the right to name "quality" and "cost effectiveness".