ESKOM: Corporate Powerhouse or Green Company?

Eskom, Africa's largest electric company -- also a major coal and nuclear enterprise, will be South Africa's Corporate Environmentalism Exhibit #1 during the Johannesburg World Summit on Sustainable Development (WSSD) in August and September. Eskom has already joined the world's elite greenwash companies with its rhetoric, presence in Business Action for Sustainable Development and its embrace of the Global Compact. In this article, EarthLife Africa looks at the reality, and finds that the company has behaved in ways that contrast with Global Compact Principles seven (support a precautionary approach to environmental challenges) and nine (encourage the development and diffusion of environmentally friendly technologies.)

Last year the South African national power utility, Eskom, received the Power Company of the Year title at the Financial Times Global Energy Awards ceremony in New York. The award was presented in recognition of Eskom's success in "providing the world's lowest-cost electricity while at the same time making superior technological innovations, increasing transmission system reliability and developing economical, efficient and safe methods for combustion of low-grade coal." ¹

Eskom is the African continent's largest energy utility. The company is ranked within the top five global energy utilities and is the primary source of greenhouse gas emissions in South Africa. Despite the accolades awarded by the Financial Times, Eskom has become a growing target of dissent drawing the ire of community groups, trade unions and environmentalists fighting utility privatisation. ²

Eskom's 2001 Annual Report, 'Embracing Sustainable Development' paints a one sided picture of the development footprint of one of Africa's most influential indigenous multi-national corporations. The corporate powerhouse should come under careful scrutiny for its claim to implement sustainable development. Its financing for the Johannesburg World Summit on Sustainable Development ³ and the role played by Eskom CEO Reueal Khoza as the Vice Chair of South Africa's Business Coordinating Forum ⁴ which works closely with the newly formed Business Action for Sustainable Development, also warrant serious investigation. ⁵

This article presents some of the often-overlooked impacts of Eskom economic priorities on the social and environmental conditions of South Africa. It concludes with a list of demands to assist the South African power utility in moving beyond compliance with the nine principles outlined in the United Nations Secretary General Global Compact ⁶ initiative to true socially and environmentally sustainable development.

Company Profile

Eskom generates over half the electricity produced in the whole of Africa and aims to extend its transmission grid into neighbouring sub-Saharan countries. With a generating capacity of over 40,000 megawatts, it is one of the largest utilities in the world. Eskom's vision is to " provide the world lowest cost electricity for growth and prosperity." ⁷

Currently, Eskom produces 90% of the South Africa's electricity generated for resale and is the monopoly domestic public power utility. Eskom also owns and operates the national transmission system, a power line network measuring over 316,634 kilometres which transports electricity throughout South and Southern Africa. It sells energy directly to some 6,000 industrial, 18,000 commercial, 70,000 agricultural and 2.5 million residential customers. ⁸

In addition, Eskom operates 13 coal-fired power stations, a 1,930-megawatt nuclear power station, two gas turbine facilities, two conventional hydroelectric plants, and two pumped-storage stations in the Drakensberg and the Western Cape.

Coal is King

Coal is the major fuel source used by Eskom, and will remain so for the foreseeable future. ⁹ In 2001, Eskom used 94.14 million tons of coal. Eskom receives its coal at rock bottom prices because the high volume of supply contracts awarded to coal companies allows them to sell non-export quality coal cheaply. Eskom has standard industrial tariff agreements with a host of different companies throughout South Africa. It also has commodity-linked pricing agreements to supply electricity to the aluminium, ferrochrome and other energy intensive industries.

Due to large and relatively easily recoverable coal reserves and lax environmental regulation, the cost of South Africa's electricity is of the lowest in the world. However, by 1990, due to its programme to increase capacity, Eskom had a foreign debt of 7.4 billion rands, about 45% of total pubic sector foreign debt and 16% of South Africa total foreign debt (Horwitz, 1994). ¹⁰

Thus the cost of government plans to provide abundant cheap electricity to stimulate economic development and investment has been borne by all South Africans. As Jubilee 2000 South Africa observes with justifiable bitterness, more than half of the World Bank's $200+ million in apartheid credits from 1951-66 were for Eskom's expansion, including coal-powered stations. But none of the benefits found their way to the homes of the majority of citizens (Bond 1999).

While abundant sources of cheap energy represent an important comparative advantage for South African industries, this low cost is attributable, at least partly, to the lenience of environmental regulations. Furthermore the low price of energy provides users with little incentive not to overconsume. The heavy reliance on coal for the country's energy means that the environmental impacts are generally more severe than they would have been if the economy were based on other energy sources. ¹¹ The availability of cheap coal also provides little incentive for developing alternative power sources nor encourages conservation.

Nuclear Power

In the UN Global Compact the Secretary General asked world business to support a precautionary approach to environmental challenges (Principle seven) and encourage the development and diffusion of environmentally friendly technologies (Principle nine).

However, in violation of these principles, Eskom continues its intensive efforts to develop a South African nuclear Pebble Bed Modular Reactor (PBMR) - a mini-reactor, which is being hailed by the company as the safest, cleanest, and most cost efficient nuclear power source. Eskom has attempted to cast the reactor as a global climate saviour, exploiting concerns over global warming by misrepresenting itself as a carbon-free electricity source and least cost carbon mitigation option.

Anti-reactor sentiment is growing, with support from the National Union of Mineworkers and other major South African unions, Southern African Development Corporation and International organisations. ¹² However, Eskom continues to spend public money - over 450 million rands since 1993- to develop a new generation of nuclear power plants. ¹³ The money being gambled on nuclear power comes entirely from of South African taxpayers and electricity consumers. It siphons off resources from other priority areas such as bringing power to all urban and rural communities and cleaning up emissions from the coal-fired plants.

Despite growing public opposition, Eskom hopes to obtain South African government approval for the project.

Utility Privatisation

The South African government is in the process of finalising a blueprint to restructure and partially privatise South Africa's 21 billion rand power sector. Public Enterprises Minister Jeff Radebe has stated that 10% of Eskom generation will be sold to a national company by next year and foreign bidders will be invited to tender for a further 20% shortly thereafter. ¹⁴

Among the key aims of restructuring process are to improve the financial health of the industry, bolster the quality of service and supply and ensure electrification targets are met. However, the Congress of South African Trade Unions (COSATU) believes that electricity should remain publicly owned and controlled. Public ownership, they say, allows the state to drive universal service provision, ensure that electricity contributes appropriately to overall energy and industrial policies, and determine affordable pricing structures. Private ownership or a more commercial operating structure would shift Eskom's focus towards profit maximisation at the expense of social objectives. ¹⁵

The privatisation proposal forms part of a broader restructuring effort that, according to the Government's own consultants, will raise the cost of electricity to households by between 22 and 50 percent. The proposals appear to aim almost exclusively to raise funds by selling public assets. According to COSATU the privatisation of Eskom's privatisation would contradict the Government's previous commitment to enhance services for the poor and support economic development.

In October 2000, unions across South Africa launched a general strike against the government's privatisation plans. At least two thirds of all workers -- more than five million people-- throughout the country participated in the action, according to COSATU. "The selling off of these assets has a negative bearing on the national development programmes, such as electrification, the installation of and access to telephones, the accessibility of water etc. to millions of South Africans," argued the National Union of Mineworkers, which called the action a "strike against poverty" ¹⁶

Electricity Crisis in Soweto

Soweto, home of the Convention Centre which will host the Global NGO forum of the World Summit on Sustainable Development, is also the site of an intense struggle between local residents and Eskom. Angry consumers have accused Eskom of cutting off their electricity indiscriminately and without warning.

Community groups claim that electricity rates in Soweto are disproportionately high. Soweto residents are charged 28 cents per kilowatt/hour while Sandton, (the site of the main UN Summit) residents pay 16 cents and big business pays seven cents. In rural areas, consumers are charged 48 cents per kilowatt/hour.

"Eskom proudly claims to be one of the New South Africa's success stories, having provided electricity to more than 300,000 households each year, yet, many tens of thousands cannot afford the full-cost-recovery policy that Pretoria's minerals and energy ministry adopted in 1998," according to journalist Patrick Bond. "The neoliberal policy of cutting those who cannot afford their bills was especially unfortunate, because virtually all black South Africans were denied Eskom's services until the early 1980s due to apartheid racism," he adds.

In Soweto this is amplified by the fact that nine out of 10 households in Soweto are behind in electricity payments, and six out of 10 have had their power supply cut in the past year. The township's debt to Eskom has spiralled to a billion rands. Some households are more than 30,000 rands in arrears, and a large number of arrears are more than four years old, suggesting a long-term debt trap for many low-income households.

Apart from the disconnections, another 10 percent of households had their electricity cables permanently removed by Eskom for allegedly reconnecting illegally to the electricity grid. Some households have gone without power for four years. A survey by the Municipal Services Project concludes that the health and safety implications of these cutoffs are serious. The MSP concluded that electricity was unaffordable and a flat rate must be brought back. But despite the research, Eskom said they would go ahead and cut off 20,000 households per month. ¹⁷

On March 21, 2001 the day that South Africa celebrates Human Rights Day, more than 600 people marched from Orlando West to the council's offices in Jabulani to protest against evictions, water and power cut-offs, and to protest against the national government's moves to privatise Eskom.

Three months later, angry Soweto residents marched to Johannesburg Mayor Amos Masondo's house, in the formerly all-white middle-class suburb on Kensington, to protest his failure to respond to their demands. They attempted to disconnect the mayor's electricity and water supply. The protests, led by the Soweto Electricity Crisis Committee (SECC), culminated in an Eskom boycott. ¹⁸ Among their demands were to:

• 101 Alliance for a Corporate-Free UN
• 187 Privatization