Private sector partnership reduced load shedding, next targets: Transnet, logistics, crime, corruption – James McKay

We have passed 50 days without load shedding in South Africa, even as the cold of winter begins to bite when electricity demand normally increases. The CEO of the Energy Council, James McKay, told BizNews in an interview that the lack of load shedding is due to a partnership that the government formed with the business sector. While business “is not lifting the spanners” at Eskom, their involvement in capacity mobilisation, strategic planning, and accountability discussions has been instrumental, he said. McKay highlighted a significant shift from previous political resistance to private sector involvement in state-owned enterprises. This collaboration, he said, extends beyond the energy sector, encompassing transport, logistics, crime, and corruption. Progress is being made on a new transport master plan, which is advancing through Cabinet, and efforts are underway to modernise crime monitoring capabilities in South Africa, according to McKay.

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Extended transcript of the interview  ___STEADY_PAYWALL___

Linda van Tilburg (00:00:00)

South Africa has gone past 50 days without load shedding and that would not have happened without the intervention of the private sector and we have James McKay, the CEO of the Energy Council of South Africa in the Biznews studio to talk about load shedding, energy policy and the partnership of B4SA with the government. James, a very warm welcome to you.

James Mckay (00:30.18)

Thanks, Linda, it’s wonderful to be on Biznews.

Linda van Tilburg (00:33.652)

Has the business sector stepped in and saved the day with load shedding this year?

James McKay (00:39.108)

 I think that we’ve got to be quite clear on the way we articulate this. It’s a partnership and I think it’s a very important context that we reflect on years of state capture and corruption, which people will know about who follow South Africa. In the buildup to 2023, I think importantly, really what we saw is the KZN riots in July 2021. We then really saw a collapsing ESKOM in the form of load shedding and a very big societal impact. Less visible in society was also sort of a very steady, rapidly declining Transnet in the form of rail and port performance.

 Then towards the end of 2022,  AndrĂ© de Ruyter came out with a large accusation around corruption and non-performance at the power station, which was then echoed internationally by the Financial Action Task Force globally putting South Africa on the grey list.

So, I think this really was the low point, a huge turning point where government and business sat down together. I think credit to the President’s previous political dispensations didn’t and weren’t prepared to accept any sort of an engagement process with business.

 But, everyone agreed we have to do something and this is not that business can’t do it on their own and the government can’t do it on their own. We have to create a partnership. We have to focus on delivery. To be honest, we’ve got to have some really hard discussions and we’ve got to move quickly.

So, that was how the partnership was framed and how it was born, so to speak. We are now 12 months on and certainly business is not lifting the spanners at the power stations, we’re not doing the work of Eskom. But, I think that the mobilising capacity, creating transparent, robust conversations around the planning, the actions, are things in place? Are things resourced? If commitments are being made, are people being held accountable?

That has made a huge difference and bearing in mind that the partnership was crafted across the three legs of energy, transport, logistics, crime, and corruption, effectively mirroring what this crisis said on the energy, transport, logistics kind of collapse, and then how do we take corruption seriously and how do we get off the FATF grey list?

James McKay (03:01.092)

At the end of the day, this is all about mobilising business confidence to unlock investment and grow our economy. So, I think put in that context, one sees the partnership in a very different light. I think also the good news, there’s been a commitment that the partnership will continue.

 So, the president and the business CEO leads have said, an election is a date in the calendar and we’re not doing this for political party support. We are working with the government of the day to recover economic growth, create jobs and get our economy moving. I think it’s a very powerful message and the message I think is important. That’s what people should understand. 

Linda van Tilburg (03:44.116)

Well, there’s of course the assumption then that the president will continue. So, you are confident that the next government will also honour this/

James McKay (03:51.748)

That’s why I said we’re not doing this for political reasons. On the 30th, we will work equally with commitment and enthusiasm with the government of the day. So, I think that I’m confident that the elections will be good. They’re going to be robust, and competitive, but I don’t think that we’re going to have a fallout and I think it’ll be, in a sense, good for the economy that we start to see competition in our democracy and that we see a robust competition and again, there’s greater transparency and accountability, hopefully, that comes out of that.

Linda van Tilburg (04:29.268)

Well, you still see cynicism among voters who are saying that the lack of loadshedding is because of the election. So is it not?

James McKay (04:38.212)

No, I mean, it’s not a conspiracy theory. They’re not burning diesel to try and desperately keep the lights on. It’s technically not possible to burn enough diesel to get out of load shedding. Otherwise, they would have done it some time ago. I think we’ve got to acknowledge, as I said earlier, that there’s a lot of scepticism and sort of distrust from years and years and years of poor leadership, bad politics, et cetera.

So we can’t just take that off the table, But I think we are at a position now where something really is changing and a lot of the sceptics are saying, okay, we’re seeing it and we recognise, we see the data. It’s not a conspiracy theory. 

It’s not electioneering, but we want to see a little bit more of it before we really sold on it. But, it comes back to the point that we’ve got to create now a new look-forward approach rather than keep digging into the past and saying this must be corruption or some sort of conspiracy theory. We really do have to move forward just from an economic and societal sort of perspective. So, I think that’s the important message that we are focusing on and the politicians and the politics will be what they will be, I think.

Linda van Tilburg (05:52.98)

So looking forward, as you said, will we eventually see the back of load shedding and if so, when?

James McKay (06:00.42)

Many have tried to call the data of loadshedding and have failed. There is no crystal kind of ball that we can look at. So, to give people kind of a little bit of confidence that this didn’t just suddenly materialise a month before elections, the technical platform of the turnaround plan and the maintenance recovery plan was laid probably almost two and a half, three years ago. 

Iit was started under Andre de Ruyter and Jan Oberholzer’s leadership. What was very important at that time, I think the political understanding supported the financial capability to implement, there were a lot of other things missing. I think under Mteto Nyate’s chairmanship, very importantly, he created that political support and understanding, focus on implementation and taking urgent action. They then got the National Treasury Debt Relief Bill through and the National Treasury stepped in to help clean up a lot of the procurement aspects that were dogging the maintenance recovery plan.

Then there was a change in leadership and Dan Marokane as the new CEO has been very good at focusing on lifting the spirits and the pride and the operating focus and the discipline in the organisation. And then business coming in has just also created that sort of focus, confidence and accountability. 

So I don’t think it’s any single personal group who we could say, well done, you’ve solved load shedding. This really has been a partnership and a lot of work over many hard years, but we’ve done quite a lot of scenario planning and modelling with governments through the NECOM (National Energy Crisis Committee) structure.

We’ve looked at various scenarios and essentially we’ve said, from a model’s perspective, we can get to Stage One load shedding by the end of 2024. There’s still work to be done to recover energy security and that will be by the end of 2025. So, we said we’ve turned the corner, we’re on the path and we’re on track.

Linda van Tilburg (08:07.284)

But I saw the statement from the Minister of Electricity, Dr Ramokgopa, that the country may be generating too much energy now and is putting power stations on cold reserves. Is that a problem?

James McKay (08:18.02)

Well, it’s a better problem to have, but yes, so we must also recognise it as important, and the energy modelling and scenario planning we’ve done around load shedding has a significant component of now rapid growth in wind and solar, far exceeding forecasts and expectations. 

Even if we just look from 2022 to 2023, we had probably four times the amount of forecasted behind-the-metre solar PV being built in South Africa versus what was projected.

So, this is also making a huge contribution. The system operator in Eskom says, fantastic, solar is very dependable. We see that coming through in the middle of the day. South Africa has wonderful solar resources. Wind power is also really starting to create a big impact. It plays very nicely into the evening peaks. 

We are ending up and starting to have surplus generation at certain times of the day, the problem is that the coal system remains very unreliable. So, there are consistent failures and the system operator now has to deal with the challenge and instability of those system failures. But it’s not necessarily now, I think we’re moving out of being able to meet demand. It’s about system reliability that is going to be a big challenge for the system operator.

LInda van Tilburg (09:42.612)

So if we look at this partnership that you have with the government at the moment, where else are you making a difference? Like in rail services?

James McKay (09:51.574)

So certainly the partnership has these three key legs: energy, transport, logistics, and crime and corruption. The transport and logistics work has been focused on a new master plan, recovering the performance within Transnet across rail and port and there’s been really significant mobilisation then of logistics providers to help support that, get a new transport master plan through cabinet. So, they’re making good progress. 

Similarly in the crime and corruption space, there’s now been a not-for-profit company registered called Business Against Crime. That company is helping to create sort of data forensic and IT capabilities to support some of the ambitions around modernising our f crime monitoring capabilities in South Africa. So, that’s part of it and then also supporting the NPA in terms of forensic capability, and legal audit services to prosecute and move through on the corruption cases that came out of the Zondo Commission. That is the last step for us to be able to get off the FATF grey list, which is very important to our investment outlook.

Linda van Tilburg (11:06.804)

If we look at solar and wind, we motored forward with where South Africa is now in terms of moving towards net zero carbon emissions.

James McKay (11:19.78)

It is a very difficult one because we’ve lost a lot of time and if we look at the maintenance collapse in coal, we’ve now had to spend a lot of time and a lot of capital recovering that. We’re moving through load shedding but the previous sort of targets of decommissioning coal, which is how we get our emissions reduction down, has been delayed. 

James McKay (11:45.828)

So, I think we’ve got to accelerate now and focus on keeping the grid expansion moving. We’ve now got our electricity regulation amendment bill that was passed last week by Parliament. It’s on the way to the president for assent. That is a huge trigger around reform. So, I think importantly, there’s at least now a very clear policy direction. Investors and I think business can take a lot more confidence. They know what the forward-looking plan looks like in the energy sector.

However, we still need to build the capability and improve on the speed and scale at which we’re moving. Only then can turn around and say, right, we’re not confident enough to decommission the coal stations and then we can start to get emissions down. So, I think there is a little bit of a hiatus and there’s some strategic work and thinking that we’ve got to do around how we get back to our net zero pathway. But those are the challenges that we face.

Linda van Tilburg (12:43.06)

So what about nuclear energy?

James McKay (12:47.236)

That is a difficult one because there are so many technologies that will come at us, you know, in this energy transition. It’s not just nuclear and all of that. If we think of things like green hydrogen. So, the key to these technologies, are they commercially viable. And yes, we can identify an important technical role in the system for them. But can we afford them? Are they commercially competitive and viable? we, you know,

So I think when it comes to nuclear, we are finishing or this year we’ve got this second Koeberg unit which is going through midlife intervention, so a 20-year extension. That I think is on track. There were some good learning curves from the first unit. So we will have Koeberg back up and running by the end of this year. I think it’s a very reliable, good source and that is another 20-year extension.

New nuclear, the big decision will be large-scale nuclear really is unaffordable and probably outside of a small developing economy such as South Africa. So, we look to new technology and innovation around small modular reactors. My view there is it’s only the Chinese that is going to be able to lead the space. I think their target is 160 gigawatts of new nuclear units to be built by 2040.

The rest of the world, unfortunately, I think has got very ageing fleets and is still shutting down nuclear. So, I think that in my view, if the Chinese can show the technological breakthroughs that bring the cost curves down, and bring those learning curves through in the same way as we saw wind and solar, nuclear will be a great application. But I don’t see the French, the US [breaking through] and the UK is struggling with their Hinckley project.

Those are not models that we see in speed and scale and price that’s commercially viable for an economy like South Africa. So, I think there’s a place for it, but a lot of work still needs to be done.

LInda van Tilburg (14:49.524)

So if you looked a year back, you know, where we were last year and where we are now, are you far more positive about what’s happening in terms of energy in South Africa?

James McKay (15:00.548)

Yes, so I think what we were focusing on a year ago is just trying to make sense of load shedding, making sure that it just doesn’t continue to get even worse. There were lots of discussions and talks about blackouts and going even beyond stage six. So, we’ve moved through that. We’ve also moved through the policy quagmire. We’ve now got the ERA Amendment Bill done. The new transmission company is registered and the unbundling of ESKOM is going ahead. The transmission development plan is moving forward towards implementation. 

We’re now in the space where I think the rest of the world is, we are battling with similar challenges in the energy transition. It’s just that they’re a lot more mature and they are probably 10, sometimes 15 years ahead of us. So, we’ve got a lot of catch-up to do, but I think the benefit and the upside is that we can take a lot of learnings and we can leapfrog in certain areas if we look to international partners.

We do need that international support and help, but I think it’s a much more mature conversation and we’re now in the energy transition game, whereas previously, to be honest, we were just trying to keep the lights on.

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