SA’s energy market needs true free market deregulation, not Public-Private Partnerships

Zakhele Mthembu, legal researcher at the Free Market Foundation, discusses the energy situation in South Africa and the government’s monopoly over the energy market through its state-owned company Eskom. Mthembu argues that the government’s partnership with the private sector has led to corruption and patronage networks that have become entrenched in the system. Instead, he advocates for true free market deregulation in energy and the removal of the ban on citizens pursuing a trade in energy. Communities should be allowed to generate their own power and sell it to other communities, and private citizens should have the liberty to determine how best to solve their energy problems. The article concludes that a commitment to the free enterprise system is needed to prevent a prolonged march towards serfdom in the country. Find this piece below.


Deregulation and a true free market in energy instead of Public-Private Partnerships

As the energy situation in South Africa unravels with every passing day, calls for the private sector to alleviate the situation grow. Yet with every Public Private Partnership we see, the patronage networks that make corruption endemic seem to be cultivated and entrenched. Who or rather what is to blame? The marriage between the government and the private sector in energy was solidified through Independent Power Producer Agreements. Which were entered into for the first time in 2018 by the then Energy Minister Jeff Radebe. This saw private companies sign contracts to sell power to the government generated at ‘renewable’ power stations or facilities of the respective company.

For anyone in favour of free enterprise this is already a problematic situation. Why aren’t the enterprises selling power to the market? Why get access to a guaranteed customer in the state well before entering the market? Why does the government insist on shielding private players instead of letting them compete in the open market? The questions are plentiful and answers lacking.

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The energy market in South Africa is monopolized by the government through its State-Owned Company Eskom. It is an injustice and an abuse of dominance in the South African electricity market that the government would force its citizens to patronize it and only it for their energy demands. 

The Constitution of The Republic of South Africa, 1996 does not permit the government to be sole provider of energy or any good. The Competition Commission is permitted to act against state owned entities, but it has been quiet about the clear abuse of dominance by Eskom in violation of section 4 of the Competition Act.

Instead of opening the market, giving South Africans the freedom to trade that is guaranteed them in section 22 of The Constitution. The government seeks to interpret the ‘may be regulated by law’ to substantively mean the restriction or banning of said trade as is the case with energy generation or distribution.

South Africans who appreciate the power of free enterprise and markets must not be fooled by Public-Private Partnerships. The idea of a connected individual getting a contract from the state in such partnerships is not just a mental exercise for us as South Africans. This is the case everywhere though in the world, with the United States having the famed revolving door between arms manufacturers and the U.S Congress. 

If corruption has taught us anything as South Africans and dare, I say citizens of the world, is that the government and business working together is not a good idea. The idea of the government picking winners the market is problematic from an economic perspective in its inefficiency and from a legal perspective in its violation of natural justice.

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Economically, the government cannot create value. It can only take already created value and redistribute it. Yet some will say when those who are given the created wealth of others taken through taxation use it for their profit making, this is the government creating value or wealth. This of course ignores the fact that private individuals create value without the government. In the sense that trade and profit have no causal relationship with the edifice of the state. Whereas the government ‘creates value’ thanks to its taxation of people who have already created wealth either through trade or subsistence labour.

Legally, the government should not be picking among its citizens, those who will be given special contracts for whatever reason whilst the rest are barred in one way or the other from being afforded the opportunity to partake in any state monopolized market.

It is a violation of the spirit of equality before the law when you can have a class of citizens that owe their material wellbeing to the taxes of their neighbours doled out to them for providing whatever service. If those taxes never got taken from their neighbours, we do not know if they would have ended up in the business accounts of the ever-flashy individuals we know as tenderpreneurs.  

Using the energy market as an example, the government should as a matter of principle, remove the effective ban on citizens to pursue a trade in the generation and distribution of energy. The regulations which it is allowed to pass constitutionally should not be interpreted by the state to be a substantive ban in the regulated trade. It is a ban substantively given the high bar, virtually impossible for most to scale, which come with pursuing a trade in energy.

Communities should be allowed to generate their own power with no apparent restriction on how much so that they can sell it to other communities should they wish to. Private citizens individually or in associations like communities should have the ability to trade freely in a good/service that is central to the continued sustenance of their quality of life.

Read more: Energy problems can be solved without state of emergency, but Eskom needs shock therapy – Prof William Gumede 

Instead of the unjust and inefficient Public-Private partnerships which are vehicles for corruption and enriching political elites. A commitment to the free enterprise system wherein individuals, families, or whole communities in their private capacity have the liberty to determine how best to solve their problems, is needed. Lest our march down this road of serfdom we are on as a country get prolonged. 

*Zakhele Mthembu BA Law LLB (Wits) is a legal researcher at the Free Market Foundation. The views expressed in the article are the author’s and not necessarily shared by the members of the Foundation.

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