City of Tshwane must privatise power stations outright – FMF

Open-Ed

  • In its submission yesterday to the City of Tshwane, the Free Market Foundation (FMF) has proposed that the municipal government wholly privatise the old Rooiwal and Pretoria West power stations, or alternatively formulate a lease agreement that is resistant to malicious political actors down the road.

This comes after the City signalled its intention to lease the decommissioned power stations to private sector operators to begin generating electricity once more. Read more 

The FMF welcomes the City’s initiative. It has long been clear that the increasingly incapacitated state alone would not be capable of solving the countrywide electricity crisis that it spawned with its monopolistic activities, and that significant private sector involvement would be required.

Related news: City of Tshwane owes Eskom R4.7 billion

‘Nonetheless, the FMF is concerned that the initiative appears to (unduly) assume the premise that the power stations must remain the owned property of the City [and assumes]that South African politics, moreover municipal politics, is generally sensible and benign,’ writes Martin van Staden, FMF Head of Policy, in the submission to the City.

The FMF warns that while the current government of Tshwane might look positively upon an independent operator generating electricity for the grid, future administrations could conduct themselves maliciously and undermine the operators or even cancel the lease for partisan reasons.

‘The business-as-usual approach is fraught with risk, which is why the FMF has proposed that Tshwane either privatise the power stations outright, or subject them to a stateproof lease,’ says Van Staden.

Outright privatisation of the Rooiwal and Pretoria West power stations is the FMF’s preferred policy outcome. This would remove politically partisan considerations entirely from the new operators’ decision-making processes, and allow them to focus exclusively on generating electricity for profit. The City could include a restrictive condition in the sale, requiring that, while the properties will be private, they nonetheless must be used to generate electricity.

As a next-best option, the FMF suggests a ‘stateproof’ lease, meaning an agreement that protects the operators – and enables the operators to protect themselves – from future political harm or hostility.

Such a lease agreement, the FMF argues, should be extended from the currently proposed 40 years, to 99 years, to place ‘the expiry of the lease well outside of the current “era” of South African politics with all its associated malices and score-settling.’

The lease must also be unilaterally renewable by the operators, and the ability of the City to cancel the lease must be strictly limited.

‘The lease must specify that the lessees are the ones to manage and operate (on a source agnostic basis) the power stations, not the City. This should be a lease in its true sense, not a service level agreement,’ continues the submission.

Click here to read the FMF’s full submission.

Author: Martin van Staden

Martin is Head of Policy at the Free Market Foundation.

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