Tag: Energy

Business Unity South Africa (BUSA) has assured President Ramaphosa of the business community’s support for current efforts to stabilise electricity supply in the country and to secure the sustainability of Eskom as a power utility.

BUSA has made a commitment to leverage its membership in order to place expertise, skills and technological interventions at the disposal of government and Eskom, to reinforce actions that are currently being implemented to stabilise Eskom and to secure the supply of electricity.

BUSA’s engagement on these initiatives will serve to complement and strengthen the work being done by the management and board of Eskom in partnership with the Special Cabinet Committee on Eskom chaired by Deputy President David Mabuza and the technical review team on Eskom that is led by Minister of Public Enterprises Pravin Gordhan.

BUSA offered its commitment to President Ramaphosa at a meeting in Pretoria on Wednesday 3 April 2019, when Minister Gordhan updated South Africa’s largest business federation on the challenges facing Eskom and actions that are unfolding to mitigate the immediate crisis and secure the long-term sustainability of the power utility.

 

BUSA is the largest business confederation in the country and serves as an apex structure for a broad range of organisations that represent various sectors of business. It represents business on cross-cutting issues relating to economic, social, trade, environment and transformation in national and international structures and bodies and is the representative of business at Nedlac.

BUSA views the revitalisation of Eskom as the single most important priority for the economy and underpins inclusive growth.

The organisation has proposed the creation of a collaborative platform where business, government and Eskom can work together to explore practical solutions to address the short-term operational challenges facing the utility.

This platform will enable regular and transparent communication with the business community, lend operational and technical expertise and solutions, as well as leverage available human capital by secondment or other means.

BUSA will engage with its members on issues, including demand management, that could help to reduce pressure on the national grid.

Wednesday’s meeting agreed that greater public and business confidence pertaining to the supply of electricity depended on improved co-ordination and communication within government around Eskom, and between government and business. This applied similarly to government’s communication with the nation at large.

The meeting welcomed the increasing frequency and depth of communication by Minister Gordhan and Eskom chair Jabu Mabuza on the utility and called for this effort to be intensified.

President Ramaphosa welcomed the initiative presented by BUSA in the spirit of Thuma Mina and said the new channel for greater transparency and the sharing of information would facilitate and encourage improved co-ordination among stakeholders that would assist in the day-to-day improvement of the current situation.

Media enquiries:

For the Presidency: Khusela Diko, Spokesperson to the President – 072 854 5707

For BUSA: mediadesk@busa.org.za

Issued by the Presidency of the Republic of South Africa and BUSA

 

• Political stability required
• Policy certainty must be prioritised
• Credible plan for SOEs needed
• Structural reform critical 
• Pro-growth roadmap crucial  

 

Business Unity South Africa (BUSA) calls on SA Inc to effect the urgent and necessary economic reforms following Moody’s Investors Service decision to defer an announcement on the outcome of its review of the country’s sovereign credit ratings.

 

This is a welcome reprieve and ensures that South Africa will remain in the Citigroup World Bond Index, a key instrument which will enable the Government to continue raising much needed liquidity in the capital markets. SA Inc ought to take this as an opportunity to get its fiscal house in order and its policies aligned to a pro-growth and confidence-inspiring economic strategy, according to BUSA.

 

The five focus areas that BUSA views as critical in efforts to ensure South Africa retains its investment grade sovereign credit rating are: political stability, policy certainty, the reform of state-owned entities (SOEs), structural reform and a credible growth roadmap.

 

Political stability

In previous ratings reviews, Moody’s – as well as Fitch Ratings and S&P Global Ratings – had expressed concerns about political noise, noting increased pressure to pursue populist policies and on the country’s oversight institutions. With the General Election scheduled for May 2019, South Africa requires a political trajectory that inspires confidence in its ability to effect an economic turnaround. A free and fair elections process will also bolster confidence in the strength of the country’s institutions.

 

Thus far, the build-up to the General Election has been peaceful and all registered political parties have agreed to adhere to and subject themselves to the Electoral Code of Conduct.

 

In light of the ongoing Zondo Commission of Inquiry – and the testimony brought before it about political patronage and its role in state capture – and the recent signing into law of the Political Party Funding Bill, BUSA calls on political parties to be transparent about their sources of funding.

 

Policy certainty

 Land expropriation without compensation and the visa regime are two of the most significant policy issues that need to be comprehensively addressed. The Government needs to work with social partners in determining timelines, modalities and an implementation framework.

 

SOE reform

 Eskom remains the greatest risk to the economy and a comprehensive and an aligned position is required between the power utility and its stakeholders on how to effect a restructuring within the context of a broader overhaul of the energy sector.

 

In its monetary policy committee statement this week, the Reserve Bank revised down its growth forecasts for 2019 and 2020, citing weak business confidence and the potential resumption of load shedding. This highlights the gravity of the situation and the need for urgent intervention.

 

Structural reform

 South Africa’s skills and education framework remains out of alignment and continues to undermine the country’s growth potential. It has also been referenced by various institutions as a key impediment in realising the country’s growth potential as a developing economy.

 

Growth roadmap

President Cyril Ramaphosa released the Economic Stimulus and Recovery Plan in September last year. BUSA calls on the Government to move with speed on the establishment of an Infrastructure Fund and to work with all social partners, business in particular, in the formulation and implementation of the steps necessary both to inspire confidence and urgently reposition the country’s growth trajectory.

Business Unity South Africa (BUSA) notes with concern the National Energy Regulator of South Africa’s (NERSA’s) decision to grant Eskom above-inflation electricity tariff hikes against the backdrop of an economy that is underperforming.

 

BUSA cautions that the cumulative tariff over the next three years may undermine economic recovery efforts, as electricity is a major input cost for business. The organisation had warned during the NERSA conducted public hearings into Eskom’s multi-year price determination 4 application, that the economy would not be able to absorb above-inflation electricity increases.

 

The unintended consequences of today’s decision may result in a further decline in Eskom’s customer base, as users seek more reliable and cost-effective alternatives, exacerbating the depth spiral. BUSA had also cautioned against the cost of organisational inefficacies at Eskom being passed on to end-users and consumers.

 

“BUSA has consistently emphasised the need for any tariff adjustments to be considered on the basis of affordability, justifiability and prudence. It also needs to be assessed against any restructuring of Eskom to ensure a fit-for-purpose electricity supply industry,” said BUSA Vice-President Martin Kingston.

 

BUSA welcomes the further investigations that NERSA has undertaken to perform into prudency, efficiency and performance, as well as the Regulatory Asset Base.

Business Unity South Africa (BUSA) acknowledges the mobilisation of the engineering task team, many of whom were sourced from BUSA, to assess challenges at Eskom’s power stations. The focus on power stations is critical.

 

BUSA recognises that the timeframe that has been announced of four weeks underscores the urgency of the situation, but would hope that the mandate can be extended, as required, to ensure that the benefits of such an intervention can be optimised. It is also crucial to receive regular reports from the task team to ensure transparency and appraise all stakeholders of progress.

 

The organisation acknowledges that this intervention is limited to some elements of the nine-point generation turnaround plan, which is one of several required to address the many challenges confronting Eskom.  BUSA is currently engaging with the Government and other relevant parties to formulate an intervention plan which addresses all key issues.

 

BUSA emphasises that comprehensive and sustained consultation is required regarding interventions from key stakeholders, in order to ensure an integrated and holistic process to maximise efficiency and minimise omissions or duplication.

 

BUSA Vice-President Martin Kingston said: “We have consistently called for the business community to put its shoulder to the wheel by working alongside other social partners in tackling the challenges posed to the economy by Eskom’s current circumstances. This intervention needs to be aligned with other initiatives to maximise the impact of such collaboration.”

Business Unity South Africa (BUSA) is encouraged that manufacturing was one of the biggest contributors to the 1.4% growth recorded in the fourth quarter (Q4) of 2018. However, the 0.8% overall growth rate documented for the year is disappointing, especially because of the contractions in mining, construction and gross fixed capital formation, which remain a concern.

 

“Although moderate, the 0.8% growth recorded in 2018 is welcome, particularly on the back of a 4.5% improvement in manufacturing in Q4. However, the annual growth rate remains off target for the country’s goals of creating a sustainable, competitive economy and of ensuring that we generate jobs. It is a symptom of the overall structure of the economy, which remains concentrated, is not dynamic enough and agile. This is apparent in the low levels of participation by small business,” said BUSA CEO Tanya Cohen.

 

“Economic growth is a key prerequisite for South Africa improving its sovereign credit ratings, as well as retaining its only investment grade rating. There are encouraging signs, so BUSA remains cautiously optimistic that, with the right policy mix, the alleviation of uncertainty, reforms in state-owned entities, particularly Eskom, together with the political will to implement economic reforms, that South Africa can turn a corner,” Cohen said.

 

Business Unity South Africa (BUSA) agrees with the emphasis on economic growth, the pressing need to create jobs and prioritising skills and education, as outlined in President Cyril Ramaphosa’s State of the Nation Address (SONA).

 

“We also appreciate the President’s establishment of a commission on the 4^th Industrial Revolution,” said BUSA President Sipho M Pityana.

 

BUSA particularly commends the President’s commitment to deal with corruption, as well as the revelations coming out of the Zondo Commission of Inquiry. In this regard, the new law enforcement unit will, in time, go a long way in combatting corruption and put an end to looting.

 

BUSA concurs on the urgent need to implement an effective turnaround strategy at Eskom.  The organisation also welcomes the general thrust of policies mapped out both in terms of social and macro-economic initiatives, which come in tandem with programmes of work designed to give effect to the SONA. The speech is unequivocal in sketching South Africa’s national priorities and unambiguous about its policy direction, as well as setting the country on the course to become a dynamic future-oriented economy.

 

It is BUSA’s considered view that the economy is the foundation stone of creating a just and equitable society. Creating a conducive investment environment by lowering the regulatory burden and ensuring policy certainty is key to increasing South Africa’s chances of reaching its investment goals and making sure that business plays its part as a social partner.

 

Furthermore, a fit-for-purpose education and skills system, ensuring that South Africa is ready for the realities of the Future of Work, addressing poverty and inequality, dealing decisively with state capture and corruption, and ensuring that the state has adequate capacity are all fundamental pillars that will help support an optimal operating environment.

 

Although Eskom is the most pressing case among state-owned entities (SOEs), this is also the opportune moment to take decisive action on parastatals to ease pressure on state finances. At its recently concluded Business Economic Indaba, BUSA expressed a willingness to work with Government to play a constructive role in addressing the challenges faced by the country’s SOEs. Business remains ready to play its part and to be at the fore of initiatives aimed at getting the South African economy growing again.

 

BUSA emphasises that meaningful and aligned action, as well as implementation, are now needed to give tangible expression to and reinforce the national vision articulated in the SONA. It will also be crucial to hold Cabinet to account on ineffectual delivery.

 

“The announcements pertaining to the signing of the Competition Act Amendment Bill, the National Health Insurance, changes to the National Prosecuting Authority Act and land policy are noted. Of significance is accelerating the release of high-speed spectrum, which will aid efforts to ready South Africa for the 4^th Industrial Revolution, as well as the President’s emphasis on creating a conducive environment in which business, inclusive of small business, can participate in the economy,” said Pityana.

 

The organisation also notes plans to develop the oceans economy and to further liberalise the visa system to attract more tourists. BUSA welcomes the emphasis on collaboration and the call for business to work with other social partners – Government, Labour and Community – to give effect to the vision outlined in the SONA.

 

Business Unity South Africa (BUSA) believes South Africa needs to accelerate its efforts to optimise the trajectory of the economy towards a growth path.

 

In that context, the BUSA leadership conceived of the Business Economic Indaba in late 2018, which is being convened today (Tuesday 29 January 2019) with its Members and the wider business community for an honest, constructive and dynamic exchange as to how we forge a partnership with government to drive an agenda for inclusive growth and transformation.

 

The Indaba has brought together leaders of business who with government will reflect on sector plans for inclusive growth through the Private Public Growth Initiative, explore the scope for collaboration to drive investment and how to address poverty, inequality and unemployment frankly and constructively, as well as map a future vision for the economy.

 

The Indaba will undoubtedly highlight: the governance challenges in state-owned entities (SOEs), the crisis confronting Eskom, deepening unemployment and inequality, rising government debt levels, underpinned by the increasingly restricted fiscal space, and the impending wave of disruption that will be brought on by the 4th Industrial Revolution (4IR).

 

BUSA is of the view that the operating models of SOEs are not only outdated, but also unsustainable, making these entities the single, biggest risk to the fiscus. The need for urgency and speed is particularly pronounced at Eskom, where the scale, depth and pace of reform are out of step with the magnitude of the crisis confronting the power utility. Of concern is that Eskom remains without a clear and coherent turnaround strategy.

 

The future sustainability of the economy is predicated upon addressing the marginalisation of the majority of our fellow citizens. The high level of unemployment, widening inequality and poverty are untenable. The suitability of the policy environment to address these challenges will no doubt be an area of focus. Business, together with other social partners, is looking to find lasting solutions to these. Identifying how small business can play its rightful role as a major contributor to employment and driver of transformation will also be assessed.

 

The risk of breaching the already high levels of the debt-to-GDP ratio is heightened by continued borrowing.

 

Focus will also be given to the importance of the 4IR, including the consideration of an appropriate policy response and framework to optimise South Africa’s ability to compete in this new world of work and create jobs of the future.

24 August 2018

Delivered by Martin Kingston: BUSA Vice President; Chair of BUSA’s Standing Committee on Economic and Trade Policy and Chair of BUSA’s Energy Subcommittee.

 

INTRODUCTION

• Business welcomes the imminent release of the Integrated Energy Plan (IEP) and the Integrated Resource Plan (IRP) for electricity for public comment. Business has been lobbying for some time for the release of these two documents.  It is of particular importance that, given the fundamental importance of energy in the economy, they are tabled ahead of the Jobs Summit and the Investment Summit to be held in the next months.
• Business would like to register its concern that substantive engagement with social partners on energy policy has been neglected despite previous commitments by government to formally engage with the Nedlac social partners. The Nedlac Annual Summit held on 11 September 2015 had as its theme, “Powering the Economy for Job Creation and Job Security”, and the Summit acknowledged that energy plays a critical role in boosting the country’s economy. It was, therefore, agreed as an outcome of the Summit that social partners needed to work together to ensure that the country has a reliable energy supply.
• This culminated in the establishment of a Nedlac Management Committee Task Team on Energy which developed Terms of Reference that committed government to tabling the updated versions of the IEP & IRP for formal engagement at Nedlac, as well as committing government to consulting social partners on critical policies such as the Gas Utilisation Master Plan (GUMP), and the Renewable Energy Independent Power Producer Procurement (REIPPP).
• Regrettably these engagements, intended to be kickstarted by the tabling of the updated IEP and IRP, have yet to commence. In this process, valuable time has been lost alongside the  opportunity to build consensus around energy policy as well as to provide certainty on energy policy for the economy more broadly. As a consequence, we thank the Minister for this opportunity to engage and look forward to further substantive engagement once we have properly evaluated the IEP and IRP.
• Business views the IEP and IRP as critical planning tools that will enable decision makers in the private and public sectors to make fundamental energy related decisions. The energy sector plays a central role in ensuring viable and sustainable inclusive economic growth. Business does, however, recognise that they cannot alone address the challenges facing the sector but must be implemented alongside other aligned and consistent policies.
• Among the challenges that are not expected to be addressed in these plans, and which Business believes also need urgent attention include the structure of the electricity sector and, particularly, the role of Eskom. Municipal indebtedness to Eskom which is proving a significant threat to the viability of a wide range of industries. The increasing tendency of businesses having to seek relief from the courts is a disincentive to the very investors that South Africa is seeking to attract.
• Although Business recognises the significant challenges inherent in developing energy plans and understands the need for policy certainty, we are concerned at media reports that the opportunity for public comment will be “short”. Documents of this technical complexity take time to analyse to prepare meaningful comment. We therefore urge that at least 60 days be allowed for this purpose to ensure substantive engagement.
• Nedlac has historically engaged constructively on a number of energy policy documents including the 2010 IRP and is currently preparing to engage on the Gas Amendment Bill (2016). We therefore look forward to the engagement process in Nedlac as soon as possible after today’s discussions.

 

EXPECTATIONS ON THE IEP and IRP

• We trust that the extensive comments made to date by Business on the Base Case of the draft IRP2016 and the draft IEP have already been considered in these revised versions.
• From our perspective the cost of implementing these plans needs to be clearly understood. The negative impact of the high cost of electricity on the economy is well known.  The importance of the IRP being developed from the starting point of a least cost base case can therefore not be overestimated. Policy adjustments, which are required to address other national imperatives, like increasing access to electricity and achieving the country’s carbon emission reduction commitments must be imposed on a least cost base case so that the costs of achieving these imperatives is fully understood.
• Meaningful review of any policy requires that the document under review provides sufficient information and underlying assumptions to undertake the necessary analysis. The updated Base Case released in 2016 did not provide adequate  information for a meaningful assessment to be conducted and did not provide an explicit articulation of the strategy required to deliver on Government’s stated intention to encourage investment in the electricity sector.
• Similar concerns were raised on the IEP, which did not provide a link between the potential primary energy sources and electricity generation technologies. In general, we found a lack of consistency between the IEP and the IRP. For example, transmission and distribution was not covered in the IRP despite recommendations in the IEP that this be done. Given the current challenges of municipal indebtedness to Eskom noted previously, it is essential to deal with distribution.  Similarly, the failure to link investment in transmission to potential renewable energy sources has consistently presented challenges for Eskom in establishing access to the grid for such projects.
• Business would wish to see a number of elements in  the final draft of the IRP, including:
• Detailed costs to be published for all technologies selected
• A complete explanation of all assumptions underlying the base case Clarity on the impact of existing ministerial determinations, which is necessary for licencing purposes.
• A full explanation of the policy adjustments and the assumptions used to model them
• Comprehensive explanation of any carbon constraint
• Clear description of the penetration rate of embedded generation
• Details of all scenarios that have been modelled
• Review of any constraints on renewable energy, as the original motivation is no longer valid.
• That all technologies are treated equally in terms of access to the grid. No reason exists to discriminate on this basis against renewables.
• In respect of the IEP, business would wish to see that all issues relating to energy supply and the associated energy infrastructure investments and appropriate technology to meet demand, are included, as required in terms of the National Energy Act.

 

CONCLUSION

• In conclusion, policy uncertainty and inconsistency continues to be the biggest factor cited for the low levels of domestic and foreign investment. Moody’s Investor Services, Fitch Ratings and S&P Global Ratings have equally noted how this has undermined South Africa’s efforts to attract investment. Indeed existing investment and jobs are put at risk and new investment is compromised.
• As mentioned, energy is a critical input to the economy, and there is significant scope in this sector to create new skills and viable job opportunities. The urgent finalisation of the energy blueprint is a key consideration.
• Business looks forward to the tabling of the revised versions of the IEP & IRP, inclusive of a least cost scenario in the IRP. We anticipate a substantive engagement on the content, with a view to securing high-level consensus with our social partners at Nedlac on these critical documents for the energy sector.

The decision by Moody’s to retain South Africa’s international and domestic credit rating at investment grade and the change in outlook to stable is a mark of greater confidence in the country, stated Business Unity South Africa (BUSA).

“The decision by Moody’s to maintain South Africa’s investment grade rating is an indication that recent developments have paid off” stated BUSA CEO, Tanya Cohen.

Moody’s decision reflected the positive sentiment that had prevailed as a result of the election of Cyril Ramaphosa as President; along with cabinet reshuffle that brought credible, tried and tested Ministers such as Nhlanhla Nene and Pravin Gordhan back to senior positions in Cabinet;  the overhaul of boards of SAA and Eskom bringing in experienced individuals with credible track records; and the steps being taken to root out corruption and deal with state capture, said BUSA. These changes have found resonance with the Moody’s but will need to be followed by concrete actions to ensure accelerated and inclusive economic growth, stated BUSA.

BUSA commended the Moody’s decision and the reasons provided therefore, with particular reference to the three strategic drivers that were identified by Moody’s as required for inclusive growth and employment, namely:

• Halting deterioration in the institutional framework, with reference to changes in political leadership, steps to restore SOEs and bring confidence to SARS
• Improved performance and growth prospects evident through exceeding growth projections and greater confidence
• Fiscal adjustment plans to stabilize and reduce debt through material cuts in expenditure

BUSA fully concurred with Moody’s identification of the importance of sustained implementation of structural reforms. Sustained implementation, together with the need to address remaining uncertainties and make hard political choices in relation to policy areas such as land expropriation without compensation, the mining charter, public sector wages and the state of State Owned Enterprises, particularly Eskom were key, stated BUSA.

BUSA on behalf of business was working alongside government and together with other social partners on a number of the concerns identified by Moody’s. BUSA emphasised the importance of certainty and the involvement of business in informing policies that were fit for purpose and would enable businesses of all sizes and sectors, but particularly start-ups and smaller businesses, to expand, employ more people and contribute to inclusive growth. Energy policy, to be articulated in the updated Integrated Resource Plan and Integrated Energy Plan, as well as policy pertaining to higher education and training and comprehensive social security needed to be urgently and comprehensively finalised, stated BUSA.

BUSA stated that the positive sentiment about South Africa’s economy was apparent in meetings with S&P’s and Fitch, as well as with international investors, when BUSA accompanied the Finance Minister and the team from Treasury on the post-budget International Investor Roadshow earlier this month.

“This decision bodes well for the country and will surely have a bearing on how other ratings agencies view South Africa as an investment destination – thereby reigniting of the virtuous circle of economic recovery, fiscal consolidation and rising social cohesion identified by Moody’s. The hard work to consolidate the fiscus, bring policy certainty, restore confidence in our institutions and restore confidence in the economy now lies ahead,” said Cohen.

 

Business Unity South Africa (BUSA) notes the long anticipated change in the leadership of the African National Congress (ANC) that has been voted into office at the governing party’s 54th National Conference. BUSA affirms that business stands ready to work in partnership with the newly elected leadership in the pursuit of creating a conducive environment for sustainable and inclusive economic growth.

BUSA said the new leadership will need to take decisive steps to build business confidence thereby clearing the way for investment in the economy, job creation and transformation. “South Africans are looking for clear signs of consistent, ethical and accountable leadership, acting in the best interests of the country”, stated Tanya Cohen, BUSA CEO.

“We call on the newly elected leadership of the ANC to immediately occupy itself with a clear and practical programme of action that will address the country’s declining fiscal and macroeconomic position. Business also expects the leadership of the ANC to embrace the opportunity of strengthening the strategic partnership between government, business and organised labour by using NEDLAC more effectively for robust engagements on national issues such as youth employment; the national energy plan; stimulating small business growth; addressing the crises at many State-Owned Enterprises and restoring good governance and accountability in the public and private sector. The new ANC leadership should use this opportunity to commit itself to working together with social partners in restoring certainty, instilling fiscal prudence and decisively addressing corruption and maladministration thereby creating the conditions for economic transformation and growth” stated Cohen.