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South Africa: Ramaphosa overrules Mantashe, allows private firms to generate power

By Anna Maree
Posted on Tuesday, 15 June 2021 10:49

Swearing-in ceremony of South Africa's new cabinet ministers
Gwede Mantashe in Pretoria, South Africa, May 30, 2019. REUTERS/Siphiwe Sibeko

South Africa's President Cyril Ramaphosa has publicly overruled his key ally, Gwede Mantashe, minister for mineral resources and energy, by announcing that private companies will be able to generate their own power up to 100 MW without a licence. Its a bold move that comes with political risk.

It’s a cap ten times higher than Mantashe was comfortable with.

But big businesses have welcomed Ramaphosa’s move as bold, but a lack of wide consultation means he took a political gamble with such a decision.

The odds are, however, in the president’s favour. His announcement came at the end of a particularly trying and wintry week, during which the country experienced a fresh and intensive bout of rolling electricity cuts.

The blackouts are due to an energy supply crisis at electricity utility Eskom, and they first started in 2007 after years of insufficient maintenance and mismanagement by the governing African National Congress (ANC). Large-scale looting at the state-owned entity in recent years further worsened the situation.

Complying with regulations

Private companies, like mines, will now be able to generate their own power, and their productivity will no longer be subject to Eskom’s failures. They will also be allowed to sell the excess power to other entities, which will make their investment more viable. The opposition Democratic Alliance, that supports privatisation and has welcomed the move, pointed out that 100MW is enough to power a small town.

Energy economist Lungile Mashele says the 100MW cap would enable independent power producers to sidestep the government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), a process which requires them to comply with local manufacturing, local content, corporate social responsibility and black empowerment regulations.

“Why would a company spend R20m to R30m ($1.5m to $2.1m) developing a project that will be subjected to a bidding process and other requirements when they could just approach a Special Economic Zone, a mine or a shopping complex, and build a 100MW plant and sell the excess?” she says.

ANC dynamics are insulating ministers from accountability and hindering the president from acting decisively.

She also points out that some municipalities make up to 70% of their revenue off the sale of electricity from Eskom. Mashele says she’s not aware whether local authorities have been consulted, but the changes will mean a new revenue model will have to be found for them. “It was a decision that came from above, and for the next 60 days everyone is going to have to scramble to make this regulation make sense,” she says.

Ramaphosa’s announcement, however, was timed to impress a constituency further abroad. It took place on Thursday 10 June at noon, hours before he jetted off to the G7 summit in Cornwall, where the focus was on climate change. Eskom’s heavy dependence on coal-fired power generation means that South Africa is a carbon-intensive country.

Ramaphosa likely wanted to signal that the country is at last moving towards implementing reforms in the energy sector that were proposed in the 1998 ‘White Paper on Energy’, that states that 30% of energy generation should be in private hands. Experts also say the move will attract billions of rands worth of much-needed investment to the country in the next five to seven years.

Mantashe was informed about Ramaphosa’s announcement a couple of days in advance, through a phone call. Mantashe had for long insisted that the limit for power production for private companies should be 10MW, up from the current 1MW. There is a fear that a higher cap will see most of Eskom’s large customers leaving, sending the utility into a death spiral – something which metalworkers’ union Numsa is expressing concerns about.

Most businesses were calling for a 50MW cap, a request based on science and one that also considered Eskom’s grid limitation. The call for more came from three mining houses; and the government is pinning much of its hopes on mining for post-pandemic economic recovery.

‘Twisted his arm’

It has been reported that, amongst others, Business Unity SA – the largest organised business federation in the country – as well as mining boss Patrice Motsepe – executive chairman of African Rainbow Minerals – lobbied Ramaphosa for this move. Motsepe also happens to be the president’s brother-in-law.

Mantashe told the public broadcaster that the cap was set high to avoid having to effect further policy changes again later on. He said “my boss [Ramaphosa]” took the initiative to call him and they had a “no-holds-barred” conversation. He admitted that Ramaphosa “twisted his arm” to agree to the 100MW, and by most accounts, Mantashe reluctantly agreed.

Mantashe is known to be stubborn, but he’s also unlikely to sacrifice his career for principle. Four years ago, when he was still the ANC secretary general, he switched from supporting former president Jacob Zuma (for over a decade) and threw his weight behind Ramaphosa’s campaign instead.

Zuma had apparently contradicted himself on some issues, as his personal views clashed with the party’s official stance – and he often expressed both. However, support from Mantashe – as the most powerful full-time party official – was key in helping Ramaphosa secure the ANC presidency in 2017, when Mantashe became party chairperson. This enabled him to become the minister for mineral resources and energy in Ramaphosa’s cabinet.

He has also subsequently supported Ramaphosa in his efforts to ‘reform’ the very divided ANC by weeding out leaders who were complicit in ‘state capture’ – the large-scale corruption that took place under Zuma’s leadership. Although Ace Magashule (the corruption-accused suspended secretary general) is the only one out of the party’s top-six officials who has openly and unrepentantly defied Ramaphosa, Mantashe is considered to be the only one who is unquestioningly loyal to Ramaphosa.

But Mantashe has some skeletons in his cupboard which put him on the back foot, and it’s likely that he would want the president to keep him on-side; Ramaphosa’s strategy to being elected as party president for a second term next year seems clear.

Mantashe and his wife were recently implicated – by a losing bidder – in meddling with a tender for emergency power generation. Mantashe has denied wrongdoing, but court action threatened against him could delay alleviation of South Africa’s power crisis even further.

Bottom line

Ramaphosa’s announcement suggests that there’s no more need for the emergency powerships that Mantashe wanted to contract for two decades at a cost in excess of R200bn.

“Power balances and power plays lead to paralysis. Only a crisis, like electricity blackouts, breaks the logjam,” says Ivor Sarakinsky from the Wits School of Governance. “The president has lots of power but he doesn’t use it often enough.” This is the reason why many of Ramaphosa’s envisaged reforms are dragging, he adds.

“In a more normal party political governmental situation, Gwede [Mantashe] would have been squeezed out or he would have resigned. ANC dynamics are insulating ministers from accountability and hindering the president from acting decisively,” he says.

Months-old rumours of a looming cabinet reshuffle and the possibility of being moved to a lesser portfolio is likely to keep Mantashe on Ramaphosa’s side, for now.

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