A power play unfolds before our eyes. Comedy as tragedy or farce?
Prospects for the SA economy early on Tuesday 11 October had improved significantly when we learned that SA’s first two independent privately owned coal-fired power stations (IPPs) had been given the go-ahead. Foreign interest in these projects, as suppliers of the equipment and technology and of the necessary capital, was welcomingly strong. Most important, the 863MW of additional electricity is to be delivered at an agreed wholesale price of 79 and 80 cents, plus inflation.
Alas later that morning a further very troubling scene in the opera buffo that has become SA’s fiscal affairs, was played out when Public Prosecutor Shaun Abrahams announced that he was charging Finance Minister Gordhan with fraud. The economic damage caused by a weaker rand, higher borrowing costs for the state and lower values for businesses that depend on the SA economy, was immediately registered, while firms with operations mostly outside SA gained rand value. The outlook for inflation deteriorated with the weaker rand and so the possibility of lower interest rates from the Reserve Bank has receded. The income and job prospects of SA households and their willingness to spend and borrow more, essential to any cyclical recovery in SA, has been undermined accordingly as has the willingness of SA business to invest more in meeting their demands and employment needs. Many billions, incalculable billions of lost economic opportunity, will have followed. Those responsible cannot possibly count the damage they cause.
The two announcements however are linked – perhaps in a way that can still produce a happy ending. Can we doubt that the fiscal power play has much to do with the prospect of nuclear power as opposed to power from coal or gas? The deal for nuclear energy, details of which are awaited and are to be reluctantly supplied, and about which the Treasury has had its serious reservations made well known, will be on a scale well beyond impressive sums now to be invested in additional coal fired capacity. Business Day referred to R40bn per private IPP. Capturing a chunk of this nuclear deal from the people of South Africa at the expense of their living standards is seemingly well worth fighting for.
The problem for advocates of nuclear power in SA, well intentioned or perhaps not, is the firm offer of 80 cents per kilo watt hour from the new IPPs. We have a strong recent indication of just how expensive nuclear power can be. Britain has just given the go ahead for the nuclear Hinkley Point Power Plant, that plans to deliver 3200MW of power at a “strike price” of, believe it or not, £95.5 per MW plus inflation after 2012, that is at current exchange rates only roughly, since these rates move around so much, the equivalent of R1660 per MW, or equally roughly twice the price tendered by the IPPs. The wholesale electricity price in the UK is now much lower, about £45 per MW leading the National Audit Office to estimate that electricity consumers in the UK having to spend an extra £29.7bn for the benefit. Similar calculations of cost per hour and extra spend that will have to be charged to pay for nuclear in SA cannot be denied. They have to inform the process.
There is a more important lesson to be learned about the business of capturing the state from the citizens who pay for the state and its failures – intentional or not. The opportunity for corrupting the state is only as big as the state itself. There is no good technical reason to place airlines, electricity or water production, ports and railways, toll roads, hospitals and schools in the hands of the state. The reason why the state as supplier, rather than private producers, is so strongly supported by the politicians, is because they can so easily be captured by the suppliers of all kinds to these organisations, at the cost of the consumers of the essential services and the taxpayers who pay for them. South Africans watching the stage unfold might wise up to these facts of life.