Four Reasons to Privatise ESKOM

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This weekend, African Business Review will be looking at the potential pros and cons of privatising South Africa’s state utility company, ESKOM, at a time when the Treasury recently announced that it would be considering this option. 

MORE ON ESKOM FROM ABR:
South Africa’s ESKOM receives junk credit rating
ESKOM, Petro SA, and Sunbird enter into long term gas supply deal
A dark day for Eskom: Power outages threaten South Africa’s economy

Whilst no option will be absolutely perfect and please everyone, it is important to approach the topic from both sides; this article will explore the potential benefits of privatisation.

1. Revenue

If the South African government sells assets in ESKOM (whether partly or completely) then it has the potential to raise serious revenues which could either be reinvested into the remaining publicly owned part of the company or be invested in a range of other government initiatives.

2. Competition

Not only will investors compete for the potentially very lucrative opportunities arising from sale, there is also potential for competition between future private providers, which could raise standards and drive down costs for the consumer.

3. Takes politicians out of the equation

Full privatisation of ESKOM could ensure that the utility is managed more in line with modern business practices: it is often argued that politicians make poor economic decisions (not to mention having to win votes to stay in office) whereas private CEOs make more long term decisions.

4. Efficiency

Private companies exists with a built-in incentive to increase profitability through driving down costs and constantly aiming to make operations more efficient and streamlined. The challenge for a project as large and complex as ESKOM lies in being able to expand in a cost effective way.