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Tshwane Power Stations Should Be Privatized – FMF
In a recent media release from the Free Market Foundation (FMF), a South African think tank has recommended that Tshwane Power Stations ( Rooiwal and Pretoria West power stations) should be privatized.
The FMF’s call comes in response to the City’s proposal to lease these decommissioned power stations to private sector operators for electricity generation.
South Africa has been grappling with an electricity crisis that poses a significant threat to the country’s socioeconomic stability. The FMF, led by Head of Policy Martin van Staden, argues that the issue is simpler to resolve than it may appear and that the primary obstacles are political in nature.
One of the key problems identified is government interference in the electricity market, particularly in the form of price regulation. The political control over electricity prices has led to distortions in the market, potentially resulting in shortages due to low pricing. In an open market, higher demand typically leads to higher prices, which, in turn, encourages supply to meet the demand.
However, in South Africa’s monopolized electricity sector, the state utility Eskom and municipalities cannot set market prices as they lack market competition. Allowing them to charge market prices for electricity could be detrimental to consumers who might not have affordable alternatives.
The FMF argues that the solution to the electricity crisis lies in increasing the supply of electricity and allowing market-related prices. This approach necessitates private sector involvement to boost the power supply.
The City of Tshwane has expressed its intention to lease the Rooiwal and Pretoria West power stations to private sector partners, which the FMF supports. However, the FMF is concerned that retaining ownership of these power stations may lead to political interference or lease revocation for partisan reasons.
As an alternative approach, the FMF recommends either outright privatization of these power stations or the construction of state-proof lease agreements. Privatization, the FMF argues, would remove partisan considerations and allow operators to focus on efficiently generating electricity for the grid.
As a result, the FMF suggests two key alternatives to the City of Tshwane:
- Outright Privatization: The FMF’s preferred option is the complete privatization of the Rooiwal and Pretoria West power stations. This would place decision-making power solely in the hands of private operators, allowing them to focus on generating electricity for profit without political interference. The City could include a condition in the sale, mandating that the properties be used exclusively for electricity generation.
- “Stateproof” Lease: As a second-best option, the FMF recommends a long-term lease agreement that protects operators from political interference. The FMF proposes extending the lease from the originally suggested 40 years to 99 years, placing it beyond the current era of South African politics. The lease should also allow operators to unilaterally renew it and restrict the City’s ability to cancel the agreement. Furthermore, the lease should specify that the lessees manage and operate the power stations independently.
In the case of leasing, the FMF suggests several measures to minimize political risks, including extending lease periods, specifying lease renewal terms, entrusting lessees with the power station’s management, and obliging the City to intervene on behalf of lessees in case of conflicts instigated by higher levels of government.
The Free Market Foundation supports the initiative to increase private sector involvement in electricity generation in the City of Tshwane and recommends exploring the options of outright privatization or crafting state-proof leases.
This proposal aims to address South Africa’s electricity crisis and ensure a reliable and market-driven supply of electricity for the region.