Ramaphosa’s bold announcement reinforces the shift to major structural reform
In the midst of despair about the slow pace of structural economic reforms, President Cyril Ramaphosa announced the biggest regulatory reform in the energy sector, increasing the National Energy Regulator of SA’s licensing threshold for embedded generation projects from 1MW to 100MW.
This is 10 times more than the 10MW the minerals resources and energy department had initially proposed and double the 50MW organised business and labour requested. It is bold and decisive and should be applauded.
In addition, the president announced that generators will be allowed to wheel electricity through the transmission grid, subject to wheeling charges and connection agreements with Eskom and relevant municipalities; generation projects will still need to obtain a grid connection permit to ensure that they meet the requirements for grid compliance; generation projects will need approval by the regulator to verify that they have met these requirements; municipalities will have discretion to approve grid connection applications in their networks, based on an assessment of the effects on their grid; and environmental impact assessments and all other requirements of existing legislation will still need to be undertaken and met.
Of the myriad economic reforms the country desperately requires, that of the energy sector is one of the most crucial, since the sector has and continues to slow the pace of economic growth. Data from Eskom showed that 2020 load-shedding was the highest since it started in 2008 — this even though the economy contracted the most since 1920.
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Surprise announcement of new licensing threshold of 100MW will be welcomed by business
10 months ago
This week’s jump from stage two to stage four load-shedding was a stark reminder that the country does not have energy security and will not over the short-term. Ramaphosa’s announcement, and hopefully quick implementation, will bring private sector investment in energy that will see this energy constraint reduced, for without more energy the economic recovery will be slowed by a natural braking system.
There are green shoots in the economy though much still remains unresolved and needs to be done. This week’s announcement brings the biggest economic reform since reforms in agriculture and the automotive sectors in the mid-1990s.
Other developments include the general institutional rehabilitation that is well under way. Two years ago, the SA Revenue Service, among others, was hollowed out. The rebuilding of capacity at the tax and law enforcement agencies is visible and credible. The Reserve Bank nationalisation debate is no longer prominent.
More so, investigations and prosecutions of people in the government, state-owned entities and the private sector are starting to bear fruit. Looted funds involving consulting firms, among others, have been paid back, for example by the likes of Deloitte, McKinsey, Regiments and KPMG. Signs are there that more is being done to clean up the corruption in the economy.
Having seen the trust deficit between the government and business grow wider in the past decade, the emergence of B4SA, linked to a stronger National Economic Development and Labour Council process around policy response to Covid-19 is a new development that puts business at the table of economic policymaking. This has now extended beyond Covid-19 into energy, ICT and infrastructure. Long may it last and break more barriers to growth.
To those that remain unconvinced we are in a different era, my main message that should bring some hope is that the attitude to structural economic reform is very different to what we have seen before. Reforms might appear slow as it is their nature given the vested interests of a multitude of sectors in society. However, those that are hopeful, and looking, will see them. This announcement on energy is big, bold and beautiful, and should boost confidence while we wait for more reforms.