# **VI. Recent Electricity Reforms in South Africa**

The electricity sector in South Africa has undergone a number of important policy reforms in recent years. There are several factors that contributed to these policy changes. Before 1994, the main goal of public policy in the sector was to secure adequate and low-priced electricity supply for the industrial, mining, agricultural, transportation, and commercial sectors, as well as for mid- and high-income households. Energy policy was based on the principle of “separate development” and was fundamentally oriented to providing services on the basis of race. No national policy existed to promote wider electricity access despite the extensive over-investment in generating capacity. The government that came to power after the first democratic elections in 1994 was determined to redress the injustices of apartheid and to substantially expand access to electricity services by poor black urban and rural households. An indispensable precondition to the government’s accelerated electrification program was the reorganization of the highly fragmented local government structure that was part of apartheid’s legacy. Most of these local governments suffered from severe financing problems that greatly limited their ability to maintain and expand services. As a result there was a huge backlog in electricity connections to households in black areas.<sup>101</sup> While important political changes were taking place in South Africa in the earlyand mid-1990s, abundant evidence was emerging at the same time from many developing countries that the state-owned enterprises in core sectors of their economies, like infrastructure, were suffering from serious performance problems<sup>102</sup> . An important element of the new government’s economic agenda was the adoption of policies that sought to reorganize and reform the country’s state-owned enterprises in order to improve their efficiency and performance. It was widely accepted that Eskom was better managed and exhibited superior performance in comparison to other state-owned enterprises. Still, the government’s broad efforts aimed at reforming the state-owned enterprises provided the needed impetus for power sector reforms.

Another reform driver emerged from the government’s comprehensive reassessment of its energy policy during the mid- to late-1990s. The analysis that supported the formulation of the new energy policy highlighted the importance of avoiding Eskom’s past mistakes related to its excessive investment in generating capacity. This naturally focused attention on the potentially important relationship

> 101 ESMAP 2005. _Power Sector Reform in Africa: Assessing Impacts on Poor People_ .  Report 305/05.  The World Bank.

102 State-owned entities were forced to pursue multiple, poorly-defined and conflicting objectives. They were frequently used as instruments of stabilization policy through price controls and investment targets. Their management was often appointed on the basis of political loyalty rather than professionalism and their employment and investment patterns reflected bureaucratic preferences rather than market demand and supply conditions. Scarce public investment funds allocated to the infrastructure sectors were in many cases squandered through policies reflecting political expediency and other short-run objectives rather than careful long-run planning in the public interest. Moreover, price controls were imposed in disregard of their performance implications, subjecting the operating entities to considerable financial distress and substantially impairing their ability to provide reliable service.

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