Finance Minister Tito Mboweni has thrown down a series of gauntlets in Budget 2019: there will be competition on the power grid largely from renewable energy companies; there will be a strategic equity partner in the transmission company of a restructured Eskom; the size of the civil service will come down by over 100 000 people over the medium term; and government has stated its belief that the private sector is the vector for jobs, not the state.
In addition, Mboweni posed an existential question about the state’s suite of state-owned enterprises when he dropped a bombshell in his budget speech: "The SOEs pose a very serious risk to the fiscal framework. Funding requests from SAA, SABC, Denel, Eskom and other financially challenged state-owned enterprises have increased, with several requesting state support just to continue operating.
"Isn’t it about time the country asks the question: do we still need these enterprises? If we do, can we manage them better? If we don’t need them, what should we do? " The ANC benches seethed with discontent as he spoke.
Mboweni said that President Cyril Ramaphosa had been intimately involved in the planning of Budget 2019, which suggests that he owns the ideas in it, and that they are not the whimsies of a maverick Finance Minister.
There will be significant blowback to this Budget, which puts a clearer stake in the ground on a reformist agenda than Ramaphosa has previously done. Will the peace-maker President be able to hold the line when the toyi-toyis start, as they will, on the following areas of political blowback?
The electricity market will be opened to competition; Eskom will be restructured
In an addendum to the Budget, called "Fiscal support for electricity market reform", government makes it explicit that there will be private sector participation on South Africa’s national power grid.
The electricity market will be reorganised, according to this document. When Ramaphosa announced the restructuring of Eskom, Saftu general-secretary Zwelinzima Vavi immediately announced a season of strikes. In addition, the ANC alliance partner, Cosatu, also immediately objected.
In the annexure, the Treasury points out that China, a country and economy much-beloved of the governing ANC and its alliance partners, has unbundled its version of Eskom into five grid subsidiaries.
The document sets out a 10-step process to restructure Eskom. Among the listed benefits are to "Diversify the generation of electricity across a multitude of power producers, thereby reducing the country’s reliance on a single supplier"; "Generate competition in the electricity market that is expected to drive improvements in efficiency and put downward pressure on prices" and to "crowd private investment into the electricity sector".
The restructuring will see blowback not only from the trade unions but also from powerful coal interests, who stand to lose their monopoly positions in coal contracts, transport and production.
While the document on electricity market reform makes it clear that there will be savings at Eskom equal to R20bn by 2022, it has said that "these savings exclude reductions to Eskom’s salary bill".
But the Treasury and the Department of Public Enterprises are going to put in place a Chief Reorganisation Officer at Eskom who will drive savings in bonuses, improvements in productivity and changes to work practices that are likely to cause opposition from the powerful trade unions which rule the roost at Eskom.
Government is sensitive to the political risk: the new executive who will oversee the spending of the state’s bailout to Eskom was supposed to be called a "Chief Restructuring Officer", said Mboweni, but labour lawyers advised that the role now be called a Chief Reorganisation Officer because trade unions balk at the word "restructuring" which is read as code for privatisation and job cuts.
"The management of the capital expenditure programme needs to be strengthened to ensure that expenditure is optimised, costs are contained and that the quality of work is closely monitored," says the document, which outlines Eskom’s new shape.
Renewable energy becomes a more important source of power
There is a powerful lobby growing against renewal energy independent power producers (IPPs) and any state support for them. The EFF is campaigning against IPPs, as are significant lobbies in the ANC, including former Eskom CEO Brian Molefe and former head of generation and acting CEO Matshela Koko.
They are likely to be aligned to the well-resourced coal lobby, which includes producers and transporters.
The Budget Review says: "In the context of rising electricity tariffs and the falling cost of renewables, it is increasingly cost-effective for households and businesses to switch to renewable energy sources. The estimated average portfolio cost for all technologies under the Renewable Energy Independent Power Producer Programme, for example, was initially R2.79/kilowatt-hour (kWh). Today, that cost has fallen to R0.92/KwH, which is similar to Eskom’s average tariff."
The Budget is not a populist manifesto and it is not a typical election year budget with high-spending and people-pleasing provisions. It is tough on everybody, from state pensioners, who get a measly 5% increase, to the middle-class, who, in effect, pay higher taxes and are going to be walloped with high electricity costs and rising fuel and food costs.
There is a new tax on carbon, a sugar tax that will begin to bite, and also a forthcoming gambling tax for those who like a throw of the dice.
Fundamentally, the Budget chooses a path: it favours youth employment over union interests, which favour older workers. The Budget Review says: "The labour market obstructs easy entry into employment, particularly for young people".
While civil servants will not be retrenched, the state will offer incentives to the 126 710 civil servants between 55 and 59 years old to retire early. In addition, the state will phase out about R2bn paid in annual bonuses over the next four years.