Stop funding failure: Why SA’s utilities need a radical economic reset

South Africa's state-owned utilities need a fundamental shift in their economic approach, argues Mark, a leader with 35 years of experience in finance, banking, and government. Despite being monopolies, these utilities are often bailed out by taxpayers, with cross-subsidy occurring without scrutiny. This reliance on future borrowing is unsustainable, highlighting the need for a revolutionary change in how these entities are funded and managed.

Mark contends that South African Inc. (SA Inc.) should be prioritized over these utilities' interests. This approach suggests that utilities should collaborate with major industrial users to align their economic models. For instance, Eskom, a utility plagued by high electricity tariffs and economic challenges, could work with its industrial clients to determine break-even input costs for electricity.

This partnership could lead to increased profitability, which would generate taxable income for the state and potentially attract foreign direct investment.

Once Eskom becomes profitable, it could reduce its need for state funding and guarantees, thereby influencing the cost of capital for other entities. This strategy could also pave the way for long-term off-take agreements that lead to competitive pricing of products in the international market. The key lies in moving away from the traditional central funding apparatus and towards a more strategic, profit-driven model that benefits all parties involved.

This proposed economic reset is not about privatisation; it's about implementing sound financial practices that benefit all South Africans. By focusing on efficient capital allocation and predictable cash flows, SA Inc. could tackle poverty, inequality, and unemployment, ultimately improving the lives of all citizens.