Eskom operational efficiency : an investigation of the productivity, financial and technical performance of resources

Bibliography: leaves 152-161.There have been major changes in the electricity supply industry in most parts of the world. In South Africa, the government intends to restructure and/or introduce competition in the ESI. The need to reform, to introduce competition and/or to privatise power utilities is primarily aimed at boosting their efficiencies, although other reform drivers such as facilitation of Black Economic Empowerment (BEE) and mobilisation of private capital should not be neglected. There are, however, conflicting opinions concerning ESI reform and/or privatisation in South Africa. On the one hand, the advocates of power sector reform and privatisation argue that South Africa's existing ESI is not efficient and therefore must be restructured, thereafter competition must be introduced in the industry to boost its efficiency and the quality of its supply. On the other hand, the opponents of reform and competition argue persuasively that the ESI (particularly Eskom) is performing well, because Eskom is currently selling electricity at a lower price than many (if not all) other utilities in the world while nevertheless still earning a profit. As performance improvements ultimately result in lower prices and high quality services, many attribute Eskom's comparatively low prices to an efficient operational performance and are of the opinion that the organisation does not need to be restructured. However, low operational costs do not necessarily imply that all efficiency improvements have been realised and may, in part, be due to factors such as low fuel costs. Furthermore, whilst improvements in operational performance do indeed reduce operating costs, investment efficiency, which has an even longer-term impact, reduces the proportion of capital-related costs in the electricity price. In this regard, the South African government's intention to restructure the ESI should not be mistakenly ascribed to its aim of improving Eskom's operational performance only but rather to its wish to achieve a number of objectives including improved investment efficiency and also attracting foreign direct investment (FDI)