A Short History of ESKOM, Part 1 (1923-2001)

This short history of Electrical Supply Commission (ESKOM) aims to provide an overview of the history of the power utility over its first seventy-eight years. The significance of these dates is as follows: ESKOM was started in 1923 by the government and prominent industrialists and by 2001 it was a state-owned enterprise. During the abovementioned period, ESKOM had several feats and failings. This article endeavours to extract some lessons/reflections for the present from ESKOM’s past. This is especially important in 2022 where South Africa has had the most hours of load shedding on record and is seeking different solutions to power challenges amid a looming global environmental crisis.  

Early Electrification in South Africa

The mineral revolution spurred electrification in South Africa. Kimberly was the first city to be electrified with streetlights installed in 1882, fifteen years after the discovery of diamonds in 1867.[1] More than diamond mining, the discovery of gold in 1882 was the engine behind electrification in South Africa, with towns on the Witwatersrand reef being electrified shortly after.[2] In 1891, Johannesburg was electrified and by the early 1900s, most large cities in the country had electricity.[3] The discovery of gold had concentrated demand for coal – a primary resource for electricity generation – and from the late 1800s, gold mining was tied to electricity.[4] Power stations were placed near goldmines, as goldmines were the centres of energy consumption, leading to the interdependence between energy generation and mineral discovery.[5]  

Ben Fine and Zavareh Rustomjee argue that the “minerals-energy complex” lies at the heart of the South African economy. In their book, written in 1996, they argue that South Africa’s economic strength lies in the mining and energy sectors, which are interdependent and mutually beneficial.[6] The genesis of South Africa’s energy generation fits into this frame; the initial boom of gold mining, which required energy and electricity generated from coal. Initially, mining houses would generate their own electricity and coal mining capitalists would supply coal to individual mining houses.[7]  

The Victoria Falls and Transvaal Power Company (VFTPC) was the principal generator of electricity in the early 1900s. It was started by Cecil John Rhodes in 1906 (himself a diamond mining magnate) and aimed to provide hydro-electric power from Victoria Falls, but eventually opted for the “abundant coal resources in the Transvaal, where operations at the time […] were easy and offered substantial profits”.[8] In this early period, the 1900s, South Africa was generating more electricity than the English cities of “London, Birmingham and Sheffield combined”.[9] 

Gold mining effectively regulated the price of electricity, as they needed cheap electricity to function profitably.[10] The threat of a VFTPC monopoly over electricity production was an obstacle to the seamless profits of large mining houses, and added “the need for economies of scale and reliability”. This led to the centralisation of electricity production. The Transvaal Power Act (1910) effectively put electricity under state authority and as a public service. It was a watershed moment in an energy landscape which was characterised by the “fragmentation of electricity production”.[11]   In the 1920s, electricity “shifted to the national arena” to support industrial growth, particularly in the fields of manufacturing and transport.

Electrification was the “ticket to industrialisation” and Prime Minister Jan Smuts had managed to unlock this capacity through an agreement with Sir William Hoy of the South African Railways (SAR).[12] The SAR had sought to supply railways with electricity from private companies or municipalities. The railway industry was becoming increasingly integral to the mineral-industrial complex partly to transport black workers from in and around southern Africa and to establish rail routes serving the coal collieries.[13] The need to reduce the cost of electricity saw the Merz Commission established. This commission recommended greater state intervention and that an act be established to regulate and unify electrical supply. The 1922 Electricity Act was drafted by Prime Minister Jan Smuts, the General Manager of the SAR and key mining experts including engineer Hendrik Van Der Bijl.[14]    

The Creation of ESCOM

The 1922 Electricity Act set up two institutions in 1923: the Electricity Control Board (ECB) and the Electricity Supply Commission (ESCOM). ESCOM would supply electricity on a national scale and embark on new projects and investments while the ECB would regulate the costs of electricity. This effort to create a national power supplier and regulatory body jarred sharply with the VFTPC; Bill Freund notes that Smuts had to struggle against the company for two parliamentary years to firmly establish it.[15]

 “Brilliant scientist” Hendrik Van der Bijl was enticed back to South Africa from America to be appointed as ESCOM’s first chairman.[16] ESCOM, designated as a public-private entity, was exempt from paying taxes and independent of parliament. As Freund notes, “The idea behind ESCOM was to make it as independent as possible from both private capital and from any political interest within the state”.[17] Van Der Bijl had managed to create a zone of breathing space between ESCOM and the government which allowed for “relative autonomy and technopolitical action”. This would avoid the “unpredictable ups and downs of political influence”. Jaglin and Dubresson suggest that throughout Van Der Bijl’s tenure and beyond, ESCOM’s leaders employed “technopolitical choices to promote a socio-political vision aligned to that of the government”.[18]  

Despite it being at arms-length from the government, ESCOM had a duty to ensure that all of its projects were in the public interest and that electricity was supplied at the lowest possible cost. The electricity produced was reserved for mines, industry, railways and the white public.  Leonard Gentle suggests that the mandate of ESCOM supplying electricity at “neither a profit nor at a loss” de-commodified electricity supply and resembled a type of regulated or Keynesian racial capitalism.[19] It was hoped that ESCOM would be able to set up conditions for private firms to disappear within thirty-five years of its inception.[20]

During the 1930s, ESCOM and the Iron and Steel Corporation of South Africa (ISCOR) (which was started one year after ESCOM in 1924) helped link the private sector to the government and were the growth engines behind the growth of the railways, mine houses and other industry. Yet, as Fine and Rustomjee argue, electrification and steel production did not lead to the extensive diversification of the economy, owing to the already entrenched minerals-energy complex. The structure of the economy thus required a cross-pollination between the minerals and energy industries for their mutual benefit rather than greater diversification.[21] Mining, steel production and industrialisation were “underpinned by cheap labour and cheap electricity”. This situation was a “win-win” for “gold mines, coal mines and municipalities”.[22]  

Initially, ESCOM would supply electricity to the railways while VFTPC would supply electricity to the mines (at times ESCOM would supply electricity at cost price to the VFTPC).[23] During the late 1920s and early 1930s, ESCOM began building power stations but was still small in comparison to the VFTPC.[24] Following the abandonment of the Gold Standard in 1932 and the build-up to World War 2 (WW2), the South African economy boomed and ESCOM’s output increased by five times between 1933 and 1948. Part of this growth was due to ESCOM taking over generation capacities at the request of municipalities from the mid-1940s.[25]  

Bill Freund has posited that the establishment of ESCOM signalled the developmental ambitions of the government. Leading engineers like Van Der Bijl and H.J. Van Eck would lead ESCOM’s innovation, particularly with the transformation of coal into oil. In the annual report of ESCOM in 1948, ESCOM firmly placed itself to be a central part of industrialisation and the government’s developmental vision. Yet a more radical version of the state’s developmentalism was highlighted with the expropriation of the VFTPC in 1948.[26]

The VFTPC was a foreign company making large profits from electricity production. The opening of large, ore-rich Orange Free State goldmines required an abundance of cheap electricity, especially considering the depth of the gold and the amount of air-conditioning needed. ESCOM had an “irreplaceable niche” among mining interests, particularly with Harry Oppenheimer’s Anglo-American. Together with the government, Anglo-American helped ESCOM expropriate the VFTPC for £15, 5 million just prior to the National Party (NP) victory in 1948. This kind of state intervention was allowed under the 1910 Transvaal Power Act.[27]

Throughout the first twenty years of Van Der Bijl’s leadership, ESCOM had begun to build large coal-fired power stations. Van Der Bijl and Smuts (now at the end of his second term) had a simple and consistent aim: to provide cheap electricity. Controlling electricity and providing it at a cheap price was at the centre of “minerals-energy complex”.[28] The elimination of competition in the electricity sector, which outgoing Prime Minister Jan Smuts noted as “wasteful competition”, [29]  was the only way to achieve smooth and nationally oriented industrialisation.

ESCOM During Apartheid

With the growth of ESCOM’s coal-fired power stations, it expanded its workforce considerably. By the mid-1950s, ESCOM had 13,000 employees. Many of these salaried jobs were reserved for white workers and were a mechanism of the state to appease their constituency through job reservation. Entrenched in earlier years of ESCOM expansion, the power utility was a “technical system” for white society and a tool to upskill white people who had upward mobility through good jobs.[30] At the same time, inspired by their arms-length from the government and technical expertise, ESCOM was an arena of “professional competence”, whereby engineers were respected and the large coal-fired power stations made ESCOM effective.[31]

Coal had underpinned the electricity sector until the beginning of Apartheid and this was to expand in the coming years. In the late 1940s, gold mining consumed 59% of all electricity. To meet this demand, ESCOM helped develop some of the most advanced coal-fired plants in the world.[32] Yet from the NP win in 1948, the balance of the minerals-energy complex became increasingly delicate. From the late 1940s, ESCOM’s coal contracts in the Northern Transvaal (today Mpumalanga) were largely held by Afrikaner capital (with ESCOM historically being a key instrument in enabling the growth of Afrikaner capital).

In 1948, Afrikaans coal mine owners decided to export coal instead of using it for domestic consumption, particularly because of ideological competition between Afrikaner nationalist interests and British imperial mining interests. With the expanding gold mines in the Orange Free State (OFS), the competition led to severe power shortages and load-shedding or “consumption reduction” between 1948 and 1953. In response to this, ESCOM increased their power stations. Between 1948 and 1975 electricity generation increased sixfold. [33] 

Fine and Rustomjee suggest that ESCOM, South African Synthetic Oil Ltd (SASOL) and the Armaments Corporation of South Africa (ARMSCOR) were propelled by the growing interpenetration between Afrikaner and English capital. Evidence of this was seen in that coal contracts were given to large mining companies, like Anglo American, and the Federale Mynbou (then a subsidiary of SANLAM).[34] These state corporations, including ISCOR ESCOM, ISCOR impressed foreigners (especially those from the USA) as did the government’s effort to expand them.[35]

The 1960s were characterised by the violent state repression of black resistance to assist the growth of the economy for Apartheid interests. The high economic growth of the 1960s was met with new power stations being built, some of which were the “most advanced” and “modern” in the world. These new power stations became interlocked into a national grid which was developed between 1969 and 1973.[36] ESCOM’s processes of transmission were fully automated and the entire grid could be controlled remotely by technicians from the national control centre in Simmerpan, Germiston.[37] Further growth in demand in the 1970s meant that ESCOM built new power stations, most of these being coal-fired. Modern technology was used to burn low-grade coal in large power stations like Duvha, Hendrina and Arnot (which still supply electricity today).[38]

In the 1970s, electricity was in huge demand domestically (as households began to use more appliances), but coal too was in high demand internationally after the oil price shot up. The coal industry thus exported from the 1970s, drawing from increasingly large coal reserves throughout the country. While the coal price was set to provide cheap electricity to ESCOM, the 1970s saw coal exported and many gold mining companies begin to own coal mines (eventually two-thirds of coal mines were owned by big gold mining companies). Evidence of the change in coal strategy is showcased by the fact that domestic coal consumption dropped by 52% from 90% in 1970 to 38% in 1985. So too, the Coal Resource Act of 1985 declared that price-fixing (to keep the price of coal low) be terminated.[39]  Also in response to the oil crisis and growing international isolation, ESCOM adopted a coal-to-liquid strategy.[40]

During the 1960s, 1970s and 1980s, ESCOM built 13 new coal-fired power stations.[41] The power giant also began to explore new forms of electricity. After uranium was discovered as being a by-product of gold mining, ESCOM sought to explore nuclear energy as an option (unfortunately, the South African government exported it, to ESCOM’s dismay).[42] Particularly after the oil price hike in 1973, the Apartheid government could justify nuclear energy. ESCOM bought the farm where Koeberg is now and embarked on a venture to build a nuclear power station with a French company.[43] The nuclear project was planned to open in 1976 but it was delayed because of an explosion of a reactor by a worker who was a member of the African National Congress (ANC). Eventually, the reactors were opened in 1984 and 1985 respectively.[44] 

Freund asserts that Koeberg was not a success – South Africa had to import uranium because international prices were lower, making nuclear power uneconomic. Nuclear energy thus was not well integrated into government planning (partly highlighting coal’s dominance in the energy sector). ESCOM eventually took over the power station and helped pay for its deficits – it is estimated that ESCOM absorbed over R31 million of the costs and debts of Koeberg up until 2000. Eventually, nuclear power and ESCOM were decoupled in favour of the relationship between nuclear power and military equipment giant ARMSCOR.[45] Another ESCOM development was the Cahora Bassa hydroelectric power station in Mozambique. Owing to technology deficits in Mozambique, ESCOM bought Direct Current (DC) electricity in Mozambique and used technologically advanced thyristors to convert it to Alternating Current (AC).[46]    

The expansion of ESCOM’s generation capacity during the 1960s and 1970s led to many black workers being employed in technical positions which were classed as “operations assistants” to side-step Apartheid legislation which reserved skilled work for white workers.[47]

ESCOM in the Period of Apartheid’s Economic Reforms

During the late 1970s and early 1980s, the growing isolation of the Apartheid government, due to the intensification of the anti-Apartheid movement and international sanctions, coupled with the growth of neoliberalism globally meant that investment and government funding for state corporations dropped.[48]

Economic deregulation grew from the 1970s. America cancelled the Bretton Woods agreement in 1971 whereby the price of gold was set, which meant that the gold price began to fluctuate and old systems of controlling the prices of steel and electricity were put under significant pressure. In response to this, then President PW Botha endorsed a policy to stop setting prices.[49] Freund notes that ESCOM had “detached itself from the other parastatals and much of the state by the 1980s”.[50]

As previously mentioned, ESCOM had built a fleet of coal-fired power stations which had swelled their generation capacities. In the late 1970s and 1980s, this excess capacity hit financial constraints. The demand for electricity slowed because of low economic growth. ESCOM engineers had over-estimated demand. With lower growth, the massive new power stations had a less flexible generation, were receiving poor quality coal and had high maintenance.[51]

ESCOM also struggled with financing and incurred a lot of debt.  Their option to borrow money from international organisations was increasingly curtailed amid growing international isolation. They were forced to borrow money domestically at high-interest rates resulting in electricity prices being hiked by 166% in 1977.[52] The autonomy for ESCOM to expand internationally was, therefore “hermetic” by the mid-1980s. In the early 1980s, ESCOM had also borrowed a lot of money from financial institutions because of a record gold price, but after the gold price dropped, ESCOM sat with massive debt which culminated in the 1985 debt crisis.[53]

It was within this context that the De Villiers Commission was established in 1983. The De Villiers Commission proposed a two-tier governance structure of ESCOM headed by Ian McRae and Johannes Maree. The commission recommended that the “public interest clause” of ESCOM’s mandate be scrapped and that the parastatal must operate on a commercial basis. The “public interest clause” was replaced by a more liberal commitment “to provide the system by which the electricity needs of the consumer may be satisfied in the most cost-effective manner, subject to resource constraints and the national interest”.[54] This fitted in with international neoliberal ideas whereby public utilities “either be privatised or operate on a commercial basis”.[55]

The De Villiers Commission led to the Electricity Act of 1987. The public interest clause was repealed. ESCOM thus became ESKOM (the new name was a combination between ESCOM and the Afrikaans name for the power utility Elektrisiteitsvoorsieningskommissie (EVKOM) to make ESKOM), which was now commercial and responsible for its own profits and losses.[56] Market mechanisms were targeted to get cheaper electricity while ESKOM rapidly cut spending, stopping the construction of new power stations, reducing staff (from 66,000 in 1985 to 46,000 in 1991) and closing old power stations.[57] ESKOM chose corporatisation over privatisation. This meant that they were a commercial company with its own strategies and with a distance from government, but committed to supplying electricity to South Africa.[58]

ESKOM During Democracy

Jaglin and Dubresson suggest that just before the ANC came into power, they had an “ambiguous advantage”. Because of tax exemptions, low-cost coal and the reduction of investment spending “ESKOM produced the lowest cost electricity in the world”.[59] New demand for electricity from ESKOM grew from domestic consumption which rapidly expanded in the late 1980s and early 1990s.

The 1990s were a period of intense negotiations which included both imperatives to liberalise and redistribute. This can be seen in the differing economic policies adopted by the ANC after Apartheid and the definitions of development. Internationalisation met an expanded minerals-energy complex and the status of public organisations changed.[60]

In 1991, ESKOM launched the “Electricity for All” campaign, where previously white-oriented electricity resources were to be expanded to the whole of South Africa, with 260 projects planned by 1992. Ian McRae had headed the plan to expand electricity into townships, particularly regarding the rolling out of prepaid electricity. McRae had held interviews with churches and township residents to seek amicable and long-term solutions to electrification. The 1994 National Electrification Programme and the 2001 integrated National Electrification Programme aided the expansion of “Electricity for All”.[61] Between 1994 and 1999, 80% of city dwellers and 46% of rural households had access to electricity (albeit through prepaid meters). Between 1991 and 2014, 4,3 million households were electrified with 2,8 million households electrified between 1991 and 2001.[62]

After Apartheid’s isolation, ESKOM began to expand into Africa to generate revenues. ESKOM reintegrated the Cahora Bassa project in Mozambique and developed capacities in West Africa through the “West African Power Corridor Project”. Other projects included exporting electricity to Namibia and hydroelectric power from the Congo River which were led by a subgroup of ESKOM called ESKOM Enterprises.[63]

ESKOM had prepared for the transition to democracy “well before the formation of the first democratic government”; black workers were employed and they comprised 60% of the total workforce in 1993 and over 50% of technical positions were occupied by black workers in 1997.[64] The mechanisms of Black Economic Empowerment (BEE), the Employment Equity Act (EEA) and the Preferential Procurement Policy Framework Act (PPPFA) were implemented. The BEE Commission “emphasised strong intervention from government to grow black capitalism and eliminate the marginalisation of black citizens”.[65] 

The Energy White Paper of 1998 signalled a new direction for energy policy. It aimed at promoting a new model of development in the energy sector. Many ANC members, who were based in an energy research unit at the University of Cape Town were trying to find solutions to South Africa’s energy problems based on “sustainable development”, including economic efficiency, social equity and environmental sustainability.[66]

The 1998 White Paper on Energy was drafted (and not implemented), but even in the draft, very little public participation occurred. This was symbolised by “top-down decision-making”. Most importantly, there was no policy discussion or initiation of a national nuclear strategy.[67]  The ANC government failed to adopt a proper nuclear energy strategy. While they ended the relationship between nuclear and military weapons, they did not replace this with a nuclear energy strategy.

The new policy structure of ESKOM emanating from the 1998 Energy Policy suggested that ESKOM be unbundled, independent power provision be adopted and ESKOM eventually privatised. This was met with sharp reactions from the Congress of South African Trade Unions (COSATU) and the South African Communist Party (SACP). The ANC government avoided the privatisation of ESKOM and instead opted for it to be state-owned and compete in the free market. Political differences in the Department of Minerals and Energy pushed it past the moment of the Reconstruction and Development Programme (RDP) and this meant it wasn’t implemented.[68]  

Jaglin and Dubresson suggest that ESKOM gradually became “deinstitutionalised”, being both subject to the common law and having a new management system. ESKOM became an “instrument of state power” which was stripped of the freedom and action available when “at an arms-length from the state”.[69] Additionally, after the 2001 ESKOM Conversion Act, it was “weakened” and stripped of its prerogatives of autonomy and cheap electricity, but large coal-fired power stations were retained.[70] Engineers’ power was greatly reduced, managers were appointed by cronyism structures and “political entryism” was applied.[71]

As mentioned before, Fine and Rustomjee argue that that the minerals-energy complex was the dominant force in South Africa’s economy; in 1996, they argued that over 90% of electricity was generated from coal and 21,6% of this was contained in the coal and gold mining sectors.[72] Coal has maintained its dominance in the post-Apartheid energy landscape.[73] The minerals-energy complex has, until today, been relatively unchallenged as ANC leaders have taken hold of it.[74]

Despite changes in structure and governance, in 2001, ESCOM was awarded global Power Company of the Year. It was providing massive amounts of electricity; in 2003, South Africa had almost double the electricity consumption per capita than the global average.[75] What followed is a maelstrom of poor decisions, poor maintenance and corruption. This will be chronicled in Part 2 of ESKOM’s history.

Conclusion

This article set out trying to find some lessons and reflections for the future from the past of ESKOM. There are a number of these which seem particularly pertinent. Firstly, the privatisation of ESKOM is an ambiguous process. In the 1920s and the late 1940s, the government initiated processes to take over electricity production both to keep electricity prices down and encourage economies of scale. Where privatisation or corporatisation seems valuable is in maintaining “an arms-length” from the state. Throughout its history, this enabled ESKOM to be independent of political influence to a certain degree. The reversal of this in the early 2000s by the ANC government seems a massive mistake and has led to patrimonialism and political appointments.

This leads to the second lesson/reflection. As Jaglin and Dubresson state, ESKOM had techno-political managers. Many of these managers were engineers and as engineers had the technical vision to achieve political ends. The ANC government has failed to use technical skills to address the country’s energy issues. Technical skills rather than an abundance of managerial skills thus would lead to innovation to deal with the country’s needs. This could be in the direction of spreading electricity to rural areas, enabling more township residents to access electricity, tightening payment systems and supplying more regular clean energy. There was in the past capacity within the ANC government, as shown in the drafting of the Energy White Paper in 1998, ESKOM’s expansion into Africa and the redistribution of electricity to millions of black South Africans, to embody a more developmental vision, but this has since dissipated dramatically.

A third reflection is that during times of energy crisis, the key is investment. When South Africa experienced load shedding between 1948 and 1953, they embarked on investment in a large fleet of coal-fired power stations and other energy sources from hydroelectric power and even nuclear. It is true that the ANC commissioned Kusile and Medupi coal-fired power stations after the bouts of load shedding in 2014. Yet these investments lead to a fourth reflection.

The building of large, coal-fired power stations certainly appeased the various stakeholders who were part of the minerals-energy complex. Yet during the 1980s, the Apartheid government planned large new coal-fired power stations but then demand dropped as gold mining struggled. These large coal-fired power stations were difficult to maintain and had less flexible generation. New energy sources from hydroelectric, solar, wind and nuclear need to be added into the mix on differing scales.

The final point is the impending global environmental crisis. It seems that ESKOM is tangled in a web of past decisions which greatly impede their present. Yet the environmental crisis is an opportunity for ESKOM to break out of the minerals-energy complex and invest in new forms of electricity. This new investment would lead to the stabilisation of the national grid and grow technologies which pollute less than coal.