ISIS and all that

One of the great experiences of my life was an exploration of the Middle East.  Seven years ago, in 2008, Angela and I traveled through Jordan, Syria and Iran.  We went to many of the great sites on antiquity.  The three P's, Petra, Palmyra and Persepolis were the greatest, and Palmyra the greatest of the three.

I wrote up our experiences in another blog a-nutty-prof.blogspot.com, and went to look at it again today, to remind myself I wasn't dreaming. And there, indeed, was the pretty temple of Baal Shamaan.

 Inside there was a tree growing that, we told ourselves, would surely one day destroy the temple.
 

We were wrong - today came the news that ISIS had done the ridiculous, they had blown up this ancient monument, which had survived since 150A.D. One has to ask what they thought they were doing, other than wasting a lot of explosives.  Did the temple offend their sensibilities?  Are they really so sensitive that the workmanship of the ancients makes them feel guilty? Belief is so irrational.

But today also brought the news that the British Embassy in Tehran had re-opened. 
 
 

We were privileged to spend a few days there in 2008, and were amazed at its splendid grounds in a park in the middle of the city.  The Brits were asked to leave a few years later, but now they are back. Something ISIS has yet to learn - the more things change, the more they remain the same!

Will Eskom survive?

My phone rang - "Could you come and talk to us?" 

"Who are you?" I replied. 

"I'm a parliamentary researcher," he said.

"Well, what do you want me to talk about?" I asked.

"Should we give Eskom the R30 billion they are asking for. Can you advise us?'

And so it was that I and an economist friend, Rob Jeffrey, found ourselves before the Standing Committee on Appropriations, talking about more money than I usually discuss. We said that if Eskom were truly a business, its shareholders would ask what it intended to do to get out of the mess.  Instead, there has been an awful silence, as if going bankrupt were something to be faced with stoicism.

The end result is that Parliament has managed to refinance Eskom by selling off Vodacom.  Nowhere has there been any discussion of what should be done do avoid a slow, insidious decline into dysfunction. 

We identified a prime cause of the problem as being a disturbed cash flow. This was the result of political demands being made on something that should be governed by economics not politics.  For example, back in 1999, there was the political decision to forbid Eskom to build the next big coal-fired power station.  This was somewhat irrational, because Eskom had both the experience and the skills to build power stations and bring them on line within budget and on time. It demonstrated this definitively as it completed the Majuba power station. Every year for 6 years a new unit came on line on 1 April. Medupi and Kusile have only too clearly shown that the experience and those skills are critically important if you are going to build power stations.

Recently, there has been the decision to require Eskom to purchase coal from some small, Black-owned coal mines at a cost of over R450/t, when the going rate from the large mines is less than R200.  Now there is nothing wrong with providing a subsidy to achieve socially desirable ends, but there is everything wrong in hiding that subsidy within a Public Enterprise. Eskom has squeaked about the cost of coal, Government has thundered about the need to stop exports, and then remembered that coal exports are now one of the things that keep this economy afloat.

There are several other examples of political decisions that have contributed to the destruction of what was once a thriving and efficient business.  It must be stressed that we are not criticizing the political decisions as such – South Africa is a democracy, and we all have to live with our political decisions.  Our concern is that Government has seen fit to load the costs of these decisions on Eskom.  Because it is a business with a huge cash flow, it has been able to carry the costs for just so long.  Now the back of the camel is broken.

This is why we have thought long and hard about what needs to happen to restore Ekom to its historical functionality.  We believe the solution is to identify the parts of the business that should be in open competition, and excise them so that when called on to perform a political function, that function can be properly costed and seen as a subsidy.

It would be simple to create an electricity supply company, responsible for generation of electricity as a national asset.  It would be called ESCO, and would be in open competition with, for instance, the renewable energy generators and the new breed of co-generators that the Department of Energy is fostering.  ESCO would hold the present generation facilities of ESKOM, and it could build new facilities using the sort of financing model employed with such success in the Department’s Renewable Energy programme.  That programme has raised nearly R200 billion against nothing more than long-term power purchase agreements, which will bring us of the order of 8 terawatt-hours (TWh) of electrons annually. R200 billion could buy somewhere between a fifth and half of the nuclear power programme, which would yield between 15 and 40TWh of electrons - cheap at the price.

Equally, it would be simple to create a company to distribute electricity. It would be called EDCO, and it would be in competition with municipalities and others who wished to enter the market. ESKOM already distributes about half of South Africa’s power, so EDCO could readily be set up and have both a significant cash flow and a strong asset base.  It would need to have Government support to enforce collection, but once achieved, the business would be self-sustaining and could yield a reasonable dividend.

There remains the question of how to get the electrons from the generators to the distributors.  We have a national highway that performs this duty.  One of the problems is that it is not presently cost-reflective – it doesn’t matter how far the electrons have to travel, or what the losses are along the way, the cost of transport is nominally the same. There is no apparent cash flow to create a business. The transmission grid is a huge asset, but it needs to expand.  Funding the expansion has been a direct charge on the national purse.

We believe that this, fundamentally, is the reason why Parliament has struggled for nearly a decade to create an Independent System and Market Operator (ISMO).  Eskom already performs all the functions of an ISMO.  We envisage creation of an electricity transmission commission, ETCOM, to buy electricity from ESCO and other generators and to sell to EDCO, municipalities and any other distributors.  Initially ETCOM would take over the transmission assets of Eskom. Its capital requirements would remain largely a charge on the fiscus.  However, it would need to develop a model for the costing of power transmission. Electricity should cost less in eMalahleni, next to the power stations, than in Johannesburg.

ETCOM would initially be a commission, funded from the fiscus.  As its economic model evolved, it might be possible to allow competition into the space.  For example, the ESCO generation unit called Koeberg might contract directly with the City of Cape Town for the provision of power down the City’s own transmission line, who would pay less than for the power they bought from ETCOM, who in turn had transported the power from Mpumalanga. As competition emerged, ETCOM could slowly morph into being a company in its own right.

We see a major role for the National Energy Regulator, NERSA, in regulating this process as it develops.  At present NERSA operates in a difficult morass, particularly with power transmission not being cost reflective.  Trying to price power requires the annual production of a 200-page report. We can foresee it growing its role to the point where licensing new generation facilities or new entrants to the distribution market become more important than the task of trying to cost electricity nationally. It would be far simpler to monitor the costs of the production of power with an identifiable business, ESCO. With EDCO pricing distribution, it would be far simpler to bring under control those municipalities who are at present overcharging to balance their books.

We need a path forward to ensure that Eskom survives. The national investment in refinancing must not become a case of throwing good money after bad. Our model may not be perfect, but we believe it to be rational and to provide an essential element in a debate that is currently not being held. Let the debate begin!

Our nuclear future

On Friday last week, Government finally tabled the nuclear agreements it had reached with Russia, China, France and Canada.  After all the ranting about how we were being committed to a trillion rand without knowing who was offering what, the agreements were a decidedly damp squib.  They laid out the principles for co-operation on matters nuclear, and made no commitments whatsoever.

That does not prevent the nuclear critics from banging on, particularly about the cost.  The official estimate in 2010 was R400 million; an NGO quickly inflated that to a possible trillion. One of the most vociferous of the nuclear critics, Prof Steve Thomas of the University of Greenwich, has recently paid us a visit and stressed his estimate of the possible costs of our programme. One would have thought he would have had enough to do about Britain’s energy policy without telling us what to do with our own.

The simple fact of the matter is that it barely matters what the capital cost of our future nuclear plant will be.  What matters is the cost at which it will produce power.  That is the lesson from our very successful renewable energy programme. The capital committed to that programme now amounts to about R190 billion, approaching half the expected lower cost of the nuclear programme.  Yet it is producing affordable power, at a price which is funding the capital expenditure.

The Department of Energy has cut its commercial teeth with the renewables.  It now seeks to use those teeth on nuclear procurement. Can the University of Greenwich really teach us anything? Britain’s renewable programme has been sustained by huge subsidies, which the new Conservative government has decided to cut.  Its nuclear build programme is ‘interesting’ – it has purchased two reactors to a design that is proving very difficult to build and which is not yet in service, at a very high capital cost. It is currently relying on importing power from Europe and Ireland to balance its grid. Perhaps Prof Thomas’ skills are needed at home.

What few of the nuclear critics will recognise is that our nuclear programme is part of the IRP2010 proposals. These were extensively discussed by everyone who had any interest in our energy future, and finally agreed by Cabinet in March 2012. So the programme is nothing more than was agreed after a very wide-ranging consultation.  It is not something dreamt up to enrich a few politicians - although the risks of that happening are very real.

A Jane Austen update

Having been born on the edge of the Yorkshire moors, I have always had a soft spot for Jane Austen. So, wondering what we could do on the evening before Wukkers Day, I spied "Pride and Prejudice" at my local theatre.

The theatre is in a converted house, and the owner, Nicholas Ellenbogen, handcrafted the 80-odd seats. The stage is unusual - there is no exit opposite prompt, and the exit downstage effectively opens onto the street. Idiosyncratic it may be, but it is local and it can be fun. 

Armed with two pensioner seats, we strolled down the road just in time for the curtain rise. Up a short flight of stairs, into the roof, past the light-&-sound man, and there were two seats made just for us. 

The show started gloomily, but soon took off with the arrival of some drunken servants. The lord of the house was away, so they decided to have a play, and the play was to be the story of the lord and his lady - and so we were launched into P&P. 

 I don't think I have laughed so much in years. Certainly at the interval, I needed a drink - to replace the tears that had been flowing down my cheeks! The cast was too small, so everyone doubled up, and there was room for some handsome mops to fill out their numbers. Costume and character changes were lightning fast, and the scene changes were masterpieces of minimalism - a dish of vegetables did for the home, a pair of horse statues for the grand house, and a roll of green carpet for the gracious lawns. There were moments of poignancy, as when Darcy wrote to Elizabeth and she read his letter. The closing scene was one of high drama and comedy all rolled into one. 

Matthew Roberts wrote the play and played just about every role; Hilda Cronje made a very credible Elizabeth, and appeared a true Austen heroine; Cameron Robertson was a moody Darcy; Nathan Lynn did a good falsetto to pull off the skirt role of Mrs Bennett;and Dominique Maher was a sympathetic sister. 

As we walked home under a nearly full moon, my wife remarked that, as the curtain came down, she had been surprised to see how small the cast really was. Such was the energy, the changing of roles, the changing of scenes, that you quite forgot what huge talents you had been enjoying. Who needs a cast of thousands?

The Bureaucrats in Pursuit of the Invisible

On 1 April this year I received an invitation that, at first reading, I was convinced was a joke.  Could I attend a Treasury meeting to consider a proposal to set up a huge bureaucracy to administer the running of all industry? Whatever else I knew about our government and its policies, I could not credit that we had stooped to the folly of central planning.  I had had experience of Russia in its darkest days, when Moscow ran out of lady’s underwear (don’t ask me how I know!). Surely no-one of sound mind would wish to resuscitate that system?

But no, it was not a joke.  Our Treasury had hired some Dutch consultants to advise them on setting up a system to determine Z-factors, “to reward companies that have taken voluntary and early action to reduce their GHG [greenhouse gas] emissions.”

This is eco-colonialism at its worst.  Europe is struggling with its failed carbon trading system, which has cost it billions of Euros in VAT fraud alone. The value of carbon has fallen to less than €7 per tonne, and is not expected to rise until at least 2020.  At €7, not only have those who invested heavily when it was over €20 per tonne lost their shirts, but it now pays to build new coal-fired power stations. According to the Guardian (22-1-2015) “The Exchange Trading Scheme is currently experiencing a glut of more than 2 billion allowances as a result of factors including massive oversupply and recession.” Yet we are buying European services to tell us how to make the same mistake.

The flaws in thinking are manifold.  First, anything South African companies did to reduce their GHG emissions would be lost amidst the surging emissions of other developing countries.  Every year for the past ten years, China’s and India’s carbon emissions have grown by an average of 520 and 90 million tonnes respectively; South Africa’s total carbon emissions in 2013 were 440 million tonnes.

Secondly, the whole of the climate scam is in disarray.  The saturnine head of the Intergovernmental Panel on Climate Change [IPCC], Dr Pachauri, has been forced to resign after two scandals, one involving some singularly inappropriate emails to a junior female employee and another in which he went around telling stories about Himalayan glaciers disappearing, and then got a huge grant to study what turned out to have been a non-problem all along. A study of the records of the Global Historical Climate Network [GHCN] has shown that temperatures have indeed climbed during the past century due to human interference – by the staff of the GHCN, which has “homogenized” most of the historical data downwards and much of the recent data upwards.  These adjustments have artificially added about 0.35^oC to the reported 0.8^oC temperature rise. Just to add to the destruction of the Carbon Causes Chaos theory, global temperatures had been warm but stable for the past 18 years, when theoretically it should have heated by another 1^oC. Moreover, the “fingerprint” of climate change, the warming of the upper troposphere faster than the earth’s surface, has not happened.  The much-vaunted Conference of Parties in Paris in November this year seems likely to make even less progress than the 20 such Conferences that have gone before.

All of this means that the rationale for curbing our greenhouse gas emissions is weak at best. In this light we have to ask whether it is sensible to set up a bureaucracy to licence industry. Of course, Treasury has talked of “rewards”, but we would be donkeys to think that such carrots did not come without sticks. The Z-factors would also be there to punish industries that did not reduce their GHG emissions.

The point of licensing industry arises from the Department of Environmental Affairs’ White Paper “National Climate Change Response” 2011. This was based upon the Long-Term Mitigation Scenarios, which should immediately warn any reader that the basis is flawed.  Scenarios explore extreme positions; you can then draw up practical plans between the extremes. The Department’s plan sits firmly on the lower scenario – it is by definition not practical.

The Department intends to define the “desired emission reduction outcomes for each sector and sub-sector of the economy - -.”  It would draw up “Carbon Budgets for significant GHG emitting sectors and/or sub-sectors - -.”  “Companies and economic sectors or sub-sectors for whom desired emission reduction outcomes have been established” would be required “to prepare and submit mitigation plans that set out how they intend to achieve the desired emission reduction outcomes.”

So there would be an Emissions Director within the Department who would have the authority to agree how much GHG the company could emit. As emissions are very strongly related to energy consumption, in practice the Emissions Director would determine each company’s permissible energy use. Because energy is one of the essential inputs to production, the Emissions Director would have control of every aspect of South Africa’s productive capacity.

Fortunately somewhat wiser counsel has prevailed at the National Treasury.  Its 2010 Discussion Paper specifically recognized the problem – “There are two options: an upstream tax at the point where fuels enter the economy, according to their carbon content; or a downstream tax on emitters at the point where fuels are combusted. The administrative costs and complexity of an upstream tax are significantly lower.”

In spite of this, the 2013 Carbon Tax Policy Paper still has a role for the Emissions Director – “The DEA will approve the appropriate emissions factors and procedures - - . “  It will “introduce mandatory reporting of GHG emissions for entities, companies and installations that emit in excess of 100 000 tons of GHGs annually, or consume electricity that results in more than 100 000 tons of emissions from the electricity sector.”  

 It was in the light of this that Treasury decided to ask the eco-colonialists to draw up “benchmarks” and Z-factors against which individual industry emissions could be measured.  Duly a massive (255-page) tome was prepared covering iron & steel, ferroalloys, cement, petroleum, chemicals, pulp & paper and sugar industries. Fortunately, perhaps, it is a case of Parturient montes, nascetur ridiculus mus [1](Horace), because for most industries there are no data of any worth.

So it seems likely that Treasury, when it finally gets round to taxing carbon, will tax upstream rather than downstream.  Administratively this is much simpler.  Environmental Affairs’ desire to establish a carbon kingdom may be stillborn, which is probably no bad thing.  But we are still left with a possible carbon tax. Is it likely to have any effect?

The answer is almost certainly not.  The prices of petrol and diesel have oscillated widely in recent years.  The demand for these fuels has grown steadily in spite of the price changes.  In economic terms, the demand is inelastic.

What this means is that a carbon tax is an exercise in futility. A tax on energy is unlikely to have any impact on our carbon emissions.  Have you seen any fewer 4x4s on our roads since they were taxed in the name of saving the planet?  Have you used much less electricity because coal-sourced power is levied? What is more important – growing our economy or doing our insignificant bit to save the world from carbon chaos?   

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[1] The mountains have given birth to a ridiculous mouse.

How sustainable is development?

The phrase "sustainable development" has become a sort of word-in-itself.  You can't talk about development without adding the word sustainable.

The trouble is that sustainabledevelopment is really undefined.  There have been noble attempts - everyone remembers the Brundtland story:

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Great stuff, but completely useless - you can't dig up something to keep your world going, because that means future generations won't be able to dig it up. The resources of the world are finite, right?

Recently I mulled over the paradox that we never seem to run out of non-renewable things like oil, but we are always running out of renewable things like rhinos and whales and fish and elephant.  There has, of course, been a thesis that we should already have run out of oil - it was called "peak oil" and a man called Hubbard who had worked for Shell developed the theory back in the 1960's. 

 However, in 1945 the world had 25 years of known oil; by 1970 we had used up all that oil, but by then had 30 years left. By 2000 we had used up all the 1970 oil, but by then had 40 years left.  Today we have used up 15 of the 40 years, but we have 55 years left.  What gives?

My resolution of the paradox was that, yes, the renewable resources are indeed finite, but the non-renewable stuff is not measured by the resource but by the reserves, and reserves are something quite different.  They depend on price and technology, and technology is the measure of human ingenuity, so the reserve is flexible and potentially expandable, whereas the poor old renewables have to fend for themselves.

In exploring this in a full-blown paper, I was led to separate sustainabledevelopment back into two words, and ask just what was "sustainable" and just what we meant by "development".  When I tried to publish the paper, one reviewer sniffily reported that I didn't understand sustainabledevelopment, which was rather unhelpful, and another made some useful comments about my economics, but complained I had "merely" used some widely available data, so could not recommend publication.  I am still trying to get the paper published, but recognize how truly politically correct sustainabledevelopment has become.

Of course, its political correctness flows from its being blessed by the United Nations. There are regular conferences on the topic.  One, back in 2000, set up six Millennium Development Goals to be achieved by 2015. 15 years down the line, it is gratifying to be able to report on the success:

• Reduce extreme poverty by half - it has been reduced by over 70% already
• Achieve gender equality in education - achieved by 2012
• Halve the proportion of the population without access to improved drinking water - bettered; it has been reduced by 60%
• Reduce child mortality by two-thirds - only managed a 44% reduction by 2013
• Reduce maternal mortality by three-quarters - only managed to halve by 2013
• Universal primary education - up from 80% in 1990 to 92% in 2013

In September this year, there will be another such conference.  You would think that, buoyed by the success of the Millennium goals, they would see the merit of keeping things simple.  But no, this is the United Nations.  The September conference is to consider a new set of SustainableDevelopment Goals - 169 in all! Focused it is not. 

My hero, Bjorn Lomborg and his Copenhagen Consensus have tried to offer some prioritization. They have found 18 of the goals which have some hope of giving real value, mainly simple things like improving treatment of malaria, immunising more children against preventable childhood diseases and wider use of family planning.  

But far too many of the 169 are politically correct globspeak:

By 2030 ensure all learners acquire knowledge and skills needed to promote sustainable development, including among others through education for sustainable development and sustainable lifestyles, human rights, gender equality, promotion of the culture of peace and non-violence, global citizenship, and appreciation of cultural diversity and of culture's contribution to sustainable development.

As The Economist commented, "Try measuring that!" 

Rhodes's legacy

There was a statue of Cecil John Rhodes at the foot of the steps leading to the centre of the University of Cape Town.  He was honoured because he had donated the land on which the University sits.  It is a magnificent site, probably one of the most dramatic sites for any university in the world, nestling under the crags of Devil's Peak with a view across the Cape Flats to distant mountains, with oceans to left and right.

However, Rhodes’ statue has become, in the words of one Stephen Grootes, the “equivalent of a racist swastika.” Worse, he says the Rhodes scholarships “were really set up with the intent of creating more white men like him with the same ideals.” Unfortunately Grootes shows himself to be as bigoted and racist as he claims Rhodes was.  Any reading of Rhodes’ Will shows him to be surprisingly wise, prescient and even pacifist.

For instance, clause 24 of the Will is unequivocal – “No student shall be qualified or disqualified for election to a Scholarship on account of his race or religious opinions.” For 1901 this was an extraordinary qualification – racism was rife at that time.  Five years later a man from central Africa named Ota Benga was exhibited in the monkey house of the Bronx zoo as part of an exhibit on evolution.”[1] No-one who has any sense of history and the way in which what is “normal” can change can fail to recognize that Rhodes was way ahead of his time. Clearly Rhodes did not want to create “more white men like him with the same ideals.”

There is a thesis popular in politically correct circles that Rhodes did not mean “race” when he said “race”.  The thesis holds that Rhodes understood “race” to define other classes of whites like boers. If this were so, then Rhodes was a racist as now understood. 

I think the argument is nonsense.  First, by saying “qualified or disqualified” he made it quite clear that he wanted the scholarships to be fully inclusive.  Secondly, his inclusiveness extended to religion.  We need to remember that anti-semitism was rife at that stage.  Indeed, Rhodes paid £5,338,650 for the assets of Kimberley Central, the largest cheque ever written, so consolidating the Kimberley mine. Part of the deal required Barney Barnato of Kimberley Central to become a member of the Kimberley Club, which up to that time had excluded Jews such as Barnato. So for Rhodes to call on the Trustees to ignore “religious opinions” was as wise as his call to ignore race.

Apollon Davidson quotes Rhodes as saying "I could never accept the position that we should disqualify a human being on account of his colour." Further, the Rhodes Trustees chose the first Black Rhodes Scholar only five years after Rhodes' death, in 1907, so they certainly did not view "race" any differently. So saying that he did not mean "race" as we understand it, but some politically correct interpretation of his meaning of "race", is absolute nonsense. And just to clinch things, it helps to remember that when Rhodes was elected Prime Minister of the Cape Colony, over 40% of the electorate were non-white - on a qualified franchise, to be true, but enfranchised nevertheless.

Of course, he failed to recognize the potential of women, but he was a man of his times.  Britain only gave a qualified franchise to women in 1918 and full franchise in 1928.

That he wanted men with ideals is undoubted. Clause 23 of the Will says that students “elected to the Scholarships shall not be merely bookworms - -.” Of course, they had to have achieved excellence in literary and scholarly things, and in “manly outdoor sports.” They had to show qualities of “truth, courage, devotion to duty, sympathy for and protection of the weak, kindliness, unselfishness and fellowship.” Above all Rhodes sought “moral force of character and instincts to lead” because he believed this would guide the Scholar “to esteem the performance of public duties as his highest aim.” 

The Scholars have borne out Rhodes’ hopes.  The list of past Scholars includes a host of household names, many of whom have attained the peak of academic excellence, or become leading jurists and scientists.  Among them there is, of course, Bill Clinton, 42^nd US President, and the forthcoming election may well have a Rhodes Scholar candidate for US Presidency, Bobby Jindal, who was conceived in India, imported into America in his mother’s womb, and is presently the Governor of Louisiana.  I know of no other scholarship which has had such a history of success in identifying future leaders of the global society.

But I was really struck by Rhodes’ foresight when I came to a late codicil. “I leave five yearly scholarships at Oxford - - to students of German birth, the scholars to be nominated by the German Emperor - -. The object is that an understanding between the three great powers will render war impossible, and educational relations make the strongest tie.”  This in 1901?  Victoria was still on the throne, and her nephew was the German Emperor. Yet Rhodes foresaw even the possibility of war between the nations, and took such steps as he could to strive for peace. 

Perhaps after all the rage over his duplicitousness towards Lobenguela, Rhodes’ basic pacifist instinct can be recognized.  How else can one understand Lobenguela’s Bayete salute at Rhodes’ burial?

So yes, the Rhodes statue is a reminder of the excesses of colonialism, and that leaves traces of anger even today.  But no, he did much that was good and for that he needs to be remembered.  Move him near the grave of the first Vice-Chancellor of UCT, Sir John Carruthers Beattie.  It is a peaceful spot in the woods, just off the track that Rhodes used to ride on his way to the prominence where his Memorial now stands.

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[1] http://www.nypl.org/blog/2013/10/15/classroom-connections-social-darwinism-european-imperialism