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South Africa hopes private sector can help end Eskom power crisis

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Every time South Africa’s struggling state-owned Eskom power monopoly announces rolling blackouts, it marks a bittersweet moment for Herman Maritz, developer of an app that helps users to plan for electricity outages.

The power cuts in Africa’s most industrialised economy, which have persisted for more than a decade and are known locally as load-shedding, have in recent weeks lasted up to 12 hours a day, piling on misery for businesses that have been coping with a years-long collapse at the state utility’s ageing coal plants.

But they also drove record numbers of people to EskomSePush, the app — whose name plays on an Afrikaans swear word — which was co-founded by Maritz and his friend Dan Wells seven years ago.

“I wish I didn’t have to build these features for load-shedding,” said Maritz, a tech engineer who switched to working on the app full-time this year. “I hope that load-shedding could just be gone a month from now, and the functions will not be needed.”

South Africa is contending with the legacy of years of failure to invest in new power supply, which has forced Eskom to keep decades-old plants running without proper maintenance. The ailing state utility has been left with as little as 26,000 megawatts of capacity to meet national demand that peaks at 32,000MW in winter — forcing it to cut off up to 6,000MW from the grid at a time.

Up to 2.4mn users a day logged on to EskomSePush this month as wildcat strikes by Eskom workers seeking higher wages exacerbated the collapse and has made 2022 the worst year yet for outages, with just under half of it remaining.

EskomSePush is a popular smartphone app for checking load shedding schedules

The deepening problems have finally forced president Cyril Ramaphosa to act. Last week he announced a sweeping plan to enlist the private sector “to urgently add much, much more capacity to the grid”.

The requirement for power generators to hold a licence, which previously applied to independent projects bigger than 100MW, will be swept away, allowing mines and other businesses to install their own generating capacity of any size. Under the proposals, the state will also double its procurement of renewable energy this year to more than 5,000MW.

But, despite Maritz’s hopes, and concerns in the ruling African National Congress that the energy crisis will cost the party its post-apartheid grip on national government in 2024’s elections, private-sector projects are unlikely to start relieving the burden on Eskom for some time.

The measures are “a good plan, especially the removal of the licensing threshold. However, it may take a few years before independent producers can meaningfully contribute to the grid,” said independent economist Thabi Leoka. “Building the capacity will take some time, but it’s better than not doing anything as most companies are struggling.”

Ramaphosa faces challenges posed by vested interests. Among Eskom’s problems, he blamed “deliberate sabotage by well-organised criminal syndicates that are destroying the utility and damaging our economy”, such as the rampant theft of spare power-plant parts.

He also faces torpor in his party. Gwede Mantashe, the energy minister, has in recent months dismissed complaints that power procurement was progressing too slowly. “The same people tasked with implementing the new plan are the same ministers who could have implemented these plans all along,” Leoka said.

The ANC heartlands cover coal-mining regions that supply Eskom. Party factions favour state direction of these resources rather than independent renewables. Eskom delayed signing contracts with renewable providers in 2016 which had a knock-on effect on holding more rounds of procurement.

“There is a history . . . of obstructing renewables because you want to protect the gravy train around incumbent resources,” said Grové Steyn, managing director of Meridian Economics, a consultancy. “The problem is not red tape. It is political resistance.”

At the end of 2020, South Africa’s renewable capacity was 6,700MW — or about 16 per cent of total capacity.

High voltage electricity transmission pylons alongside an Eskom coal-fired power station
Eskom is keeping decades-old power plants running without proper maintenance © Waldo Swiegers/Bloomberg

Had South Africa procured an extra 5,000MW of solar and wind supply between 2016 and 2021, almost all of last year’s blackouts could have been prevented, according to estimates by Meridian that assume renewables would have better supported Eskom’s back-up power generation than coal.

“We are primarily energy-short, not capacity-short . . . capacity is just a potential to generate, energy is what you can keep generating,” Steyn said. He added that the Eskom strike “disrupted a system that is already on thin ice”.

In order to power back-up plants Eskom had already burnt about 270mn litres of diesel from January to May this year, before the worst rolling blackouts, compared to about 450mn litres in the year to the end of March 2021.

The increasingly frequent blackouts of recent weeks have taken their toll on South African businesses of all sizes by sapping diesel supply for generators and draining mobile phone tower batteries.

Despite industry group Business Leadership South Africa hailing Ramaphosa’s plan as a sign that “we are finally moving in the right direction”, many companies are hedging their bets. MTN, Africa’s largest mobile carrier, is adding to a fleet of more than 2,000 generators to keep towers running.

As South Africa waits for new power investments, running diesel generators and hiring security to guard them are deadweight costs for businesses in an already stagnant economy, Leoka said. “This is money that could have gone elsewhere, into investment or employment.”

EskomSePush is selling technology for businesses such as banks to integrate its app into their systems — such as a feature warning remote workers when the next power cuts will take place. A product is also in the works for homeowners aiming to sync rooftop solar and batteries with power cuts as they increasingly go off grid.

Maritz would prefer to work on South Africa’s many other problems. EskomSePush added a new “Ask my street” service to enable South Africans to report and fix local water and non-Eskom power outages more effectively.

“A little part of me is thinking . . . let’s help South Africans help each other as well,” Maritz said. “I hope that we can use load-shedding as a launch pad to build something bigger.”

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Sister Patricia Daly, 66, Dies; Took On Corporate Giants on Social Justice

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For years, Sister Pat and other environmentalists had urged ExxonMobil to take significant steps to reduce greenhouse-gas emissions from its operations and products. In 2007, she proposed a resolution that called on that energy giant to set a firm date to report on its progress.

“We’re the most profitable company in the history of the planet,” she told Rex Tillerson, then the company’s chief executive (and later secretary of state in the Trump administration), at the company’s annual meeting, “but what will be our long-term health when we are really faced with the regulatory and other challenges around global warming?”

She added: “We are now, this company and every single one of us, challenged by one of the most profound moral concerns. And we have the wherewithal to respond to that.”

The proposal won 31 percent of the ballots, or about 1.4 billion shares, the largest tally for an ExxonMobil climate-change resolution. If not an outright victory, it was a page in a decades-long narrative that led ExxonMobil to put a climate scientist on its board in 2017. Three executives who recognized the urgency to address climate change joined the company’s board in 2021, nominated by a tiny activist hedge fund, Engine No. 1.

“The arc of her work led us to those victories by working from the inside and the outside,” John Passacantando, the founder of Ozone Action, an anti-global warming group, and a former executive director of Greenpeace, said in a phone interview.

In 1999, Vanity Fair named her to its Hall of Fame, applauding her as one who “translates belief into commitment and never backs down from a fight.”

Mary Beth Gallagher, who replaced Sister Pat as executive director of the Tri-State Coalition in 2017, said Sister Pat had not become frustrated when her resolutions were routinely voted down.

“She lived in hope,” Ms. Gallagher said. “We never talked about winning or losing. It was about raising consciousness and educating. If we’re not asking these questions, who will?”

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Families can make a tax-free rollover from 529 plans to Roth individual retirement accounts starting in 2024

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Maskot | Maskot | Getty Images

Americans who save for college in 529 plans will soon have a way to rescue unused funds while keeping their tax benefits intact.

A $1.7 trillion government funding package has a provision that lets savers roll money from 529 plans to Roth individual retirement accounts free of income tax or tax penalties.

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The House passed the measure Friday and the Senate did so Thursday. The bill heads to President Biden, who’s expected to sign it into law.

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The rollover measure — which takes effect in 2024 — has some limitations. Among the largest: There’s a $35,000 lifetime cap on transfers.

“It’s a good provision for people who have [529 accounts] and the money hasn’t been used,” said Ed Slott, a certified public accountant and IRA expert based in Rockville Centre, New York.

That might happen if a beneficiary — such as a child or grandchild — doesn’t attend a college, university, vocational or private K-12 school, or other qualifying institution, for example. Or, a student may receive scholarships that mean some 529 funds are left over.

Millions of 529 accounts hold billions in savings

There were nearly 15 million 529 accounts at the end of last year, holding a total $480 billion, according to the Investment Company Institute. That’s an average of about $30,600 per account.

529 plans carry tax advantages for college savers. Namely, investment earnings on account contributions grow tax-free and aren’t taxable if used for qualifying education expenses like tuition, fees, books, and room and board.

Retirement plan changes in the omnibus spending bill

However, that investment growth is generally subject to income tax and a 10% tax penalty if used for an ineligible expense.

This is where rollovers to a Roth IRA can benefit savers with stranded 529 money. A transfer would skirt income tax and penalties; investments would keep growing tax-free in a Roth account, and future retirement withdrawals would also be tax-free.  

Some think it’s a handout for the rich

However, some critics think the rollover policy largely amounts to a tax handout to wealthier families.

“You’re giving savings incentives to those who can save and leaving behind those who cannot save,” said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.

A 2012 analysis conducted by the Government Accountability Office found the typical American with a 529 account had “much more wealth” than someone without: $413,500 in total wealth for the median person, about 25 times the amount of a non-accountholder.

You’re giving savings incentives to those who can save and leaving behind those who cannot save.

Steve Rosenthal

senior fellow at the Urban-Brookings Tax Policy Center

Further, the typical owner had a roughly $142,000 annual income versus $45,000 for other families, the GAO report said. Almost half, 47%, had incomes over $150,000.

The new 529-to-Roth IRA transfer provision doesn’t carry income limits.

Limitations on 529-to-IRA transfers

While the new tax break primarily benefits wealthier families, there are “pretty significant” limitations on the rollovers that reduce the financial benefit, Jeffrey Levine, a certified financial planner and certified public accountant based in St. Louis, said in a tweet.

The restrictions include:

  • A $35,000 lifetime cap on transfers.
  • Rollovers are subject to the annual Roth IRA contribution limit. (The limit is $6,500 in 2023.)
  • The rollover can only be made to the beneficiary’s Roth IRA — not that of the account owner. (In other words, a 529 owned by a parent with the child as beneficiary would need to be rolled into the child’s IRA, not the parent’s.)
  • The 529 account must have been open for at least 15 years. (It seems changing account beneficiaries may restart that 15-year clock, Levine said.)
  • Accountholders can’t roll over contributions, or earnings on those contributions, made in the last five years.

In a summary document, the Senate Finance Committee said current 529 tax rules have “led to hesitating, delaying, or declining to fund 529s to levels needed to pay for the rising costs of education.”

“Families who sacrifice and save in 529 accounts should not be punished with tax and penalty years later if the beneficiary has found an alternative way to pay for their education,” it said.

Are 529 plans already flexible enough?

Some education savings experts think 529 accounts have adequate flexibility so as not to deter families from using them.

For example, owners with leftover account funds can change beneficiaries to another qualifying family member — thereby helping avoid a tax penalty for non-qualified withdrawals. Aside from a kid or grandkid, that family member might be you; a spouse; a son, daughter, brother, sister, father or mother-in-law; sibling or step-sibling; first cousin or their spouse; a niece, nephew or their spouse; or aunt and uncle, among others.

Owners can also keep funds in an account for a beneficiary’s graduate schooling or the education of a future grandchild, according to Savingforcollege.com. Funds can also be used to make up to $10,000 of student loan payments.

The tax penalty may also not be quite as bad as some think, according to education expert Mark Kantrowitz. For example, taxes are assessed at the beneficiary’s income-tax rate, which is generally lower than the parent’s tax rate by at least 10 percentage points.

In that case, the parent “is no worse off than they would have been had they saved in a taxable account,” depending on their tax rates on long-term capital gains, he said.



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Goldman grumbling grows for banking giant to sack CEO David Solomon

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The knives are out for Goldman Sachs CEO David Solomon, and this time the people brandishing them aren’t the usual suspects — his junior staffers annoyed that they have to work late or come into the office several times a week.

Solomon’s problems are more serious and existential, I am told, and how he handles what can best be described as a revolt in some quarters of Goldman’s middle and upper management ranks could determine how much longer he stays in his job.

Solomon, 60, took the job in 2018 and was always somewhat of an odd choice to run the white-shoe investment bank that usually cultivated its leaders from within. He cut his teeth at a decidedly un-Goldman-like venue: the scrappy investment bank Bear Stearns (ultimately one of the causalities of the 2008 financial crisis).

He joined Goldman in 1999, as a partner, no less, because his deal-making chops allowed him to skip layers of management.

In other words, Solomon is an outsider at a firm with a wickedly insular culture. He has a quirky side gig as a DJ in the summer Hamptons party circuit. He’s also not one for small talk, and doesn’t consult with a lot of people before handing down his edicts. 

“He doesn’t breed a lot of love,” said one former Goldman executive who knows Solomon well.

Lots of people at Goldman don’t like him, and they’re letting their views be heard both internally and with pals at rival firms.

Solomon as a DJ
Solomon is an outsider at a firm with a wickedly insular culture.
David Solomon/Instagram

For the record: I’ve met Solomon and like him for his no-BS style. And until pretty recently, the numbers show him doing a great job. Goldman was running on all cylinders in deals and trading. Even as the market corrects, shares are up about 60% since Solomon took over as CEO in 2018 compared to around a 44% rise in the S&P during that time.

Goldman is still the top M&A shop, even widening its market share over rivals in that important business line. Solomon was the first among his fellow CEOs to see the downturn and enact significant layoffs to cut costs.

Still, the grumbling about Solomon is spreading to the managing director and partner class. High-priced Wall Street talent don’t call all the shots at any firm, of course. But Goldman’s MDs and partners have historically been a powerful force when the board decides the fate of current management, which makes Solomon’s hold on his job increasingly precarious as more and more of them defect from his camp.

David Solomon as a DJ
Solomon was the first among his fellow CEOs to see the downturn and enact significant layoffs to cut costs.
David Solomon/Instagram

Here’s how they’re building a case against him: Goldman’s longtime archrival investment bank Morgan Stanley now easily dwarfs Goldman in market value, $144 billion to $116 billion, continuing a trend that predates Solomon. That comes amid a slowdown in banking deals, Goldman’s bread-and-butter business, and Solomon’s home turf.

Morgan’s CEO James Gorman deftly expanded the firm’s wealth management operations, which provide steady revenues. Solomon’s effort to diversify was an overindulgence in something called Marcus, a digital retail bank launched by his predecessor Lloyd Bankfein that Solomon made his baby. So far, it’s been a disaster, so much so that Solomon has been forced to scale back, possibly on the way to winding it down.

Goldman, meanwhile, has missed targets in its recent earnings announcements, and more downward surprises could be in store as markets continue to wobble. Bonuses are down, in some places cut in half, albeit from the nosebleed levels of 2021.

Goldman Sachs headquarters
The grumbling about Solomon is spreading to the managing director and partner class.
AFP via Getty Images

Traders did well in 2022 because Goldman’s are particularly adept in profiting off turbulence, but part of their pool is being diverted to bankers to keep them in-house until the deal slowdown ends.

Since Solomon is a banker, he’s also being accused of favoritism, which in truth is a pretty lame charge, since bankers often subsidize trader bonuses when the markets aren’t profitable. Still, the Goldman trading department is powerful and can spark management change, as it has done in the past.

There’s also a question about Solomon’s allegiance to Goldman’s stand-alone culture. In its 153-year existence, Goldman has operated on the assumption that it would be the acquirer in any major strategic acquisition. Solomon’s experience at Bear, then one of the most transactional places on Wall Street, means he could be looking for a deal and not one that keeps Goldman in charge.

Morgan Stanley CEO James Gorman deftly expanded the firm’s wealth management operations, which provide steady revenues.
Morgan Stanley’s James Gorman deftly expanded the firm’s wealth management operations, which provide steady revenues.
AFP via Getty Images

At a time when most Goldman insiders believe he needs to do a “transformational deal,” i.e., something big that allows it to better compete against Morgan Stanley and super banks like JP Morgan, there is speculation that Solomon might allow Goldman to be swallowed whole by, say, a big asset manager or bank if the price was right.

As best I can tell, this grumbling, though real, doesn’t immediately threaten Solomon’s job. Then again, there is something to be said for keeping your producers happy.

Jack Welch, the legendary CEO of General Electric, was a notorious screamer and demanding beyond belief. Yet Welch knew how to nurture his people.

Former General Electric CEO Jack Welch
Jack Welch was a notorious screamer and demanding beyond belief. Yet Welch knew how to nurture his people.
Getty Images

“Jack could chew your ass, then put his arm around you and make you feel great,” one of his longtime executives, Bob Nardelli, once told me.

It’s why so many other talented execs chose to stay around under Welch, abuse and all, and left when his successor took over, watching GE implode from the outside.

Maybe it’s a good time for Solomon to take a page from Welch and start hugging it out.

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