Mention the factors which have helped South Africa's electricity supplier, Eskom, to reduce transaction costs and distribute electricity cheaply?

Answer 1

South Africa's electricity supplier, Eskom, uses the technologies of its day to cut transaction costs. Its power plants produce some of the world's cheapest electricity. Eskom faces high transaction costs in delivering and paying for power to low and unsteady income groups. As such Eskom has taken actions and invented ways to cut some important transaction costs:

a) Interior wiring: Poorer areas around large cities have only rudimentary housing, and the cost of installing safe wiring inside their walls is prohibitive. Eskom devised a new delivery system consisting of an insulated cable attached to a power line and dropped through the roof. At its end are several outlets.

b) Small quantities and limited ability to pay: The budgets of low-income people limit their power use. Even if consumers were always sure to pay monthly, billing and meter reading would be expensive relative to revenue per house. Eskom's prepayment system only allows power to flow if a magnetic-stripe card has been inserted into the outlets. Consumers can add desired amounts of money to their cards at convenient vending machines. A home display shows the amount remaining on the card.

c) Theft of cards: Poor areas are often high-crime areas, and stealing an unprotected power card would be almost as good as stealing money. Eskom lowers the transaction costs of avoiding theft by encoding a user's number on the card. Power will only flow if the card matches its owner's outlet code, making it almost worthless to a potential thief.

d) Theft of power: Power theft using unauthorized connections or bypassed meters is a major problem in poor countries. An unskilled worker can directly tap an ordinary line in minutes. Because either the producer or the legal users must pay for stolen power, their transaction costs are higher. To deter theft Eskom has re-engineered its wires so specialized tools and training are required to tap them.