Eskom could be broken up into two state-owned companies if the cabinet accepts the recommendations of President Cyril Ramaphosa’s expert task team at its lekgotla this week.
Ramaphosa is hoping to announce the new shape and size of Eskom in his state of the nation address on February 7. The ANC has agreed to the unbundling in principle.
The power utility is in a dire financial position with negative cash flow and a debt burden of R419bn which it is unable to service from revenue. In order to survive it must cut costs, restructure and receive a substantial bailout from government.
The two proposed companies were a generation company, which would own and run the Eskom power stations, and a transmission company, which would operate and own the national grid, several people with direct knowledge of the process said. The transmission company would be set up as an Eskom subsidiary with its own board and management.
Among the advantages of the structure would be to provide impetus to competition as the grid company would have the incentive to buy electricity from the best-priced producers, which are increasingly wind and solar power. The task team has not proposed that the third component — distribution of electricity — be spun off into a separate entity at this stage.
The urgency of the decision is underlined by the need to give the public, bond holders and ratings agencies a clear plan to support Eskom when the budget is tabled in two weeks. If a substantial bailout is to be considered credible, it must be accompanied by measures to guarantee Eskom’s sustainability.
The task team is known to have proposed a substantial bailout, likely to be significantly larger than the R100bn Eskom chair Jabu Mabuza requested in the restructuring proposals the company put to minister of public enterprises Pravin Gordhan and Ramaphosa in December. The size of the bailout will depend on the magnitude of the tariff increases Eskom is granted over the next three years.
Business has made a plea to government to contain electricity prices to preserve industry and jobs. The Minerals Council SA warned this week that granting Eskom the 15% of annual hikes it has asked for the next three years will destroy the industry and cost 150,000 jobs.
But while Ramaphosa hopes to make an announcement next week, the decision on the unbundling might not be plain sailing and opposition could emerge from several quarters.
One is the ANC where there are strong arguments that electricity distribution also be restructured into a new entity. Distribution is done mainly by municipalities, but also by Eskom. Under investment in distribution by municipalities has led to repeated local outages and service delivery protests, a big political concern for the ANC. But previous attempts by government to restructure electricity distribution have been fraught and were abandoned.
In 2004, government set up Electricity Distribution Industry (EDI) Holdings with the intent of establishing Regional Electricity Distribution (REDs) to manage distribution. An Independent System and Market Operator Bill was introduced with the intention of unbundling Eskom.
The REDs strategy was eventually abandoned in 2010 and the bill withdrawn after ongoing policy battles within the ANC, while EDI holdings was wound up.
More determined opposition has been promised by the National Union of Metalworkers of SA and the National Union of Mineworkers. They have said they will strike if the unbundling proceeds. The unions have also mounted a campaign to shut down independent power producers, which they believe threaten jobs at power stations and coal mines.
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