DAN MAROKANE: Eskom on a mission to lower electricity costs amid reform

We have dealt with energy security. Eskom is currently delivering electricity supply reliability of about 98% year to date. Just over two years ago this figure was about 9%.

High growth, high performance economies have three things in common: constant, dependable and affordable electricity. These three factors drive the best opportunity for advancing the prospects of our country, our communities and our families by driving meaningful socioeconomic growth.

Our next big focus is driving down the cost of energy. This will require the same level of focus and commitment as we applied to ending load-shedding.

Eskom must be separated to enable competition and improve security of supply

The Electricity Regulation Amendment Act (ERAA) provides the legal framework for restructuring the electricity supply industry, including the establishment of an independent Transmission System Operator (TSO) and a competitive wholesale electricity market, and supports Eskom’s separation into distinct businesses. South Africa is undertaking a complex separation process that many countries have implemented through different pathways and at a pace determined by domestic conditions. The act is in part designed to lower the trajectory of electricity price rises by opening up the electricity supply industry to more participants that compete alongside Eskom.

Eskom recognises that sustained electricity price increases feed directly into the cost of living, raise the cost of basic household energy, push up food and transport prices through higher input costs, and place pressure on small businesses that operate on thin margins.

Against this reality, Eskom is committed to driving hard, measurable efficiencies across its generation, transmission and distribution businesses, reducing waste and unplanned costs, strengthening maintenance discipline, improving procurement and project delivery, and using every efficiency gain to moderate the cost base that ultimately influences tariffs.

The objective is straightforward: restore reliability while steadily bending the cost curve downward, so that electricity becomes an enabler of affordability and economic participation, rather than a driver of household financial stress.

Both I and our chair, Mteto Nyati, have consistently been on the record that we welcome competition and, crucially, that we are ready to compete on a level playing field. Eskom’s responsibility is to ensure we do all we can to enable competition as quickly as is practicable and mitigate potential roadblocks that could delay the process.

Building investor confidence

My visit to Davos, Switzerland last week for the World Economic Forum (WEF) Annual Meeting 2026 was instructive. Eskom participated in WEF Davos for the first time last year in seven years. In many of our meetings last year, we heard a sense of optimism that Eskom was showing early signs of turning a corner because it was delivering power consistently, and there was great interest in how we would continue to do this.

This year, the topics of our meetings had changed. The discussion was about potential projects and partnerships, ways to invest in Eskom, creating regulatory certainty and how to address energy affordability and tariff reform. Concerns about a consistent power supply had faded, and a common theme was that investor confidence needed to be nurtured and maintained to unlock the financing for potential projects across the energy value chain, not just for our own.

Agility is key, today is not 2019

How we separate Eskom is as fundamental to investor confidence as putting load-shedding behind us. It is critical to focus on why the Eskom Holdings board devised and submitted a revised separation strategy to electricity and energy minister Kgosientsho Ramokgopa.

The Eskom separation strategy was only revised as a result of two strategic factors. First, the risk associated with overdue municipal debt delaying the separation of the Eskom distribution division, and second, to take account of the establishment of Eskom Green, our proposed new subsidiary to house Eskom’s renewable energy business on the basis of the business strategy.

Transmission asset ownership

The end state of the National Transmission Company of South Africa (NTCSA) asset ownership was never defined before and the ERAA has never made mention of this. As such, we have not revised the plan for the NTCSA asset ownership. Rather, we have clarified it for all stakeholders.

From the start, Eskom’s separation has been designed in stages to allow for completion in an efficient timeframe and maintain stability in an orderly manner. Eskom’s capital structure is complex, in particular the significant levels of debt across syndicated facilities, bilateral facilities and bonds incurred from a broad array of creditors. Ensuring no breach is triggered on Eskom’s financings or at the Treasury through the government guarantees provided under the Guarantee Framework Agreement, has always been a core consideration in Eskom’s separation process.

Navigating and working with the sheer number of financial, governmental and consumer stakeholders and the implications of the separation process on Eskom’s financing facilities has required a balanced approach, careful consideration and co-ordination at each stage.

A key driver in designing the strategy for the separation of the transmission system has been mandatory engagements with affected Eskom Holding’s various creditors, through various phases, to obtain the necessary consents required under its financing facilities in relation to the transfer of the transmission business to NTCSA.

The initial phase of the separation of Eskom’s transmission business to NTCSA as a wholly owned subsidiary of Eskom required consent from a select group of Eskom’s creditors and was therefore able to be achieved efficiently and with limited effect on Eskom’s broader capital structure and operations.

However, it has always been the case that onward transfer of the transmission assets to an independent Transmission System Operator (TSO) outside of Eskom Holdings would have far broader implications on the conditions attached to Eskom Holdings’ existing financing facilities. It involves a more expansive group of Eskom’s creditors, from whom consent would be required on a facility-by-facility basis, a process which, while ultimately achievable if lenders approve the transaction, would be costly and complex to effect, not to mention slow down independent and equitable access for all participants by years.

A separation scenario involving the immediate and full legal separation of transmission assets would require major financial intervention from the ultimate shareholder, the South African government, for a likely scenario of cross default to honour existing lender commitments based on an analysis by our transaction advisers. This estimate is based on about R400bn in debt settlement that would become due, and for the asset transfer outside of Eskom holdings of about R100bn being required to purchase the shares in the NTCSA.

Fastest, practical approach to enable grid access for all

At the centre of any electricity sector reform journey is the establishment of a TSO that will be independent of all market participants to ensure unbiased access to the grid, fair development of the national transmission grid and facilitation of a fair and transparent marketplace.

Typically, the first step in separating the TSO from the vertically integrated utility — such as Eskom — is the unbundling of the transmission business into a standalone subsidiary, governed by an independent board and executive team responsible for operating the transmission system. This key milestone was achieved in July 2024 with the establishment of the NTCSA as a legally separate subsidiary of Eskom Holdings.

The separation created a ring-fenced transmission entity with dedicated governance and operational focus, laying the foundation for the next phase of the transmission reform journey — the establishment of an independent TSO outside Eskom as prescribed by the ERAA.

While several modalities for the establishment of the independent TSO outside of Eskom exist, it is critical that the option selected for the next stage of South Africa’s transmission reform is legally compliant with the ERAA, truly enables nondiscriminatory access and ensures reliability of the power system during the transition.

Following a detailed assessment of all modalities adopted internationally, the department of electricity and energy has endorsed a strategy where a new TSO reporting directly to the department will be established outside of Eskom. This entity will be responsible for the transmission of electrons, operating and balancing the transmission system. It will also be the independent party providing nondiscriminatory access for the grid, and will be the key party responsible for national transmission planning in close collaboration with the department.

Finally, it will serve as the market operator and central purchasing agency as a competitive wholesale market is established. Under the chosen modality the NTCSA will remain the owner of transmission assets, entering a right-of-use agreement with the newly established TSO. The TSO will be responsible for independently operating transmission assets, whether owned by the NTCSA or private sector players under the envisioned Independent Transmission Projects (ITP) programme.

Effectiveness of the strategy in enabling market reform

The selected model is in full compliance with the ERAA, which establishes the framework for restructuring the electricity supply industry. The envisioned TSO will fulfil all roles as stipulated in the ERAA and will ensure creation of the independent TSO within five years, as prescribed. The practice of separating “who owns the grid” from “who controls and operates the grid” is not novel, with several international examples of where this model has successfully been deployed to enable market reform.

With the TSO having full operational independence it will be the key entity ensuring that no generator, incumbent or new, has preferential treatment in how the grid is allocated or developed and will be responsible for setting the rules of the market, under the direction of the department and the regulator.

As outlined in the National Transmission Development Plan, the NTCSA and ITPs will in turn focus on the reliability and expansion of the national grid in accordance with the plan as defined by the TSO. Ensuring delivery of the transmission build programme that is needed to unlock new generation and economic growth.

In any transmission modality that is adopted the role of the regulator is critical, while the TSO should have sufficient operational independence to ensure nondiscriminatory participation, and regulator is the central institution that enables transparency and enforces fairness to all market participants. As the transmission reform evolves the National Energy Regulator of South Africa will be key in setting, reporting and enforcing the rules equally to Eskom and any other market participants.

Responsible reform

While the need for independence in market reform is undisputed, this should be implemented in a manner that protects the integrity, continuity and reliability of the power system. Although good progress has been made in diversifying players in South Africa’s power system, about 80% of generation capacity today still resides with Eskom. Therefore, in evaluating options for the TSO it was essential to simultaneously consider the current state of South Africa’s energy system. This ensures that security of supply remains the foremost priority during the transition, while also fostering the investor and business confidence that reform is advancing, and firmly upholding the principle of nondiscriminatory grid access, as required by the ERAA.

It is clear that in the coming years the power system in South Africa will require large, sustained capital mobilisation across the value chain, and the reform pathway must create entities that are credible, financially sustainable and, more importantly, fundable. The current pathway allows for a more gradual transition, limiting the consequences of an abrupt transition with detrimental financial and energy security implications. Further, the proposed model does not oppose the implementation of the ITP as envisioned, with the NTCSA serving as the custodian of national transmission assets while the deployment of these assets will independently be managed by the TSO.

This approach is designed to strengthen, not weaken, the level playing field for market participation. Under the revised structure, the independent TSO provides transparent access and neutral market operation, while the transmission asset company (NTCSA) remains regulated, ringfenced and accountable through its licence conditions and regulatory oversight. This ensures that new market participants, independent power producers (IPPs), traders and large customers and municipalities where applicable, can have confidence that access will be governed fairly, while the grid owner (NTCSA or ITPs) remains focused on expanding and maintaining the network in the national interest.

Access to the NTCSA’s transmission assets is now regulated through the grid capacity allocation rules that were gazetted on December 24 last year and provide for equal access to the grid. The same will apply to ITP projects from the private sector.

Reducing risk as we drive our turnaround

The separation strategy is a further example of Eskom’s leadership-driven focus to reduce risk and strengthen investor confidence, put the building blocks in place to accelerate Eskom’s separation, drive competition, and protect and support broader national financial outcomes.

Since October 2022 Eskom has achieved multiple positive credit rating upgrades, reflecting improved operational performance, strengthened governance and a more stable financial outlook. In November S&P Global Ratings upgraded South Africa’s sovereign credit rating for the first time in almost two decades, citing reduced fiscal risks, including improved contingent liabilities from Eskom’s turnaround. We also witnessed the Bloomberg headline on November 12 — “Eskom’s borrowing costs fall as investors warm to turnaround” — as the extra yield investors had demanded to own Eskom’s 2033-rand bonds had compressed.

The World Bank analysis of power sector reforms in developing countries shows that durable market transformation depends on sequencing and clear prerequisites, including credible regulation, clarity on industry structure, and transitional arrangements that manage financial and operational risks, because where these foundations are weak, rushed restructuring often underperforms or triggers unintended fiscal pressures and reliability impacts. (Foster & Rana, 2020).

Against this backdrop, Eskom’s separation will proceed through a carefully sequenced implementation over the next few years, with overall transformation targeted for completion by 2030. Global experience confirms that sequencing is not hesitation, it is disciplined execution that balances legal, financial and operational realities while building the institutions, rules and systems required for an open, competitive electricity market.

Eskom will continue to engage openly with stakeholders, including regulators, government, labour, lenders and market participants, because the success of reform depends on predictable implementation and shared confidence in the rules of the market.

The strategy to unbundle Eskom offers South Africa a balanced, practical and financeable pathway to establishing an independent TSO, without the disruptive risks associated with a full and immediate asset separation from Eskom. It strengthens operational readiness, preserves financial stability and enables a smoother transition toward a more open and secure electricity market, to the ultimate benefit of consumers and our economy.

• Marokane is group chief executive of Eskom Holdings.