It is well-known that South Africa's state-owned power utility, Eskom, is operating in a financial and operational crisis bubble.
Originally published in the ESI Africa weekly newsletter on 2019/07/24
During this long-standing crisis period, the government initiated an Eskom war room along with various committees. None made any headway.
In a bid to burst this bubble, President Cyril Ramaphosa put his weight behind finding solutions, stating earlier this year that Eskom is "too big to fail". This statement is a reflection on the utility’s importance to the economy and not its bloated staff complement and asset register.
The announcement yesterday of the proposed additional funding support of R59 billion over the next two financial years to help Eskom to meet its financial obligations is shocking.
Is our only hope now in the previously announced unbundling of the utility, which was taken with a pinch of salt by industry professionals at the time?
Talk around unbundling Eskom into three principal business entities for generation, transmission and distribution isn't considered a significant difference from its current structure.
There was the hope of talk around privatisation.
However, privatisation is not an approach that government is likely to consider – even though countries such as the UK, Germany, Uganda and Nigeria have taken a full- or semi- privatisation route to address modernising their energy and power markets successfully.
South Africa’s finance minister, Tito Mboweni, took great pains to unpack the rationale for unbundling, stating that it:
- Allows parts of business to raise funding more cheaply
- Creates higher transparency and reduces opportunities for fraud and corruption
- Creates clear performance incentives in each business entity
- Reduces systemic risk South Africa faces by having one very large entity, and will help to isolate problems and deal with them where they arise
- Positions the electricity sector to embrace clean technology, such as distributed generation
- Will reduce government support in the form of capital outlays and sovereign guarantees as private sector funding increases
- Facilitates competition in the electricity market, which will drive improvements in efficiency and put downward pressure on prices
- Provides a stable platform for transparently contracting least-cost and most secure power
- Provides open access to the grid and remove conflicts of interest to the procurement of power
- Diversifies the generation of electricity across a multitude of power producers, thereby reducing the country’s reliance on a single supplier
Do you agree that unbundling Eskom into three business entities will bring about the above market and company changes?
Until next week.