Government forges ahead with Eskom split
Separate transmission company to be created, says Pravin Gordhan
The government will forge ahead with splitting up Eskom, leading with the establishment of a separate transmission company, public enterprises minister Pravin Gordhan said at a briefing in Pretoria on Tuesday.
Gordhan was presenting the roadmap for Eskom’s future, the long-term plan and the business strategy that will accompany the large bailout for the stateowned enterprise (SOE) that is expected to be announced in Wednesday’s medium-term budget policy statement.
The separation of the transmission entity from Eskom’s generation division is key to the introduction of a competitive energy market.
“The roadmap says that
“functional” separation is already under way and that by 2021 the company will be a fully independent legal subsidiary of Eskom.
By March 2020, the new entity will get its own board and CEO to drive the separation process. Into it will fall the transmission infrastructure and the systems operator, which manages supply and demand and balances the system.
It will also have a buying component and must provide access to the grid to Eskom and independent power producers (IPPs) on a nondiscriminatory basis. The new company will be empowered to introduce new markets, if necessary.
Gordhan said that competition will also begin to be encouraged in the generation division
by way of clustering Eskom coal-fired power stations and establishing a power market mechanism through which they will bid to dispatch power to the transmission company.
“Each cluster will act as a business and must produce electricity as efficiently as possible,” Gordhan said.
While Gordhan emphasised that the disaggregation of Eskom is a long-term project that will stretch over the next 10 years, he made it clear that the government wants to see an end to Eskom’s monopolistic hold on the electricity sector.
“The fundamental point is that monopolies, by their nature, are wasteful. Monopolies, by their nature, have extravagant costs. We have to change the monopoly culture and the monopoly pricing ... so how do we get competition going, in a way in which purchasers of electricity will have options?”
University of Cape Town professor Anton Eberhard, who has long advocated the splitting up of Eskom and was a member of President Cyril Ramaphosa’s sustainability task team on the utility, said that the initiatives announced by Gordhan constitute significant progress.
It is particularly good news that the transmission company is to have its own board to take charge of its establishment.
The introduction of internal Eskom power market mechanisms is also welcome, he said.
“Eskom had previously instituted an internal power market that created transparency on costs and created incentives for improved efficiencies.
“It’s great that this is being revived. It also creates a platform for further restructuring reforms in the future,” he said.
Gordhan did not say how Eskom’s debt problem will be handled by the government as this will be tackled by finance minister Tito Mboweni on Wednesday, but promised consultation with debt holders.
According to the roadmap, discussions with lenders will take place for the legislative unbundling to happen.
The government will keep to the principles of standing behind Eskom to avoid a default and of treating all lenders fairly.
The Eskom special paper takes note of the moral hazard of handing successive bailouts to the parastatal, as it has on three previous occasions, without securing internal reforms.
Eskom will need to demonstrate progress with the timetable of reforms as well as its commitment to cutting costs, the paper says.
Trade unions have voiced their opposition to the unbundling process, arguing that it will create additional layers of management and board supervision and be expensive, while failing to solve Eskom’s operational problems.
The National Union of Mineworkers said on Monday that it plans to march on the ANC’s headquarters to put a stop to the Eskom restructuring.
Gordhan said that the government has “been in touch with unions on and off”, saying that all labour unions are important stakeholders and the government wants to work with them.
THE FUNDAMENTAL POINT IS THAT MONOPOLIES, BY THEIR NATURE, ARE WASTEFUL. WE HAVE TO CHANGE THE MONOPOLY CULTURE