Shifting horizon for Eskom unbundling
• New timeline for split into three entities • Slower process will frustrate business, investors
Power utility Eskom has pushed out the time frame for its unbundling by at least two years and no longer has a firm target date for the full legal establishment of the three subsidiaries the process will create.
The splitting up of the company into three parts – generation, which will own the power stations; transmission, which will own and manage the national grid; and distribution, which are wires and poles that connect consumers to the grid – is seen as crucial to overcoming its operational and financial difficulties.
Unbundling is also expected to expand the scope for a competitive energy market and enable the entry of new private sector players, relieving SA’s dependence on Eskom, which has a large proportion of ageing, dirty and inefficient assets.
Last October, public enterprises minister Pravin Gordhan published a roadmap for Eskom, setting out timelines for the split.
The roadmap stated that the most urgent project – a separate transmission company to act as operator of the grid and a market buyer – would be set up as a division by December 2020 and be fully legally separate by December 2021. That timeline has been pushed out to 2022 with no firm target date for legal separation.
The divisionalisation of the generation and distribution parts of the business will now happen by 2022 and the legal separation some time after.
The new timelines were presented to a joint meeting of parliament’s portfolio committee on public enterprises and the select committee on communications & public enterprises by CEO Andre de Ruyter.
De Ruyter said that the timelines in the roadmap were “quite aggressive” and in consultation with the board and the shareholder, Eskom had targeted some “slightly relaxed” timelines. He has opted for a process of divisionalisation first followed later by separation.
“We are not going slow on the divisionalisation. This approach allows us to prototype and road test the three divisions before we get to legal separation. This allows us to derisk the legal separation,” he told MPs.
Progress made so far includes the allocation of 9,000 staff to divisions, the appoint
ment of managing directors from existing staff for each division and the boards and the separation of income statements.
“I’m convinced based on international restructuring examples, the legal separation into three entities is a wellknown, well-proved way of bringing more focus and at the same time attracting more private investment into the power sector,” he said.
It would bring a new culture to Eskom where managers would be responsible for their own income statement.
The slower unbundling will frustrate business and investors who are looking to liberalised energy market to free up SA’s energy constraints.
Years of underinvestment, bad management and corruption have resulted in an enormous inefficiency and an unreliable electricity supply, which has cast a shadow over SA’s growth prospects.
Eskom has debt of R440bn, which it is unable to service without annual bailouts from the National Treasury.
Its vulnerability to a default has cast a shadow over SA’s credit rating and has been repeatedly described by ratings agencies as the single biggest risk to the economy.
The delay in the unbundling will also delay a solution to the debt problem.
A year ago, Gordhan appointed a restructuring officer, Freeman Nomvalo, for Eskom with the responsibility to evaluate proposals on the debt.
This included a proposal submitted by President Cyril Ramaphosa’s expert task team, headed by UCT professor Anton Eberhard. But neither the task team report nor Nomvalo’s report have been made public or been acted upon and the process appears to have stalled.
Gordhan told MPs that “restructuring is going to take a long time and it will take caution and courage to move in the right direction. As the president has said, Eskom is too big to fail, which is why we have taken responsibility to support it. The debt issue is very much tied to this process, and is also very sensitive, particularly for those who have invested in Eskom”.
Assistance was being provided to Eskom because of its importance to the economy, but in return the government expected a much more aggressive approach to saving on costs, Gordhan said.