Eskom could miss the December deadline for the legal separation of its transmission unit, which would dash hopes that improved reliability in power supply is just around the corner.
It is more than two years since President Cyril Ramaphosa, in his February 2019 state of the nation address, announced that the government would unbundle Eskom into three entities: generation, transmission and distribution.
By unbundling Eskom, the state aims to improve its performance while boosting local confidence and investment. However, any delay will raise doubts about the government’s resolve and fuel fears that load-shedding will haunt SA for many more years.
The deadline for the legal separation of the transmission unit is December 31, while the deadline for the legal separation of the generation and distribution divisions is 12 months later.
However, Eskom notes in its 2021 annual report that there have been delays related to the legal separation of its transmission unit.
"Several dependencies are lagging, which puts the separation’s finalisation by December 31 2021 at significant risk.
"In addition, guidance is awaited from the department of mineral resources & energy [DMRE] regarding the transmission entity’s licensing and internal market operations. As a result, we project that the separation will not be achieved by the target date," Eskom says.
Prof Anton Eberhard, of the University of Cape Town’s Graduate School of Business, says Eskom is doing what it needs to do, but there are government permissions and issues that need resolution.
"It does not sound complicated. The National Energy Regulator of SA [Nersa] has to transfer the licence from Eskom Holdings to this new entity. I understand there are some Public Finance Management Act [PFMA] issues," he says.
Eskom says progress has been made with its PFMA applications.
Eberhard says once the transmission unit has been separated, new legislation will be needed to allow it to become an independent transmission-system market operator.
"It all depends on whether there is government leadership," he says.
"The unbundling of Eskom has been led by Eskom CEO André de Ruyter. But we don’t see real government leadership. It has been a long time since I saw a statement from the department of public enterprises [DPE] reaffirming its commitment to the Eskom roadmap and deadlines."
The FM sent questions to the DMRE, which referred them to the DPE. The FM also sent questions to Richard Mantu, spokesperson for public enterprises minister Pravin Gordhan, but he referred most queries to Eskom.
In a written response, Eskom’s media desk says the separation of the transmission unit is on track to meet the deadline, but adds: "There remain several government dependencies that pose a potential risk for the transmission company to be legally separated and operational by December 2021."
It says these issues are receiving "urgent attention at an inter-governmental level between the DPE, the DMRE and the National Treasury".
The intergovernmental committee overseeing the unbundling is chaired by Kgathatso Tlhakudi, director-general of the DPE.
Eskom lists the matters that require state attention as:
- The future of the electricity industry structure;
- Realignment of the Nersa regulatory framework, including licensing;
- Approval of an Eskom transitional internal trading mechanism and the restructuring of the power utility’s tariffs;
- Signing off on Eskom’s proposed internal transfer rules, including approval that the transmission unit sells power to the distribution unit and that the transmission unit can acquire energy from the generation unit; and
- Enabling a central electricity purchasing function.
Eskom says its understanding is that the DMRE is reviewing the industry structure and associated legislation, including the Electricity Regulation Act and the electricity pricing policy.
"Regarding licence matters, we are proceeding with preparations on aspects that are within Eskom’s control."
Chris Yelland, MD of energy consultancy EE Business Intelligence, says he has heard nothing specific that the separation of the transmission unit will miss the December deadline.
"I’m not aware that there [are] any hold-ups on the side of the government. Eskom is committed to this process.
"The separation and creation of an independent grid company is a critical milestone in allowing nondiscriminatory access to the grid," he says.
The independent grid company will emerge from the separation of Eskom’s transmission unit. It will buy energy from Eskom and independent power producers and transmit it to key power users.
Yelland says such an entity will end the situation where Eskom is both the country’s major generator of power and is in charge of the grid.
"That situation means Eskom can have conflicted decision-making because it can give its power stations preferential access to the grid ahead of other players," he says.
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