Public enterprises minister Pravin Gordhan’s commitment that Eskom will be split into three separate entities before the end of the financial year in March is welcome and long overdue. The government has been talking about doing this for almost two years, so any tangible development — such as the separation out and registration of a new transmission company — is a step in the right direction.
Separating the transmission unit, which delivers electricity to bulk buyers or other on-sellers (including municipalities), will remove about 6,000 employees from the books of Eskom’s core generation business.
On its own, this unbundling will not change much for Eskom, whose R440bn outstanding debt is the single biggest risk to SA’s economic fortunes. But it is from here that reform of the electricity industry will develop. A standalone transmission company is the foundation on which a modern, competitive and cost-effective utility will be built.
"What [Eskom] lacks as a monopoly is competition. And as a result … we do not get competitive pricing coming from the generation side," Gordhan said at the launch of the reform paper for Eskom on Tuesday.
To fix that, the standalone transmission entity will include a system operator that buys electricity, eventually from multiple generation sources. Entities independent of Eskom, including the independent power producers, will compete on price to sell to this entity.
Renewables players have been waiting almost five years for the government to get on with this
In the long term, this means a diminished role for the monopoly and regulated power prices, as administered by the National Energy Regulator of SA (Nersa).
The government has previously said there would, post-separation, be room for equity investors to participate in all Eskom’s operating units. Of course, this process is not to be called privatisation, because that is a swearword in a political alliance dominated by romantic but empty delusions of socialism. Let’s call it strategic equity participation.
It’s unlikely any of this will be executed with the urgency that SA’s economic situation demands. But now that there is a deadline, there is hope.
Powering up SA
Even before the unbundling is complete, the department of energy should further open up the generation industry by calling for the next round of renewable energy projects. With the Integrated Resource Plan now gazetted, the path is open for another procurement round. Renewables players have been waiting almost five years for the government to get on with this.
Should the end-March deadline be met for the separation of the transmission unit, Gordhan should then move to open Eskom’s old power stations for sale to private investors. These coal-fired power stations have reached the end of their operating lives. Nimbler private sector operators would have the funds to extend their operations. But they must be guaranteed a transparent and efficient electricity buyer.
Gordhan said that after the unbundling, the next arena of reform will be to group Eskom power stations into clusters of four or five, which will compete with one another to sell power to the system operator.
But it will not work if that is the only change. The first point of business should be to tackle corruption in primary energy (coal) costs. As it is, Eskom power stations have long-term coal supply contracts on which the utility bases its Nersa price increase applications. Those contracts still in force will not change, no matter the owner. And, of course, Gordhan fell just short of admitting these stations would be subject to private sector equity participation.
There is no other way, if SA is not to run out of power-generation capacity again.
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