South Africa to create transmission company as efforts to save Eskom gathers pace

South Africa’s public electricity utility Eskom is indebted by more than R400 billion, with rating agencies calling it a risk to the South African economy. To save the key state-owned firm, the government moved to restructure it, splitting it into three entities, including a transmission company which will be prioritised in the process.

“Priority will be given to the creation of the transmission company by establishing a subsidiary of Eskom Holdings with an independent board appointed by mid-2019,” said the 2019 Budget Review document present by the Treasury.

With fears that Eskom’s debt would be taken on by the government, many were already anticipating a credit rating downgrade. However, Finance Minister Tito Mboweni allayed fears that Eskom’s debt would get on the government’s balance sheet.

“I want to make it clear: the national government is not taking on Eskom’s debt. Eskom took on the debt. It must ultimately repay it. We are setting aside R23 billion a year to financially support Eskom during its reconfiguration,” he emphasised at his budget speech at the joint sitting of the National Assembly and National Council of Provinces.

The three entities formed as a result of the restructuring — each with its own board — will operate under a single state-owned holding company. The current Eskom board is developing a sustainable operational plan for each entity, which the government will consider over the next three months. Details of the power utility’s turnaround and restructuring is also expected to be finalised in the months ahead.

A portion of Eskom’s assets will be transferred to the new transmission company. Hence, the new company will have assets consisting of all existing Eskom transmission network assets, including grid and substations and associated infrastructure, national control centre and system operator assets as well as Eskom’s Peaker power stations (pumped storage, hydro and gas turbines). Other assets to be transferred include transmission servitudes and property rights currently held by Eskom. The new entities will take over the assets, debts, people and licenses of their respective businesses. Eskom will later be required to provide separate, audited financial results for each of their three businesses on a preliminary basis.

During his State of the Nation address last month, President Cyril Ramaphosa had hinted privatisation plans to the chagrin of the Congress of South African Trade Unions (COSATU), whose Gauteng Secretary Dumisani Dakile said the unbundling of Eskom would only happen over the dead bodies of members of the trade union.

Ramaphosa said the new transmission company would invite the participation of strategic equity partners that will provide capital for the business and strengthen oversight. But Irvin Jim, the general secretary of the National Union of Metalworkers of SA (Numsa) said it was “nothing more than privatisation through the back door”, adding that Numsa rejects it.

“The ANC and its cronies looted and destroyed Eskom and now they have identified privatisation as a convenient way to cover up for more than two decades of rampant mismanagement, looting and corruption. The ANC is punishing workers for its failures,” Jim said.

“The unbundling of Eskom will result in massive retrenchments and job losses. For the consumer, it will mean that electricity will cost more, and it will be even more inaccessible to the poor and the working class.”

Regardless of public outcry against its restructuring plans, the government is expected to go ahead. Last week, the Department of Public Enterprises told Parliament that the utility in its current form is not financially sustainable.

While it continues the restructuring plans, the government will hope that progress at the Justice Raymond Zondo-led Commission of Inquiry into allegations of State Capture, which has now shifted focus to Eskom, will douse tension.