Wanted: Equity partners for Eskom Transmission

Finance minister Tito Mboweni on Wednesday announced that Eskom will get R23 billion per year for the next three years from government under strict conditions, including the establishment of a transmission company in which the private sector will be able to invest.

This company will be a subsidiary of the state-owned Eskom holding company and must be up and running by the middle of the year – in other words, within three to four months.

This will be the first step in unbundling Eskom into three separate units, namely generation, transmission and distribution.

Mboweni made it clear that government will not take on Eskom debt, but will make the three consecutive R23 billion allocations to enable the utility to restore cash flow to positive levels, improve liquidity to enable urgent maintenance so that electricity supply can be stabilised, and give Eskom space to do a corporate restructuring “unprecedented in South Africa”.

Within this framework, Eskom should be able to service its debt and make repayments as they become due.

The unbundling will kick off with Eskom appointing a chief reorganisation officer, as done at South African Airways and a step that could be applied in other struggling state-owned companies. He equated this to putting an entity under administration. “[This person] will be our eyes and ears,” said Mboweni. “[This person] will guard our money.”

The initial focus will be to establish an independent transmission entity and system operator that will provide open access to the grid to multiple generators of electricity.

Read: Splitting Eskom will protect its most strategic asset

This is aimed at removing the conflict of interest in power procurement and creating competition that should drive the cost of electricity down.

The separation of Eskom into three units – generation, transmission and distribution – will facilitate private sector investment and allow lenders to assess and price funding in accordance with the risk associated with the relevant borrower. In other words, the transmission and distribution units will be isolated from the problems at generation.

Each subsidiary will have its own board – and assets, debt, people and licences will have to be migrated to the relevant subsidiary. At a later stage, financial reporting will also be separated.

Mboweni wants the transmission company up and running by mid-2019. Its assets will include the transmission network, which consists of the grid and substations, the national control centre and system operator, and Eskom’s peaker power stations (pump storage schemes and hydro and gas turbines), as well as transmission servitudes and property rights.

The transmission licence will have to be amended to allow for the trading of electricity and transferred to the transmission company, as will the agreements with power suppliers and supply contracts with distributors of electricity.

Government has already started engaging unions about the transfer of workers to the separated entities and says it will act in accordance with the Labour Relations Act.