Eskom could sell power plants, treasury says

Government could decide that Eskom must sell some of its coal-fired power stations as part of the restructuring of the power utility, national treasury said.

This could be done through a series of auctions where Eskom would sell the power stations itself, along with all its power station-specific obligations, such as staff contracts, coal-supply contracts, supplier contracts and environmental obligations, together with a power purchase agreement at a predefined, power station-specific tariff, according to an economic policy paper that the treasury released for public comment on Tuesday. An independent study found that such as sale could raise R450-billion, treasury said.

The policy paper gives another glimpse of the options that are on the table to get Eskom back onto a sustainable footing and start reversing the damage the indebted company’s finances have brought onto the economy and the nation’s fiscus. President Cyril Ramaphosa said in February that Eskom would be split into three separate businesses. The utility told senior managers last week this will take long as three to five years.

The move to bring more private participation into power generation could also signal a new commitment to expanding privately owned renewable energy projects. The pace of the projects came to a standstill after Eskom stalled for more than two years while favouring a controversial nuclear project, but in 2018 deals were signed and the department of energy signaled more investment would be welcome.

“Eskom’s unwillingness to sign independent power-purchase agreements with bidders in the past, despite the fact that Eskom can cover independent-power producers costs through the tariff process, has undermined investor confidence,” treasury said. Enabling the independence of the single buyer’s office “will ensure the sustainability of independent power producers going forward”, it said.

Bailout

Government is giving Eskom a R128-billion bailout over the next three years to keep it afloat and has appointed a chief reconstructing officer to oversee the company split. The utility doesn’t have a permanent CEO yet.

“While Eskom’s pressing short-term operational challenges have abated somewhat, another crisis is on the horizon,” treasury said.  — Reported by Prinesha Naidoo, (c) 2019 Bloomberg LP