Government unveils its plan to save Eskom

South Africa has unveiled its long-awaited plan to save its debt-stricken state power utility, including exposing it to greater competition, lowering fuel costs, increasing renewable energy output and selling non-core assets.

A policy paper released by public enterprises minister Pravin Gordhan envisions Eskom relinquishing its almost century-old near-monopoly of the electricity industry. As a first step, its transmission unit will be hived off by March next year while remaining under the control of a state holding company, a move that will make it easier for private generators to supply the national grid.

Fixing Eskom “is a long protracted process, which has to be undertaken with discipline”, Gordhan told reporters on Tuesday in Pretoria. “What we are clear about is that Eskom can’t remain as it is.”

Eskom, which supplies about 95% of South Africa’s power and owes R450-billion, is considered the biggest risk to the national economy. While the government has allocated the utility R128-billion in bailouts over the next three years, that won’t be enough to stabilise its finances because it isn’t generating enough income to cover its interest payments and operating costs.

Finance minister Tito Mboweni is expected to outline broad principles for tackling Eskom’s debt when he delivers his mid-term budget on Wednesday, with more detail to be provided next week. The issue wasn’t covered in the policy paper.

A new CEO for Eskom will also be announced next week, as will changes to Eskom’s board and an interim board of three to five members for the transmission unit, Gordhan said. The utility has been without a permanent CEO since Phakamani Hadebe quit in July and the post has been temporarily filled by its chairman, Jabu Mabuza.

Cost cuts

Eskom will look to cut its cost of coal and diesel, and is trying to renegotiate contracts it concluded with independent suppliers of renewable energy with the aim of getting them to lower their prices, according to the policy paper. The utility is also looking at how it can utilise coal plants that are set to be decommissioned for other purposes, possibly battery storage, so they don’t have to be shut down completely, it said.

Eskom’s transmission unit, which has more than 5 000 employees and oversees about 45 000km of power lines, will be empowered to buy power both from Eskom and independent power producers. The utility’s power stations will be grouped into three clusters that will compete with each other — a reorganisation that international experience shows should encourage them to become more efficient and cut costs, Gordhan said.  — Reported by Paul Burkhardt and Amogelang Mbatha, with assistance from Paul Vecchiatto and Ana Monteiro, (c) 2019 Bloomberg LP