Power up: Energy regulators hold hearings on rate hikes in 2015. (Nelius Rademan/Beeld/Gallo Images)
AAfter a four-year delay, South Africa’s National Energy Regulator (Nersa) will, in April, begin President Cyril Ramaphosa’s plan to dismantle Eskom into three departments.
This comes as the newly elected electricity minister, Kgosientsho Ramokgopa, said unbundling power utilities is not a priority at the moment, and it is important only in the long term to achieve energy security. The deputy chair of the ANC’s economic transformation committee, Zuko Godlimpi, also said dismantling Eskom was not the ruling party’s main focus. (See “Eskom unbundling on the back burner”, Page 6.)
On April 12, Nersa will determine whether Eskom’s subsidiary transmission company, the National Transmission Company of South Africa (NTCSA), will obtain a license to trade, import and export electricity and whether it can be granted a transmission license.
The unbundling of Eskom into three separate units – transmission, generation and distribution – was announced by President Cyril Ramaphosa in 2019 during his State of the Union address.
Eskom applied for a license last year. Former Eskom chief executive Andre de Ruyter said the energy regulator took too long to act on the unbundling of utilities.
Last month, during an interview with Minerals Council chief executive Roger Baxter, De Ruyter said Eskom had sent a list of potential board members to the national transmission company a year ago and was still waiting for them to be appointed.
South Africa’s mining sector has the potential to generate 2,294 megawatts of power by 2025, which is more than Eskom’s Arnot plant. News24.
De Ruyter added that the electric utility has everything it needs legally for the unbundling process to separate its legitimate transmission business.
“We completed the asset transfer agreement. We have set up the SA National Transmission Company. We have set up a separate balance sheet, [and] income report. We have separated SAP [software]. It was no small exercise.
During a media conference last month, presidential official Rudi Dicks said that Eskom was one step closer to obtaining a license for a new transmission company. Nersa has published a license for public comment.
He added that the establishment of a transmission company would pave the way for the unbundling of Eskom and create the basis for a competitive power generation sector, where many power producers sell to the national grid.
Eskom’s specialist in retail pricing Shirley Salvodi said the unbundling would also make the tariff structure simpler. “The tariff restructuring is in line with the unbundling process that Eskom is undertaking to accurately reflect the costs of the various services provided, so that energy costs reflect energy costs, network costs reflect network costs and service costs reflect customer service and administration costs.”
The move to proceed with unbundling has been opposed by unions who say it will lead to job losses.
South African Trade Union Congress spokesperson Sizwe Pamla said those calling for Eskom to be de-merged and privatized “are misguided. Eskom generates 95% of electricity and transmits and distributes 100%. It is the largest economic asset and is not can be given to those whose motive is only to maximize profits.
The Center for Alternative Information Development has argued that unbundling will lead to retrenchments and even more rate hikes to satisfy the business’s profit maximization drive.
“Electricity privatization should be a no-go zone, especially in a country like SA where over 11 million people are unemployed and 55% of the population lives below the poverty line,” he said.
During a briefing of the parliamentary selection committee on public companies and communications, De Ruyter said that there would be no forced retrenchments as a result of the unbundling.
Last year during a presentation meeting to creditors, Eskom estimated that a loan of 130 billion would be needed to reduce transmission constraints.
De Ruyter said NTCSA’s goal is to act as a national transmission network operator and system market operator, allowing it to take electricity from Eskom, privately run power plants and imports from countries such as Mozambique.
“The resulting specific transmission rates should be sufficient to enable the NTCSA to run its operations in a cost-efficient manner.”
Eskom Holdings said the unbundling would give the transmission unit, which was converted into a separate entity, a R39.9 billion loan to ensure it could complete projects and be financially viable.
The loan will be secured by the assets of the transmission unit, with Eskom’s creditors able to call if the utility defaults and the government guarantee will remain in place. This is despite treasury conditions that prohibit Eskom from taking out more loans after R254 billion of Eskom’s debt was taken onto the national balance sheet.
Eskom chief executive Calib Cassim said legal unbundling would cost the power utility about R500 million. “Most of this (42%) will go to changes in the information technology infrastructure of the entity. The rest will be divided between the involvement of lenders (26%) and changes to commercial and land contracts (22%).
Anton Eberhard, director of the Power Futures Lab at the University of Cape Town’s Graduate School of Business, said investing in the transmission network would help stabilize electricity supplies and meet growing electricity demand.
“There are many equity and debt providers looking to finance this clean energy future, but the current bottleneck is access to the grid to transport electricity to consumers.
Mandisa Nyathi is a fellow climate reporter, funded by the Open Society Foundation for South Africa.