Page 4 - AfrElec Week 43

AfrElec COMMENTARY AfrElec
Eskom reform plans do not go far enough
South Africa plans to break up Eskom, but lack of detail about its debt and concerns about future political influence continue to create concerns, writes Richard Lockhart
SOUTH AFRICA
WHAT:
The Special Paper on Eskom calls for a new TSP to be broken off
WHY:
This would improve efficiency, transparency and competition
WHAT NEXT:
More thoroughgoing reform is needed if Eskom is to begin generating enough cash to allow it to escape government hand-outs
TRANSMISSION is set to be broken off from South Africa’s Eskom, as the government has committed itself to reforming the debt-ridden utility giant.
The government’s intentions for Eskom were announced just after it published its new Integrated Resource Plan (IRP), which calls for renewables to play a major role in the country’s energy future.
Relationships between Eskom, the govern- ment’s IRP and the country’s increasingly pow- erful green lobby are difficult. Energy Minister Gwede Mantashe refused to say this week that the first bid round under the IRP would give preference to green technology.
Eskom reforms
The government’s special paper on Eskom was released on October 29, with Public Enter- prises Minister Pravin Gordhan revealing that Eskom’s unbundling would begin with the cre- ation of a separate transmission system operator (TSO). This would have its own CEO and board, although it would come under an Eskom-run umbrella body.
The TSO would improve transparency by both performing TSO functions and buying power competitively from generators in a bid to drive power prices down.
The reforms would also create a more level playing field for independent, often renewable, generators.
“The paper is strong on vision, but the mar- ket is marginally disappointed that the transmis- sion system market operator isn’t fully spun out and that there was no more detail on the debt,” Peter Attard Montalto, head of capital markets research at Intellidex, told Reuters.
“There are question marks around the paper’s acceptance across the political spectrum, includ- ing with unions,” he added.
The Eskom model is following established practice worldwide, with the TSO acting in many ways as a “natural monopoly,” while fos- tering the emergence of a competitive generation and supply market that is open to new entrants.
The plans call for the TSO to be up and run- ning by March 2020, with the unbundling into generation, transmission and supply complete by 2022.
Eskom currently has 44 GW of generating capacity, 36.5 GW of which is provided at 15 large coal-fired power plants.
The key problem is the company’s ZAR450bn ($31bn) debt, which the company cannot now service. The government has already agreed to provide ZAR59bn ($4bn) per year for two years to shore up the company, as well as a ZAR230bn ($15.7bn) injection spread over the next decade. The paper gave no information about how the government will manage Eskom’s debt.
The rand immediately dropped 1.1% when the paper was published, and sovereign bond yields rose.
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w w w . N E W S B A S E . c o m Week 43 30•October•2019