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UPDATE 2-S.Africa to open Eskom to competition in power revamp

Reuters | Cape Town | Updated: 29-10-2019 21:47 IST | Created: 29-10-2019 21:29 IST
UPDATE 2-S.Africa to open Eskom to competition in power revamp
Image Credit: Twitter (@Eskom_SA)

South Africa aims to complete the split of state utility Eskom in 2022 and open it to more competition under a long-awaited plan to overhaul the loss-making firm and the country's power sector, a government document showed on Tuesday.

President Cyril Ramaphosa said in a state of the nation address in February that the government planned to split Eskom into units for generation, transmission, and distribution, but there has been little detail about the timeframe. Tuesday's release of a government "special paper" on Eskom had been eagerly anticipated by investors and rating agencies, which cite the financial and operational crisis at Eskom as one of the biggest risks to Africa's most industrialized economy.

Moody's is the last of the big three rating agencies to have South Africa's debt in investment grade and is scheduled to review that rating on Friday, Nov. 1. The paper set out a vision for a restructured electricity supply industry where Eskom will relinquish its near-monopoly of the sector and compete with independent power producers (IPPs) to generate power at least cost.

But it contained few specifics about how officials plan to ease the company's crippling 440 billion rand ($30 billion) debt burden and stopped short of moving some functions outside of an Eskom holding company, which would have reassured some analysts. Presenting the paper, Public Enterprises Minister Pravin Gordhan said it was the beginning of a long process to foster greater efficiency and transparency in power generation.

CHEAPEST POWER The government plans to set up a transmission unit within Eskom by the end of March 2020, easing the way for private generators to supply the national grid.

One or more Eskom generation units will then be created to compete with IPPs to supply the cheapest electricity, and the distribution model will be reformed so that more power can be procured from small-scale residential and business producers. The aim is to change the current situation, where South Africa is reliant on Eskom's creaking fleet of mainly coal-fired power stations for more than 90% of its electricity and is subject to frequent power cuts that dent economic output.

Ramaphosa needs to come up with a strategy to ease pressure on the country's heavily-strained public finances and put an end to repeated bailouts for ailing state firms. The government has already promised Eskom more than 100 billion rand of bailouts over the next two fiscal years, but that won't be enough to solve Eskom's debt problem.

Gordhan said the government would hopefully announce a new chief executive (CEO) for Eskom next week, later than initially envisaged, after the previous CEO left his post in July. Eskom's financial crisis is rooted in soaring expenditure, huge cost overruns on two huge coal power stations and years of low tariffs. It made a loss of more than 20 billion rands in the year to the end of March.

Also Read: BRIEF-S.Africa's Eskom Says Will Continue Stage 2 Loadshedding Friday Until 23:00


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