Eskom to be divided into three business units

In his latest State of the Nation address in Parliament, President Cyril Ramaphosa said that energy security in South Africa is imperative if the economy is to grow. Eskom he said, is in crisis and presents a great risk to the country’s economic stability. It is vital, Ramaphosa said, that state-owned entities – of which Eskom is one – stop relying on government support and become self-sufficient. Eskom cannot be said to be self-sufficient. It has a debt burden of R420-billion which it cannot service from its current income and is likely to post a R20-billion operating loss at the end of the current financial year.

Therefore, according to the president, the power utility must be restructured into three distinct entities under the control of Eskom Holdings. These new entities will comprise three business units: one for generation, one for transmission and another for distribution.

Furthermore it is owed a whopping R35-billion by a number of municipalities, businesses and residents which it supplies electricity to. As a result, bold decisions have to be taken, the president said, decisions which will have painful consequences in the short term. But, he added, the consequences of immediate action will be less painful than the ultimate consequences of not taking action now.

“We will lead a process with labour, Eskom and other stakeholders to work out the details of a just transition, and proper, credible and sustainable plans that will address the needs of all those who may be affected”, Ramaphosa said.

The government has established the Presidential SOE Council, which will provide political oversight and strategic management in order to reform, reposition and revitalise state owned enterprises, so they play their role as catalysts of economic growth and development. SOEs which are unable to raise sufficient financing from banks, from capital markets, from development finance institutions or from the fiscus, will need to explore other mechanisms, such as strategic equity partnerships or selling off non-strategic assets.

However, he said, the government will not support any measures that, in any form, dispose of assets of the state that are strategic to the wellbeing of the economy and the people.

Ramaphosa said that the government will support Eskom’s balance sheet, but the utility needs to:

  • Reduce costs.
  • Increase revenue.
  • Reduce arrear debt.
  • Address the culture of non-payment for electricity among its customers.

Although some changes have been implemented – including the appointment of a new board at Eskom, a nine-point turnaround strategy plan and greater accountability at power stations, wider, more dramatic changes are needed. A new business model is needed, Ramaphosa said, which takes into account the root causes of Eskom’s current crisis and the profound international and local changes in the relative costs, and market penetration of energy resources, especially clean technologies.

“Of particular and immediate importance is the entity to manage an independent state-owned transmission grid combined with the systems operator and power planning, procurement and buying functions.It is imperative that we undertake these measures without delay to stabilise Eskom’s finances, ensure security of electricity supply, and establish the basis for long-term sustainability. We have the task and the responsibility to safeguard, build and sustain these key institutions for future generations”, he said.

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Source: EE plublishers

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