President Cyril Ramaphosa said that South Africa will push ahead with breaking up power utility Eskom and creating a standalone company to run the transmission grid, a key reform being monitored closely by international investors.
Image credit: Reuters
Africa's most industrialised economy has been hobbled for years by rolling outages as state-owned Eskom struggles with ageing plants and weak finances. Splitting the company is meant to attract private capital and build a more modern, reliable electricity system.
Power transmission is one of the biggest constraints to new electricity supply and economic growth.
In his State of the Nation Address, Ramaphosa confirmed plans for "a fully independent state-owned transmission entity" that will own and operate grid assets and the electricity market.
He assigned a task team under the National Energy Crisis Committee to oversee the restructuring and deliver a report within three months with clear implementation timelines.
Unbundling monopoly
Ramaphosa's announcement follows an update from the Minister of Electricity, Kgosientsho Ramokgopa, in December, which proposed keeping transmission assets as an Eskom subsidiary.
"This issue has caused major concern, with international investors and local business leaders starting to question the government's commitment to the reform programme," said Busisiwe Mavuso, CEO of Business Leadership South Africa.
Olga Constantatos, credit head at Futuregrowth Asset Management, said unbundling Eskom was intended to spur competition and private investment in power generation after decades of monopoly control.
Accelate electricity reform
Private-sector investment in renewables has already mobilised more than R200bn and added 6,000 megawatts of capacity without weighing on Eskom's balance sheet.
A presentation from the Department of Electricity and Energy said South Africa needs R390bn over the next decade for transmission infrastructure, funding that Eskom cannot provide alone because of its financial constraints.
In its Article IV report, the International Monetary Fund urged South Africa to speed up electricity reforms, including separating Eskom's generation and transmission units, establishing a functional wholesale market and supporting private transmission projects through risk-sharing tools such as a forthcoming credit-guarantee vehicle backed by the International Finance Corporation.
The IMF also flagged Eskom's weak debt-servicing capacity and sharply rising public debt levels.
