Wednesday, 8th July 2020

Top government officials will discuss whether to split Eskom into generation, transmission and distribution units at a cabinet meeting starting on Wednesday as part of efforts to rescue the company from financial crisis.

The mining and smelting industry is one of Eskom’s top customers, accounting for around 30 percent of electricity demand in Africa’s most industrialised economy.

“Most countries we compete against have electricity supply industries where generation is competitive, there is a state transmission company and some competition in distribution,” Roger Baxter, chief executive of South Africa’s Minerals Council, an industry lobby group, said.

“We need Eskom to be made into a much more efficient, cost-effective organisation.”

The Minerals Council, which represents firms including Sibanye-Stillwater and Exxaro, says average annual power price increases of 15.5 percent between 2006 and 2017 reduced investment in the mining sector by a cumulative 103 billion rand ($8 billion).

It says Eskom’s request for a further 15 percent increase in electricity tariffs in each of the next three years - if granted by the country’s energy regulator Nersa - would cripple an industry already in decline.

More than 80 percent of gold production would become marginal or loss-making, with around 75 percent of platinum group metals production marginal or unprofitable by the end of the three-year period, Baxter said.

Thousands of mining jobs could be lost, he added.

Eskom has argued that its tariff hike request to Nersa could help shore up its finances.

Deon Joubert, Eskom’s corporate specialist for finance, told consumers at a public hearing on the proposed hikes on Monday that the utility’s debt had increased as its tariffs had failed to keep pace with its spending on new power stations.

“Eskom is cognisant of the potential impact of the increase in various sectors, but it finds itself in a very difficult financial position,” Joubert said. 

Public Enterprises Minister Pravin Gordhan, who oversees Eskom, said on Tuesday that South Africa needed to act fast on Eskom because of the extent of its financial difficulties.

Eskom supplies more than 90 percent of South Africa’s power but is drowning in more than 400 billion rand of debt after a decade of steep financial decline.


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