Friday, 5th June 2020

The South African government unveiled the broad outlines of a plan to overhaul struggling state power firm Eskom on Tuesday, saying it hoped to complete a legal separation of the utility into three entities around 2022.

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 ratings agencies, which cite the financial and operational crisis at Eskom as one of the biggest risks to Africa’s most industrialised economy.

Eskom produces more than 90% of South Africa’s electricity but has been grappling with faults at its coal-fired power stations that have caused several rounds of power outages this year. It also has an unsustainable 440 billion rand ($30 billion) debt burden.

Public Enterprises Minister Pravin Gordhan said on Tuesday that the government would prioritise setting up the transmission unit as a separate entity within an Eskom holding company. 

At a later stage the government could create two or more Eskom generation subsidiaries that could compete against each other.

The paper did not address Eskom’s debt in much detail, other than to say the government was looking at various mechanisms to give Eskom additional debt relief, on top of bailouts of more than 100 billion rand promised for the next two financial years.

Gordhan said the government would hopefully announce a new chief executive 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 rand in the year to the end of March.

Ramaphosa, who came to power in February 2018 with a pledge to fix ailing state firms, is under pressure to revive the flagging economy, which suffered a steep contraction in the first quarter when Eskom implemented severe power cuts.


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