10 reasons why government wants to restructure Eskom

2019-02-20 14:56 - Lameez Omarjee
Standard Bank
State-owned enterprises are pivotal to economic growth, but what will their role in SA be in 2019? ~ iStock

Eskom in its current form is not financially sustainable and cannot meet the country's electricity needs, and this warrants a restructure, Treasury emphasised in its 2019 Budget Review.

President Cyril Ramaphosa said in the State of the Nation Address that Eskom would be split into three entities - generation, transmission and distribution - in an effort to help turn around the power utility and ensure its operational and financial sustainability.

He also said government would provide financial support to Eskom's balance sheet, the details of which were revealed in the National Budget, tabled in Parliament by Finance Minister Tito Mboweni on Wednesday.

Eskom has been allocated R23bn per year over the next three years, to help it service its debt and support the restructuring of the electricity sector.

The restructure is based on a 1998 Energy Policy White Paper, which intended Eskom to be split into separate generation and transmission companies, with independent distributors.

In an annexure provided by Treasury, government put forward the rationale to split Eskom. The restructure aims to:

1. Enable greater management attention to focus on turning around different parts of the business, and improve accountability.

2. Improve transparency and reduce opportunities for fraud, corruption and rent-seeking.

3. Mitigate the risk arising from having too big a company. This will limit the spread of financial problems from Eskom's generating business to other parts of the business.

4. Position the electricity sector to embrace clean technology and distributed generation, and better respond to changes taking place in the electricity sector.

5. Diversify the generation of electricity across various power producers, reducing the country's reliance on a single supplier.

6. Provide a stable platform for transparently contracting least-cost, secure power.

7. Provide open access to the grid and remove conflicts of interest in the procurement of power - whether this be conventional or renewable sources - as well as allowing independent generators market access.

8. Generate more competition in the electricity market, which is expected to drive improvements in efficiency and reduce prices.

9. Attract private investment in the electricity sector.

10. Allow lenders to find different components of the business separately. This will allow debt to be priced more tightly, as it will be applicable to the unique risks of each individual business.