Crunch time as Eskom faces break-up push

Johannesburg – In an attempt to undo Eskom’s “monopolistic control” in the energy sector, the Organisation Undoing Tax Abuse (OUTA) has lodged a complaint with the Competition Commission.

The civil body is seeking a ruling for the power utility to be fined and unbundled. The commission is requested to investigate the possibility of breaking Eskom into two distinct state-owned corporations that separately control electricity generation and transmission.

“The complaint is based on Eskom’s abuse of its dominant position in the electricity market and its exclusionary acts,” said Ted Blom, portfolio director on energy matters.

WATCH: Is it time to break up Eskom?

“OUTA believes that a separation of control over the arms of electricity generation and transmission will break Eskom’s stranglehold over the grid,” said Blom. This would ensure open competition for energy generation at the lowest cost of production to the benefit of consumers, he explained.

In its submission to the commission, OUTA details why Eskom is a “vertically integrated monopoly”. “Eskom has been engaged in various abuses of its monopoly position and exclusionary acts that deny its competitors access to the national grid,” the complaint reads.

OUTA claims that Eskom is refusing to sign Power Purchase Agreements with independent power producers (IPPs) appointed by the Department of Energy (DoE) for its Renewable Energy IPP Procurement Programme (REIPPPP).

The civil body also alleges that Eskom is using “selective facts” to influence policy debate on the country’s energy mix.

Citing information from the Council of Scientific and Industrial Research, OUTA said the lowest cost electricity path for the country, namely gas and renewable energy, would see Eskom’s market share drop between 15% and 28% by 2050. This is dependent on who owns the gas fleet, if not Eskom.

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“The building of a large nuclear fleet and continued reliance on coal power would see them maintain a market share of approximately 55% to 70%,” read the papers.  

OUTA added that if Eskom succeeds in the nuclear build programme, it could see the power utility maintain its “dominant market position”.

The IPPs are competitors to Eskom and could remove its position of dominance once they become operational, read the complaint. “Eskom’s exclusion of IPPs from the national grid amounts to an exclusionary act that has an anti-competitive effect.”

OUTA further claims that the South African economy would become “hostage” to Eskom’s increasing price path which would suppress economic activity.

Removing Eskom’s conflict of interest

Besides a fine, OUTA wants Eskom to be unbundled for generation and grid operations to become two distinct activities run by two distinct state-owned corporate entities.

“The DoE or the National Treasury should become the owner of the national grid company incorporating a market operator while the Department of Public Enterprises can remain as the shareholder of the generation company,” OUTA proposed. This would “remove” Eskom’s conflict of interest.

Further, OUTA wants municipalities to be granted ministerial determinations to build their own generation plant or to buy directly from IPPs.

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Among other things, OUTA wants an investigation to be done into adding flexibility to Eskom’s coal fleet to support the development of renewable energy in the electricity system.

“Any further Eskom new-build should be scrutinised to ensure that the resultant electricity can be provided to the country on a cost-effective and competitive basis,” added OUTA.

By allowing competitive power generation options, OUTA believes price increases will be contained. South Africa will also be less vulnerable to technical failures by Eskom’s systems which could potentially pull down the entire grid, according to OUTA. 

The SA Renewable Energy Council also accused Eskom of abusing its power and suggested the power utility be split to separate the generation component from the grid component

Speaking to Fin24's Matthew le Cordeur, the director of the SA Renewable Energy Council said in December last year that Eskom isn't set up to welcome or foster competition.

"In fact, it is set up to behave like a monopoly," said Mark Pickering. "Eskom is using its monopoly power to prevent access to the market for new entrants."

He suggested that Eskom needs to be disaggregated: "In other words, we need to separate the generation component from the grid component."

The grid component should behave independently of whoever is supplying power into the grid, he said at the time.

Watch the full discussion: