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Eskom: Breaking up is hard to do, but it may be necessary - experts

Jan 28 2019 07:18
Fin24
Power lines feed electricity to the national grid

Power lines feed electricity to the national grid from Koeberg Nuclear Power Station. (Photo by: Education Images/UIG via Getty Images)

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Breaking up Eskom's vertically integrated model will help turn around the embattled power utility and build a more efficient energy sector, experts have said.

At a public discussion on Eskom, hosted by the University of Cape Town's Graduate School of Business and Power Futures South Africa, it was argued that breaking up the power utility and restructuring its supply chain would "increase efficiencies".

In simple terms, vertical integration involves the supply chain of a company being owned by that company.

In some cases, the advantage might be reduced expenses and turnaround times. However, in other cases, a company might opt for established external experts to be more efficient.

Last week, President Cyril Ramaphosa told delegates at the World Economic Forum in Davos that a turnaround strategy for Eskom would soon be unveiled.

"We are currently developing a response to the financial and operational crisis at the country’s electricity utility, Eskom. In the next few weeks, we will be announcing a set of measures to stabilise and improve the company’s financial position and to ensure uninterrupted energy supply," the president said.

In a bid to turn the ailing power utility around, a "strategic unbundling" of the power utility has reportedly been proposed, where Eskom would be split into three parts.

Speaking at the GSB event, Mandy Rambharos, the Climate Change and Sustainable Development Manager at Eskom, said she personally would welcome such a change.

"It will increase efficiencies. You will have an independent systems operator who treats all generators the same," said Rambharos. 

However, she said there were concerns around municipalities and whether they would be able to manage. Eskom is owed more than R13bn by municipalities, with the top 10 indebted municipalities owing R10bn. In turn, municipalities are owed R139bn by residents for services. 

Eskom, which supplies 95% of SA’s electricity, is in a financial crisis, with R419bn in debt. It has been flagged as a major risk to the SA economy by Treasury and credit ratings agencies.

Professor Anton Eberhard, director of the GSB Managing Infrastructure Investment Reform and Regulation in Africa (MIRA) programme, said while breaking up Eskom may seem like a radical restructuring proposal, it is not.

"It was proposed in the Energy Policy White Paper in 1998. And it’s logical. It separates the potentially competitive elements of the electricity industry — power generation — from the natural monopoly component, transmission. It’s also potentially efficient as it creates focused utilities," Eberhard said.

Nhlanhla Ngidi, head of electricity and energy at the South African Local Government Association (Salga) said the drive to turn around Eskom would affect a lot of municipalities.

While breaking up the utility could help, he agreed, collaborative leadership was needed, and more should be done to create competition in the energy sector.

"You can [try to turn around Eskom] all you want, but if people do not have jobs, you will not crack it. You will have an electricity industry that is not sustainable," Ngidi said.

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