New electricity middleman nears lift-off as Ismo Bill is finalised

Published Mar 27, 2013

Share

Donwald Pressly

The Independent System and Market Operator (Ismo) Bill, which is the first step towards restructuring the electricity industry in South Africa, is to receive its finishing touches in the portfolio committee on energy today.

The bill creates a new entity that will hive off all the operations of the electricity grid from state-owned power monopoly Eskom. It will be “the new middleman” in the electricity supply chain.

The entity, which is expected to be up and running within a year, will manage the procurement of energy from both Eskom and independent power producers.

It will also become responsible for supplying electricity to the distributors, including municipalities and large industrial customers.

This first step of restructuring the electricity sector in South Africa is prescribed by the 1998 energy white paper.

This is an important step because the electricity sector is currently highly monopolised with Eskom accounting for well over 90 percent of generation, the entire transmission grid and about 40 percent of distribution.

The new entity, Ismo, will also be a state-owned entity. It will effectively take control of the operations of the transmission grid.

The bill, which is being piloted through Parliament by Energy Minister Dipuo Peters, has the broad support of all political parties on the committee, including the ANC, the DA and Cope.

ID MP Lance Greyling said: “While this is an important first step, we would have liked to have seen the bill taking this further and actually removing the assets of the grid out of Eskom and into the hands of the new entity.

“This bill stops short of that. We believe that for this to be a stand-alone entity with complete independence, the assets of the grid needed to be taken from Eskom.”

As the bill stood, he argued, the Treasury would have to underwrite the new operator because it had no assets of its own to use as collateral funding to enter into contracts “either with Eskom, the independent power producers or the distribution agents”.

In addition, the ID would have liked to have seen the planning operations around South Africa’s future energy mix being modelled by this new entity.

Greyling said that the energy planning should become a technical process driven by the system operator rather than be subject to political pressures which would inevitably be placed on the Energy Department, but ANC MPs felt strongly that energy planning should be the preserve of the minister and her department.

Mark Pickering, an independent energy analyst, and Anton Eberhard, a national planning commissioner, argued in previous submissions to the committee that the assets should be placed in the hands of the new entity.

The committee mandated a multi-department working committee including the Treasury, the Department of Public Enterprises, the Department of Energy and Eskom to carry out a due diligence report on the implications of moving the assets of the grid out of Eskom and into this new entity.

An interim report raised certain concerns about the impact on Eskom’s balance sheet if these assets were hived off.

The Treasury, however, told the committee that if the assets were not moved to the new entity the government would have to guarantee Ismo and this could have an impact on the country’s sovereign credit ratings.

The committee, chaired by ANC MP Sisa Njikalana, decided that the multi-departmental working committee should provide by November a detailed report on the implications for the country as a whole of a potential move of the transmission assets out of Eskom.

Related Topics: