Govt blueprint to kickstart ailing Eskom
JOHANNESBURG – Public Enterprises Minister Pravin Gordhan yesterday unveiled the government's latest blueprint to kickstart Eskom, which proposes major shifts in the ailing entity's business model.
The turnaround plan aims to restore investor and business confidence in the power utility, which is battling with an onerous R441 billion debt, which poses a major risk to the public purse.
The plan, dubbed “The roadmap for Eskom in a reformed electricity supply industry”, includes beefing-up power generation through the introduction of internal competition.
Gordhan said the key to the plan was the establishment of a new transmission entity, wholly owned by Eskom Holdings, with a buying component to promote capital investment in the industry.
Gordhan said the financial details of the plan would be unveiled today as Finance Minister Tito Mboweni delivers the Medium-Term Budget Policy Statement.
However, he announced that the sale of non-core assets such as Eskom’s finance division for R7bn, would beef-up the power utility’s balance sheet. The ultimate deadline for the functional separation of the transmission entity was the end of March 2020, which some analysts yesterday said was unrealistic.
The roadmap envisions cost-effective electricity supply, energy security and diverse sources of energy in line with the Integrated Resource Plan, which was gazetted earlier this month and detailed the country's energy mix over the next 10 years.
Gordhan said because of Eskom’s lack of competition, consumers did not receive the most effective pricing coming from the generation side.
“The proposal that the government will be exploring with Eskom is the creation of three clusters of the coal-powered plants. Each cluster will act as a business, each cluster must produce power as cost-effective as possible so consumers get lowest possible prices. This will set up an internal competition,” Gordhan said.
“This is the beginning of a process, this is not the entirety of the process. This is not Gordhan’s plan, it is a collaborative effort within the government. We are clear Eskom cannot remain as it is,” he said.
Gordhan said Eskom’s business model was based on a monopoly that was outdated and unsustainable with widespread inefficiencies due to a lack of accountability. Eskom would move to contain costs and be financially transparent, he said.
Gordhan said the government would focus on minimising coal costs through investments in cost-plus mines.
“Currently, coal procurement lacks transparency, because this has been conducted through individual agreements. To reduce and stabilise price volatility, the government is engaging with coal producers to consider indexing the price of coal supplied to Eskom in an attempt to contain price inflation,” he said.
Eskom had suffered severe damage over the past decade, mainly as a result of state capture, he said.
“The kind of damage state capture caused in Eskom is huge. This is not about someone who stole a few billions and ran off,” he said.
Gordhan also said the culture of non-payment by municipalities needed to be addressed.
“The narrative within government is shifting, and any culture of non-payment is unacceptable. The message to all South Africans must be clear. If you can afford to pay, you must pay,” he said.
Gordhan said a new chief executive for the utility would hopefully be announced next week.
“The board has done its work, it is up to the government to appoint a new chief executive,” he said.
Eskom reported a net loss after tax of R20.7bn, with municipal debt rising to about R17.6bn for the 2019 financial year.
President Cyril Ramaphosa earlier this year announced that Eskom would be unbundled into three entities – generation, transmission and distribution.