Deputy Finance Minister David Masondo on Friday said possibly listing debt-ravaged Eskom on the JSE was an example of the kind of out-of-the-box thinking characterising the talks on the power utility’s financial problem.
Masondo repeatedly stressed during a public hearing on South Africa’s transition to a low carbon economy that he was airing ideas in his personal capacity and his views were not officially those of the treasury. He added, though, that these talks were happening to try to resolve Eskom’s debt crisis.
The transition is expected to have wide-ranging consequences, both positive and negative, including risks to social security in coal- and fossil-dependent regions such as Mpumalanga and the Vaal Triangle in Gauteng.
During the hearings, hosted by President Cyril Ramaphosa’s climate change coordinating committee, Masondo drew participants’ attention to the fact that Eskom’s just-energy transition plan did not consider the utility’s debt.
Chief executive André De Ruyter said there were discussions on funding transition programmes through concessional finance and grants. These programmes include investing in coal plants that are decommissioned to set up alternative energy manufacturing.
A pilot project at Komati power station in Mpumalanga will serve as the test for managing the effect of decommissioning on people. De Ruyter emphasised that the concessional finance on the table was conditional and included investment in mitigating the social effects.
Eskom is proposing that the plant be turned into a manufacturing facility for micro-grid containers needed to provide power to the 13% of people in South Africa who don’t have access to electricity.
Public Enterprises Minister Pravin Gordhan told the hearing that Komati’s just energy transition plan was a microcosm of what was to come and “it could be SA’s example of our overall intent”.
Gordhan said that addressing Eskom’s debt and funding the just-energy transition were two different things. He reminded participants that corruption had led the utility to its financial crisis.
He pointed out that financers wanted a clear climate policy showing the road to systematic decommissioning, ambitious carbon reducing targets and evidence that the country was moving in that direction.
The cost of new 8 000km transmission lines for Eskom’s future grid is expected to be R120-billion.
“Eskom is not a credible borrower,” Masondo said. “We need some involvement of the sovereign [state] to solve the Eskom legacy debt. Personally I don’t support the idea that the debt must be transferred to the sovereign — it will not solve it but simply transfer the debt.”
Eskom announced in May that it had reduced its debt by a fifth, bringing it down to R401-billion from R484-billion 12 months earlier.
A process is underway to unbundle Eskom into three independent entities — generation, transmission and distribution — to try to make the utility viable. Eskom told parliament in May that the legal separation for transmission was to be finalised in December, while those for generation and distribution are expected to follow a year later.
De Ruyter said the “unbundling” will also remove capital constraints in generation.
Masondo said the treasury did not yet have a position on climate-for-debt swaps, a new way creditor countries are restructuring debt owed by developing countries to offer better conditions and refinancing for climate related activities.
“It’s important to think out of the box because this mantra that operational efficiency will deal with Eskom’s debt is misled,” Masondo said, noting that the future energy system would make electricity more affordable.
Masondo mentioned this because international and local prices for renewable electricity have declined sharply, while a transition from coal would see a potential drop in revenue.
De Ruyter told the hearings that the costs of renewable energy compared favourably with the costs of carbon abatement, which involves reducing emissions at existing plants thereby presenting an opportunity to extend a plant’s life.
The discussions come as the 10 August deadline approaches for legislation to allow for 100 megawatts (MW) of embedded self-generation.