/ 10 August 2023

Eskom gets go ahead to sell its distribution assets

Eskom Flag
Eskom has reported a 6% decline in sales in its interim results for the six months ending in September, revealing a sustained decrease in plant performance. (Waldo Swiegers/Bloomberg via Getty Images)

Eskom’s unbundling is taking shape as public enterprises minister Pravin Gordhan gives Eskom the go ahead to split its distribution arm to enable it to sell its assets. These assets include equipment and other tangible property and assets used for distribution.

In a letter to Eskom board chairperson Mpho Makwana, Gordhan said he approved Eskom’s application to sell its distribution assets to a distribution entity under Eskom Holdings.

Gordhan requested Eskom to speed up the legal separation of the distribution and generation arms. 

“The entity must provide a quarterly progress report on the legal separation of transmission, distribution and generation companies,” he said. 

He also asked for more engagements between his department and Eskom on the model for the distribution company, and how it could become profitable. 

This is in line with its turnaround plan which was approved by the department of public enterprises in 2019.

According to a 2019 document, the company will allow the separated distribution business to transparently have full access to pricing information. 

Selling assets

Under the Public Finance Management Act, Gordhan’s approval was needed for Eskom to sell any of its assets.

During a parliamentary response last week, Gordhan announced that Eskom has sold R269 million worth of its assets over the past five years, including 494 buildings and other facilities and R119.6 million worth of laboratory, transport and workshop equipment.

Selling its assets will help Eskom to be able to get income and service its debt, while it waits for the treasury to release money from the debt relief.

Currently, the utility’s distribution is shared between 165 licensed municipalities and Eskom. That means through distribution, Eskom measures how much power customers use and provides the appropriate billing and collects the payments.

Eskom remains dependent on government support and continues to use debt to pay operational costs.

In his 2023 budget speech in February 2023, finance minister Enoch Godongwana, announced a debt relief arrangement for the power utility that will see it receive R254 billion over three years.

He said the arrangement would go a long way to managing Eskom’s crippling debt and ending load-shedding.

Godongwana said the goal of the bailout is to strengthen Eskom’s balance sheet, allowing it to restructure and undertake the investment and maintenance required to end load-shedding.

The unbundling of the entity is also critical to get more energy onto South Africa’s constrained grid which needs another 4 000-6 000 megawatts to close the supply gap and avoid the risk of load shedding.

Eskom corporate specialist in retail pricing Shirley Salvodi previously told the Mail & Guardian that the unbundling would also make the structuring of tariffs easier. 

“The tariff restructuring is aligned to the unbundling process that Eskom is going through to accurately reflect the costs of the different services being provided, so that energy charges reflect energy costs, network charges reflect network costs and service charges reflect the cost of customer service and administration.” 

However, the EFF said Gordhan’s approval of the sale of Eskom’s distribution assets is a deliberate step in the direction of dismantling Eskom, “ultimately paving the way for its privatisation, a course we vehemently oppose”.

“While the new company is said to be a wholly-owned subsidiary of the power utility, it

has not been named, raising concerns about transparency. We have consistently

stated how the ANC government has been deliberately collapsing Eskom in order to

hasten the privatisation of public infrastructure,” they said.

A tough sell

Last year, Bloomberg reported that Eskom plans to sell distribution assets in major cities such as Johannesburg to municipalities. It also wants local authorities, which owe the utility about R41 billion, to pay their dues.

The challenge however, would be to find buyers for the utility’s old infrastructure. 

Eskom’s acting chief executive Calib Cassim said that Eskom’s coal-fired power stations were old and it would be difficult to sell its assets.

Cassim also said Eskom cannot sell its transmission grid due to its strategic value, as well as assets in its distribution system because the power utility is unable to collect the debt for its electricity sales.

“If it happens, it will be at a considerable discount,” he said.

Gordhan’s signature signals positive steps towards the unbundling, following the energy regulator’s approval of Eskom’s transmission company’s licence last month.

“This is a milestone decision by the energy regulator and will immensely contribute to Eskom’s unbundling trajectory,” said Thembani Bukula, chair of the National Energy Regulator of SA.

Eskom has not responded to questions.

Mandisa Nyathi is a climate reporting fellow, funded by the Open Society Foundation for South Africa.