/ 23 March 2023

Nersa to begin unbundling Eskom

Nersa Compressed
Power up: The energy regulator holds hearings on tariff hikes in 2015. (Nelius Rademan/Beeld/Gallo Images)

After a four-year delay, the National Energy Regulator of South Africa (Nersa) will, in April, kick off President Cyril Ramaphosa’s plan to unbundle Eskom into three departments.

This comes as the newly elected electricity minister, Kgosientsho Ramokgopa, said unbundling the power utility was not his priority right now, and that it was important only in the long term for purposes of achieving energy security. The ANC’s economic transformation committee deputy chair, Zuko Godlimpi, has also said the unbundling of Eskom was not the ruling party’s main focus. (See “Eskom unbundling on the back burner”, Page 6.)

On 12 April, Nersa will determine whether Eskom’s subsidiary transmission company, the National Transmission Company South Africa (NTCSA), will receive the licence to trade, import and export electricity and whether it can be granted a transmission licence.

The unbundling of Eskom into three separate units — transmission, generation and distribution — was announced by President Cyril Ramaphosa in 2019 during his State of the Nation address.

Eskom applied for the licence last year. Former Eskom chief executive Andre de Ruyter said the energy regulator was taking too long to act on the unbundling of the utility.

Last month, during an interview with Minerals Council chief executive Roger Baxter, De Ruyter said Eskom had sent the government a list of potential board members for a national transmission company a year ago and was still waiting for them to be appointed. 

South Africa’s mining sector has the potential to produce 2 294 megawatts of power by 2025, which is more than Eskom’s Arnot plant produces, according to News24

De Ruyter added that the power utility had everything that was legally required for the unbundling process to enable the legal separation of its transmission business. 

“We concluded an asset transfer agreement. We have set up the National Transmission Company of SA. We have set up separate balance sheets, [and] income statements. We have separated SAP [software]. That is no minor exercise.” 

During a media briefing last month, presidency official Rudi Dicks said Eskom was one step closer to obtaining a licence for a new transmission company. Nersa had published the licence for public comment.

He added that the establishment of the transmission company will open the way towards the unbundling of Eskom and put in place the basis for a competitive energy generation sector, where multiple electricity producers sell to the national grid.

Eskom corporate specialist in retail pricing Shirley Salvodi said 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.” 

The move to proceed with the unbundling has been opposed by unions who have argued that it will cause job losses.

Nersa has started the process of granting the National Transmission Company a licence pushed for by former Eskom boss André de Ruyter. (Brenton Geach/Gallo Images)

Congress of South African Trade Unions spokesperson Sizwe Pamla said in a statement that people calling for an unbundled and privatised Eskom are “misplaced and miss the point. Eskom generates 95% of electricity and transmits and distributes 100%. It is our greatest economic asset and cannot be handed to those whose sole motive is to maximise profit.”

The Alternative Information Development Centre has argued that the unbundling will cause retrenchments and even higher tariff increases to satisfy business’s profit maximisation drive.

“Privatisation of electricity should be a no-go zone, especially in a country like SA where more than 11  million people are unemployed and 55% of the population live under the poverty line,” it said.

During a briefing of parliament’s select committee on public enterprises and communications, De Ruyter said there would be no forced retrenchments as a result of the unbundling.

Last year during a presentation meeting to creditors, Eskom estimated that a loan of R130 billion would be required to alleviate transmission constraints. 

De Ruyter said the NTCSA’s purpose is to act as a national transmission network operator and a system market operator, allowing it to take in electricity from Eskom, privately run power plants and imports from countries such as Mozambique.

“The resulting specific transmission tariff should be sufficient to enable NTCSA to run its operations in a manner that is cost efficient.”

Eskom Holdings said the unbundling will give the transmission unit that it’s transforming into a separate entity a R39.9 billion loan to make sure it can complete projects and be financially viable.

The loan will be guaranteed by the transmission unit’s assets, with Eskom’s creditors able to call on them if the utility doesn’t pay them and government guarantees will remain in place. This is despite the treasury’s condition that prohibits Eskom from taking more loans after R254 billion of Eskom’s debt was taken onto the national balance sheet.

Eskom’s acting chief executive, Calib Cassim, said the legal unbundling will cost the power utility about R500 million. “Most of this (42%) will go to changes to the entity’s information technology infrastructure. The rest will be split between lender engagement (26%) and commercial and land contract changes (22%).”

Anton Eberhard, the director of the Power Futures Lab at the University of Cape Town’s Graduate School of Business, said investing in the transmission grid would help to stabilise the power supply and meet the growing demand for electricity.

“There are plenty of equity and debt providers willing to finance this clean energy future, but the constraint now is access to the grid to transport electricity to consumers.

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