Ramaphosa backs Eskom restructuring plan for competitive power market

On Friday President Cyril Ramaphosa endorsed the first report of the Eskom Restructuring Task Team, and with it provided the clearest vision yet for the independent transmission system operator (ITSO). I welcome that endorsement unreservedly.

BLSA has argued consistently, against resistance from Eskom itself, that an independent grid operator is the only way to build a truly competitive electricity market – one that treats all electricity generators equally, brings prices down over time and gives investors the certainty they need to commit capital.

The president has now made that policy unambiguous and there cannot be any further debate.

The ITSO is the foundation of a competitive electricity market. Without it, Eskom controls both generation and the grid, the equivalent of letting one airline also control the airports.

Private generators cannot compete on fair terms, new investment is constrained, and the promise of lower electricity prices remains out of reach. The president on Friday reinforced that electricity reform must create the foundation for South Africa’s growth. I agree entirely.

Getting the ITSO right is how we deliver on that commitment.

Read: Is Eskom betting on Ramaphosa’s departure?

First steps towards unbundling

The task team’s Phase 1 report proposes important interim steps while the full unbundling is concluded. It recommends strengthening the independence of the National Transmission Company SA (NTCSA), the entity being created through the Eskom unbundling process, through completely independent boards with no cross-directorships with Eskom, and with the NTCSA board responsible for appointing its own CEO and senior management.

Eskom must delegate to the NTCSA all decision-making related to the electricity market, with the NTCSA’s finances and operations ring-fenced.

These are the right recommendations. They build the institutional muscle that the ITSO will eventually inherit.

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I was particularly encouraged that the report directly addresses the concern that Eskom could continue to exercise influence over transmission decisions through informal means; the ring-fencing and governance separation proposals close that door.

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These interim steps also matter for the immediate reform pipeline. The NTCSA taking on genuine independence clears the path for the launch of the South African Wholesale Electricity Market (Sawem), which is due this quarter.

The Sawem launch has already faced delays; the president’s endorsement and the task team’s governance proposals remove the main institutional obstacle. That launch must now happen on schedule.

President Ramaphosa’s endorsement is highly positive for investment. Uncertainty about whether South Africa would follow through on electricity market reform has been a source of concern for independent power producers and large industrial consumers alike.

That uncertainty is now substantially reduced. A long-term, sustainable electricity market will emerge. Investors can plan accordingly.

I want to credit Duncan Pieterse, director general of National Treasury, who chairs the task team, and the team’s members for the Phase 1 report. It has moved the process forward at a critical moment, and the president has used it to provide clarity.

Phase 2: The transaction structure and implementation plan

The task team is now working on a Phase 2 report covering the transaction structure and implementation plan, due within three months. That deadline must be met.

It is important that Eskom now fully aligns with the report’s recommendations. There is no longer any room for debate about the policy direction.

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I am aware that the transaction will be complex – bondholder consent will be required, and restructurings of this scale take careful management. But these difficulties are not insurmountable.

There is substantial international experience of transmission unbundling that South Africa can draw on, and bondholders can be treated fairly through a well-structured process. Eskom needs to approach the Phase 2 work as a constructive participant.

The task team also identified municipal debt to Eskom as the biggest single threat to the utility’s long-term sustainability, and recommended that a working group develop a consolidated action plan to address it. That recommendation is welcome and urgent.

Municipal arrears to Eskom now stand at over R114 billion. Interventions are underway, including smart meter installation, distribution agency agreements and local government financial reform, but they are fragmented.

A working group that coordinates all of these into a coherent plan, with clear accountability and timelines, is helpful. Eskom cannot be put on a sustainable financial footing while that debt continues to grow.

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As the BLSA Reform Tracker showed two weeks ago, electricity reform had fallen behind schedule in several areas and in some had reversed progress. Operation Vulindlela confirmed the same in its Friday progress update.

The president’s endorsement has now galvanised the process. There is new momentum and it must be sustained. BLSA will continue working with the National Electricity Crisis Committee and all role players to support implementation.

The policy is clear; what is needed now is execution. South Africa’s growth outlook depends on getting this right.

Busisiwe Mavuso is CEO Business Leadership South Africa.

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