Public Debate on Eskom Shows Growing Support for Restructuring

A public debate on the future of Eskom on 10 May showed strong support for comprehensive restructuring of the state-owned power utility. The debate, organized by EE Publishers and chaired by National Energy Regulator of South Africa (NERSA) CEO Chris Forlee, saw three different motions put forward by industry experts. The motion that Eskom’s business model and the entire electricity supply industry need to be fundamentally restructured was supported by over 70% of the 250 attendees. Signs that consensus on this is building among industry participants is important for IOCs, particularly those investigating options around the independent power producer (IPP) program. Indeed, Eskom’s dominance across power generation and transmission is widely regarded as a conflict of interest that results in an unequal playing field for IPPs.

Despite strong industry views on restructuring Eskom, the government is unlikely to make any significant moves in this area until at least after the 2019 national elections. The exception would be if Eskom’s precarious financial position deteriorates to such an extent that restructuring is required as part of a debt agreement. The government previously took steps to restructure the electricity supply, but this process stalled in 2015 after the Independent System Market Operator (ISMO) Bill, which would have split control of the transmission grid to boost competition, was shelved. President Cyril Ramaphosa’s government is likely to be amenable to considering similar legislation. However, this is unlikely to be an area of focus at present, particularly given the numerous other political issues that are being addressed. The government is also unlikely to favor such a move until good governance is restored to SOEs. Restructuring would require considerable consultation, and, given the slow pace of legislative processes, would take several years after a new bill is introduced.

Two other motions were also presented but did not receive much support. One was for no restructuring, on the basis that Eskom’s vertically integrated model was appropriate as long as financial and operational discipline was restored. This was presented by Frans Baleni, deputy chairman of the Development Bank of Southern Africa and former general secretary of the National Union of Mineworkers. The other motion was for minimal restructuring, with additional public or strategic equity partners to recapitalize the business and improve accountability. This was presented by Nelisiwe Magubane, former director general in the Department of Energy and current Eskom non-executive director. Economist Grove Steyn presented the aforementioned winning motion, for fundamental restructuring. However, given that it was a debate, the presentations did not necessarily reflect the views of the presenters.

While the intention of the debate was to encourage constructive engagement (not attack Eskom), former acting Eskom CEO Matshela Koko used the event to stir up controversy on social media. Despite facing allegations of corruption relating to his time at the utility, Koko continues to challenge the direction it has taken since the new board was appointed in January 2018. He has been particularly critical of Eskom’s signing of the power purchase agreements (PPAs) with renewable IPPs in light of the utility’s flat demand and weak finances.

Baleni and Magubane argued that the current model remains suitable to meet South Africa’s electricity supply needs even though changes such as improved governance, greater productivity and better leadership are needed. Indeed, many stakeholders now recognize the structural requirements that Eskom needs to address to avoid the challenges seen under Jacob Zuma’s presidency. However, Steyn reflected on how a modern electricity system that addressed environmental concerns and supported more flexible and decentralized generation sources was now required. He called for an “independent transmission, system and market operator” to be the first step in a restructuring process.

Although these are important debates that are likely to influence thinking on the power sector’s structure in the coming months, Eskom faces many other more urgent issues. In early May, for example, acting Eskom CEO Phakamani Hadebe announced at a media conference that Eskom did not foresee unplanned outages during South Africa’s upcoming winter months. This came after reports that coal stockpiles at some power stations had diminished to such an extent that reserves were being redirected from other plants. Reasons for the low stockpiles include inadequate investment and problems relating to the Gupta-linked Tegeta coal mines.