Business piles pressure on Ramaphosa over Eskom’s revised unbundling

South Africa’s business leaders have warned President Cyril Ramaphosa that Eskom’s revised unbundling plans put billions of rand of investment in the national grid at risk, a call that could force him to choose between business concerns or backing his electricity & energy minister.

Electricity minister Kgosientsho Ramokgopa in December drew the ire of business when he approved a revised unbundling strategy for Eskom.

Under the revised unbundling road map, the National Transmission Company South Africa (NTCSA) will remain a subsidiary of Eskom Holdings and will continue to own the transmission assets while the Transmission System Operator (TSO) will be set up outside Eskom to handle system and market operation.

Business Leadership South Africa (BLSA) and Business Unity South Africa have now written to Ramaphosa warning him of investor angst over the revised plan.

The two business bodies are also not buying Eskom’s story that the revised unbundling plan is financially sound.

“Eskom argues that its obligations to bondholders imply that it must continue to own these assets. But this is simply not true. Bondholders are used to restructurings across the world that ensure state-owned entities adapt to the market realities they face,” BLSA CEO Busisiwe Mavuso said in her weekly newsletter.

“There are many ways to achieve the necessary outcomes without prejudicing bondholders. The same bondholders stand ready to back new grid infrastructure if the planned restructuring is delivered. There is ample scope to negotiate this and Eskom’s view to the contrary is incorrect.

“As we state in our letter to him, we think it is important that the president, as the ultimate custodian of policy in the country, makes his position clear. Billions of rand of investment and the economic growth and job creation that would follow depend on it.”

Under the new framework, the TSO will develop and approve the transmission development plan, operate the power system and run the wholesale market.

The revised plan is in contrast with that outlined by Ramaphosa in 2019 when he announced that the utility will be separated into three stand-alone units: distribution, generation and transmission.

Under the revised plan, the group will be split into distribution, generation, renewable energy and transmission

Under the revised plan, the group will be split into distribution, generation, renewable energy and transmission.

Eskom CEO Dan Marokane, in an opinion piece published by Business Day last month, sought to make a case for the revised unbundling strategy.

“The Eskom separation strategy was only revised as a result of two strategic factors. Firstly, the risk associated with overdue municipal debt delaying the separation of the Eskom Distribution Division and secondly, in order to take account of the establishment of Eskom Green, our new proposed subsidiary to house Eskom’s renewable energy business on the basis of the business strategy,” he wrote.

“A separation scenario involving the immediate and full legal separation of transmission assets would require major financial intervention from the ultimate shareholder, the government of the Republic of South Africa, for a likely scenario of cross default to honour existing lender commitments based on an analysis by our transaction advisers.

“This estimate is based on an approximately R400bn in debt settlement that would become due and for the asset transfer outside of Eskom holdings around R100bn being required to purchase the shares in the NTCSA.”

However, DA MP Kevin Mileham said while the original TSO was meant to be an impartial gatekeeper, Eskom’s top brass have now pivoted to a model in which the TSO is merely a department in a larger, “Eskom-controlled bureaucracy”.

“To the uninitiated, it sounds like sound corporate stewardship. To those of us who have spent years fighting to break the back of the state’s energy monopoly, it is a transparent attempt to gaslight the South African public,” Mileham said.

“Let’s be blunt: what Mr Marokane is proposing is not the unbundling South Africa was promised. It is a shell game. It is a ‘fake unbundling’ designed to keep the referee in the same jersey and on the same payroll, as the star player.”