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SOE REFORM

Unbundling of Eskom one stage closer with transfer of control over independent power producers

Unbundling of Eskom one stage closer with transfer of control over independent power producers
Illustrative image | The cooling towers of Eskom’s Lethabo coal-fired power station in Vereeniging. (Photo: Leon Sadiki / Bloomberg via Getty Images) | South African coins. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

The National Transmission Company of South Africa, established under the plan to unbundle Eskom into separate transmission, generation and distribution units, has been given the green light to become a separate entity, starting with assuming control of independent power producers.

Four years after the release of the plan to unbundle Eskom, the National Energy Regulator of South Africa (Nersa) last month consented to Eskom’s request to transfer its control over independent power producers (IPPs) to the National Transmission Company of South Africa (NTCSA).

The NTCSA will be Eskom’s transmission subsidiary under the unbundling process that will split Eskom into generation, transmission and distribution entities. 

While the NTCSA must still meet certain conditions to become a separate entity, Nersa approved Eskom’s application for the NTCSA to assume from 1 April the power utility’s role as a buyer of electricity from IPPs. The plan for the NTCSA to buy power produced by Eskom’s power stations is still in the works and is expected to take at least two months to finalise.

In a joint statement on Thursday, the Department of Public Enterprises and Eskom said Eskom and the NTCSA had “satisfied all the requirements necessary to effect the merger and the operationalisation of the NTCSA”.

“The NTCSA is now on course to be a duly constituted separate, distinct, and wholly owned subsidiary of Eskom Holdings as per the provision of the Companies Act. 

“A critical step ahead is the fulfilment of the Companies Act requirements, and it is anticipated that the NTCSA will commence trade about two months from the completion of these requirements.

“Once all assets, systems and employees have been transferred to the NTCSA, and trade commences, the NTCSA will be a wholly owned Eskom Holdings subsidiary.” 

A milestone

Nersa’s media relations officer, Poppie Mahlangu, said, “The unbundling of Eskom means that certain responsibilities and matters previously managed by Eskom are now being transferred to the NTCSA.”

Mahlangu said the NTCSA would operate according to the market code, ensuring fair access to the grid for all those qualified to generate electricity.

“This means that any eligible generator will have the opportunity to trade electricity in the market.” 

She said such open access was an improvement over the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), in which investors must wait for specific bid windows to open, limiting the number of preferred bidders who can connect to the grid and sell power.

The new market system, allowing for the continuous participation of new entrants, is expected to boost electricity generation capacity, foster healthy competition and, ideally, result in more affordable electricity prices.

It is hoped that it will lead to the elimination of load shedding due to increased generation capacity.

Eskom spokesperson Daphne Mokwena told Daily Maverick, “The NTCSA is also deemed an enabler for IPPs to connect to the grid and assist in lessening the impact of load shedding as well as enhancing competitiveness.”

Read more in Daily Maverick: Growing some backbone – reimagining the future of Eskom and the grid, beyond load shedding

“The NTCSA is projected to finalise all activities two months after the fulfilment of suspensive conditions, which will then enable the NTCSA business to trade. There will be minimal impact on NTCSA’s customers,” Eskom said.

Nersa’s Mahlangu said unbundling was key as 90% of South Africa’s electricity supply was owned by the state and the independent NTCSA would promote competitiveness.

“Unbundling is a milestone, a first of its kind in the republic that will safeguard the key industry principles of independence by the buyer and transmitter.

“Current and future participants would take comfort in engaging [with] an institution that is outside of Eskom. What is also of particular importance is the fact that the NTCSA will operate as the central purchaser of generation capacity, including capacity from Eskom generation as well as power generated from Section 34 IPPs and sell the power to distribution,” Mahlangu said.

The Department of Mineral Resources and Energy recently announced that it had extended the deadline for companies to submit bids for the REIPPPP’s seventh bid window. It aims to procure 5,000MW of new generation capacity. The deadline for companies to submit their bids was moved from April 30 to May 30. 

The board

Eskom appointed 12 directors to the NTCSA board in January. The appointees are:

  • Board chair Priscillah Mabelane, the former executive vice-president of Energy Business at Sasol.
  • Dr Brian Armstrong, a former Telkom chief operating officer and chief commercial officer, has been appointed as lead independent director. Armstrong is currently a professor at Wits Business School.
  • Lungile Mashele, an energy economist and banker with 12 years of energy industry experience in Africa.
  • Carmen le Grange, former chief financial officer at Denel.
  • Anu Sing, who has worked in engineering, investment banking and telecommunications, which included five years at MTN Group.
  • Nkosinathi Solomon, who holds an MBA degree and a BSc in chemical engineering.
  • Mark Swilling, who was chair of the Development Bank of Southern Africa until September 2023. He is the co-director of the Centre for Sustainability Transitions at Stellenbosch University.
  • Auke Lont, the former CEO of Norway’s Statnett, who has 25 years of experience in the energy industry.
  • Francis Petersen, who is rector and vice-chancellor of the University of the Free State. He has a PhD in engineering.
  • Sedzani Mudau, a chartered accountant who is the executive director of Favest Advisory, chairperson of Sentech, and a non-executive director of Ellies Holdings.
  • Dr Busisiwe Vilakazi, who holds a DPhil in engineering science from the University of Oxford and is head of research and innovation at the State IT Agency.
  • Tryphosa Ramano, who is a corporate governance expert and strategist with experience in financial services, manufacturing and aviation.

The NTCSA did not appear to have a spokesperson or communications system to respond directly to Daily Maverick’s questions.

Support and criticism

While many have welcomed the unbundling plan, concerns persist over the potential impacts on employment, electricity tariffs, ongoing rolling blackouts and addressing Eskom’s R442.7-billion debt.

Cosatu’s national spokesperson, Matthew Parks, told Daily Maverick that the trade union federation was “deeply concerned” that Eskom was proceeding with the unbundling.

“The federation is thus opposed to the Electricity Regulation Amendment Bill (ERA Bill) and calls upon Parliament to reject the Bill. Eskom is facing multiple crises because of endemic corruption, endless wasteful expenditure, rampant cable theft, ill-equipped and constantly exiting management and years of under-investment in infrastructure.

“It is not in a crisis because it is a single public utility. Its solutions rest upon addressing its fundamental crises and not restructuring its corporate shape or creating new boards. Separating Eskom into three utilities will create additional boards and management costs when Eskom can least afford it.

“It will weaken Eskom’s ability to plan its generation, transmission and distribution investments or exercise the requisite command and control,” Parks said.

Unbundling was “an exercise of futility tantamount to rearranging deck chairs on the Titanic. Workers fear Eskom’s unbundling may be a precursor to its future privatisation and the impact this may have on jobs and electricity tariffs for working-class communities.”

The DA shadow minister for energy, Kevin Mileham, said the transfer of control over IPPs was a vital step in moving the system operator and transmission function out of Eskom and into an unbundled entity. 

“It operationalises some of the ERA Bill, passed by the National Assembly this week. However, we remain concerned that the functional control is not independent, and that the government and Eskom will continue to exert undue influence over the transmission company, and thereby stifle competition.

“It’s necessary as a long-term solution, and to open up the market. But it won’t affect load shedding in the short term and shouldn’t impact prices.”  

ActionSA’s national chairperson Michael Beaumont said: “While certainly not a standalone solution to load shedding, we see it as one of the essential energy market reforms required to reduce South Africa’s reliance on Eskom.” DM

Gallery

Comments - Please in order to comment.

  • Middle aged Mike says:

    “Four years after the release of the plan to unbundle Eskom”.

    Let that sink in. More than a decade into rolling blackouts it takes the glorious liberation movement four years to get a plan to begin addressing it approved. Anyone who still thinks these numpties will in any way contribute to fixing the mess they made is delusional.

  • Ken Kesner says:

    Four years later govt control of IPAs is transferred to… Guess what…govt control.

  • Alley Cat says:

    “It is hoped that it will lead to the elimination of load shedding due to increased generation capacity”. As far as I know, hope is not a strategy??
    We can have all the IPPs we like, but if there is no capacity on the grid, it is a waste of money and time. Remember the grid is centred around Mpumalanga where all the coal fired stations are, not on the coast where the wind farms are based or in the Northern Cape where the highest solar potential is.
    But let’s hope 🙂

  • Richard Blake says:

    Big pay day for Patrice Motsepe and Cyril Ramaphosa.

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