Government’s roadmap to “reform” SA’s electricity industry

October 29th, 2019, Published in Articles: EE Publishers, Articles: Energize

On Tuesday 29 October 2019, South Africa’s Department of Public Enterprises published its “Roadmap for Eskom in a reformed electricity supply industry“. The report states that Eskom will be divided into three operational entities; that power stations will compete with one another to reduce the cost of electricity to users for the good of the economy; that money lost through corrupt dealings will be recovered; that government will ensure that municipalities pay Eskom for the electricity consumed in their jurisdictions; that coal-fired power stations will be fitted with equipment to reduce the volume of noxious gases and deadly particulates their chimneys blech into the atmosphere in terrifying quantities…

But we have heard all this before. Today, we heard nothing new. Except, perhaps, a date for when the division of Eskom into three parts will begin: 2021.

The public was told, many months ago, that a Chief Restructuring Officer would be appointed to oversee the restructuring of Eskom. Then we were told that this would not be one individual but “an office” comprising a group of people. Who are these individuals? Have they met? What have they achieved thus far?

One evening last week, we were told by Jabu Mabuza, the power utility’s chair and acting CEO at an extraordinary Eskom briefing held at OR Tambo International Airport, that the minister of the Department of Public Enterprises – which is responsible for Eskom – has the names of suitable people who could be appointed as Eskom’s CEO. We were hoping to hear the name today. But, in today’s briefing, we were told that we should wait for an announcement.

The report refers repeatedly to the IRP2019 which the minister of Mineral Affairs and Energy tabled last week. Perhaps the Department of Public Enterprises was waiting for that before publishing this report.

The Executive Summary of the report follows:

Click here to read the full report

In February 2019, I [Minister Pravin Gordhan] said that we will make big decisions and take bold steps to embark on a process to fundamentally restructure Eskom and the Electricity Supply Industry. South Africa needs reliable and affordable electricity.

South Africa is blessed with an abundance of energy sources with which to drive economic growth, social development and benefit all of its people. Energy security is critical for inclusive economic growth.

Government recently announced the Integrated Resource Plan 2019, which sets out the energy mix and the quantities required to ensure energy security for all South Africans. This Plan provides certainty on the energy path for the next 10 years. There is a profound commitment to systematically reduce carbon emissions.

Equally important is the role of electricity supply security and pricing to promote the competitiveness of the South African economy and to bolster industrialisation. Electricity supply at the lowest possible cost is key to our industrialisation and job creation efforts, as it will enable us to compete better in the global economy. Lowering the cost of electricity is also important for decreasing the cost of living.

Proposed restructure of Eskom.

The current domestic and global conjunctures are the drivers for change in the energy sector and will shape the future of electricity delivery in South Africa, these drivers for change include:

  • Transition from the existing dependence on fossil fuels to the mix of electricity energy sources reflected in the IRP 2019;
  • The restructuring of Eskom into Eskom Holdings with three new subsidiaries: Generation, Transmission and Distribution;
  • An intensive focus on radically improving the current operations and eliminating inefficiencies in generation;
  • A greater requirement for transparency in the governance of both Eskom Holdings and the subsidiaries;
  • A rigorous approach to cutting wasteful costs, optimising revenue and resolving the debt burden; and
  • A Just Transition involving all stakeholders to ensure sustainable livelihoods for workers and communities.

The formation of a Transmission Entity (TE) under Eskom Holdings will foster a competitive market and will encourage the use of diverse sources of energy. Consideration is being given to create two or more generation subsidiaries to introduce intra‐company competition among the generation subsidiaries and drive efficiencies in generation. This will include Eskom’s participation in renewables. The Distribution model of the future will take into account the reliance of municipalities on electricity as a significant source of revenue.

However, many municipalities do not have the technical capacity to effectively reticulate electricity function, which is a constitutional mandate.There are four key elements in the resolution of Eskom’s financial challenges: significantly improving operations, cutting of costs; increasing revenue including collections; and debt management. Discussions have already commenced with coal producers and participants in the renewables programme to reduce the burden on Eskom. This is the time for all parties to make sacrifices as a contribution to a sustainable energy future. Greater efficiencies must be obtained from the operations of Eskom as a contribution to bolstering Eskom’s financial position.

There is ongoing dialogue with labour and business to implement a Just Transition that can ensure minimal impact on communities and workers. There will be partnerships between Government, labour, civil society and business, as agreed to at NEDLAC through the Presidential Working Group on Jobs. Government and Eskom will mobilise the resources needed for the Just Transition.

This Paper sets out the bold, actionable steps to mitigate the electricity supply risks, and to put Eskom and the industry on a new path.

Among the actions to effectively implement the above vision and transformation include the following:

  • To immediately establish a subsidiary for Transmission within Eskom Holdings and to complete the current planning for the establishment of the generation subsidiaries;
  • Eskom to appoint an executive to drive the implementation of the above plans;
  • Reinforce the existing Eskom transformation team with the necessary skills;
  • Establish a separate Eskom transformation unit reporting directly to the Board;
  • Strengthen the Board and appoint a new CEO in the coming weeks;
  • Radically improve operations, including maintenance of generation plant through strict oversight and consequence management; and
  • Introduce radical cost-saving initiatives including renegotiation of coal and IPP contracts.

Government and Eskom will ensure that there is sufficient capacity and expertise to oversee the execution of this Plan. Appropriate structures and processes are being put in place to ensure the effective implementation of this Plan. This will demand higher levels of accountability and transparency from Eskom. This is the largest institutional transformation that South Africa has undertaken in a strategically important area in recent history.

Click here to read the full report

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