Home News S.Africa unveils rescue plan for ailing power company

S.Africa unveils rescue plan for ailing power company

Published on November 12, 2019

South Africa on Tuesday unveiled plans to fix its embattled state power utility Eskom, which has sporadically suffered rolling blackouts that plunged businesses, schools and homes into darkness.

Public Enterprises Minister Pravin Gordhan detailed a long-awaited roadmap that will see Eskom divided into three subsidiaries: generation, transmission and distribution.

Gordhan said that the transmission unit — which conducts electricity and manages 45,000 kilometres (almost 28,000 miles) of power lines — would be the first to become a stand-alone entity, still owned by Eskom.

That process is expected to be completed by March 2020.

“The restructuring of Eskom has the benefits of increasing transparency, particularly in respect of costs,” Gordhan said.

Eskom, which generates around 95 percent of South Africa’s electricity, has accumulated $30 billion of debt despite receiving multiple government bailouts.

Credit ratings agencies have warned that Eskom’s debt could cause downgrades and embarrass President Cyril Ramaphosa, who was re-elected this year in part on a pledge to restore the economy.

Eskom has long struggled to produce enough power due to ageing and poorly maintained coal-fired power stations combined with decades of mismanagement and alleged corruption.

South Africa was hit by a week of rolling blackouts earlier this month — a tactic known as ‘load-shedding’ — aimed at rationing electricity when demand is too strong.

Gordhan gave no details on Eskom’s financial restructuring, saying only that Finance Minister Tito Mboweni was likely to comment on its debt when he presents a mid-term budget on Wednesday.

Energy supplies had to stay ahead of business activity, Gordhan said, “so that we are not acting as a constraint on economic growth.”

South Africa’s government plans to pour 128 billion rand (around $8.8 billion) into Eskom over the next three years.

State-owned companies were at the centre of corruption scandals known as “state capture”, under South Africa’s former president Jacob Zuma.

Gordhan said that continues to affect the utility in a “systematic” way as many highly-skilled professionals were squeezed out of Eskom.

A new chief executive is also be announced in coming weeks to replace Phakamani Hadebe, who resigned in July citing “unimaginable demands” of the job.

The new business plan should also expose Eskom to more competition and orient it towards renewable sources of energy.

The utility will be expected to cut coal and diesel costs and negotiate lower prices from renewable energy suppliers.

Power stations are to be grouped into clusters and compete among each other to give consumers cheaper electricity.