Eskom isn’t secretly being privatised, assures chair

Eskom is not being privatised through reforms to the electricity sector in South Africa. Even after its unbundling, the government will still own 100% of the company’s assets.

Chairperson of the utility, Mteto Nyati, told CNBC Africa that the private sector will only be allowed to participate in the grid build-out and electricity generation. It will not take over these functions.

The Department of Public Enterprises (DPE) has been promising South Africans for nearly a year that the “new Eskom” – under a new holding company dubbed NewCo – is around the corner.

The DPE told Parliament in August last year that it is making good progress in unbundling Eskom into three separate companies, alongside a new holding company to oversee them.

Under the proposed structure of the new Eskom, a holding company called NewCo will operate with three subsidiaries that function independently –

• Generation: Eskom Holdings Generation (current Eskom)
• Transmission: National Transmission Company of South Africa (NTCSA)
• Distribution: National Electricity Distribution Company of South Africa (NEDCSA)

The most progress has been made in establishing the NTCSA as the legal separation of the transmission company into a subsidiary is now at an advanced stage.

The NTCSA was incorporated in 2021, and the necessary licence applications to energy regulator Nersa have been made.

In July 2023, Nersa approved the licence to operate the transmission system within the boundaries of South Africa. However, this excluded the trading and import and export applications.

It is important to note that this reform only took place 23 years after the process of creating an independent transmission company began.

Nyati is adamant that this will not result in the utility being privatised despite fears that the private sector will take over some of Eskom’s assets and outcompete its generation division.

“There is no privatisation, but there will be private participation. For example, when we build new transmission lines, if we do not have the money, then we will ask the private sector for funding,” he said.

He has previously estimated that the utility would need R350 billion over the next ten years to build sufficient transmission infrastructure to connect new generation facilities to the grid.

We do not have, from our own operations, the capacity to fund that,” he said.

He added that the board was considering using the build, operate, and transfer models that have been used to build toll roads across the country.

Under this model, the private sector would build the infrastructure and operate it for a set period, ranging from 5 to 20 years. Afterwards, it would be transferred to the government entity that procured it in the first place.

Privatisation by stealth

Despite Nyati’s assurances, there are fears that Eskom is being privatised by stealth, with its customers slowly going off-grid and finding alternative sources of electricity.

As these customers move to small-scale renewable energy, Eskom will be left with a higher percentage of non-paying customers.

To make up for the lost revenue, Eskom is implementing very high electricity price increases. This, in turn, drives more paying customers to install solar PV to save costs.

This downward spiral is accelerating, especially with South African businesses and households looking to mitigate load-shedding.

Eskom estimated that rooftop solar increased from 2,586 MW at the end of 2022 to 5,203 MW at the end of December 2023.

It previously said that behind-the-meter solar installations have helped stave off higher stages of load shedding on sunny days.

Solar PV is, therefore, helping the country to avoid higher stages of load-shedding. However, it comes at a revenue cost to Eskom.

Eskom’s latest financial results showed that the reduction in demand caused by solar installations resulted in its sales declining by over 2%.

The decline in households and businesses using Eskom aligns with what many experts predicted – private electricity generation taking over from the state-owned utility.

Award-winning economist Dawie Roodt said Eskom’s generation division is slowly dying, similar to South African Airways (SAA) and the South African Post Office (SAPO). He referred to this process as privatisation by stealth.

Research from RMB Morgan Stanley also showed that the private sector will effectively replace Eskom’s generation fleet in the next few years.

They argue that in the long term, electricity generation will be private, with Eskom merely distributing electricity.

This article was first published by Daily Investor and is reproduced with permission.