Eskom restructure vital for future investment

Restructuring power utility Eskom will be critical in making it attractive for private investment in future, says CEO André De Ruyter.

In an interview on Monday, De Ruyter discussed what he learnt in the six months that he has been leading the debt-ridden power utility.

When he first arrived he was “pleasantly surprised” by the calibre of people working there, but added they had been demoralised by events that had taken place over the past 10 years.

Eskom has been battling with load shedding, a maintenance backlog and a debt burden of around R450 billion.

According to De Ruyter, the utility’s debt is one of its biggest challenges and has been eroding its profitability. Dealing with it will require a “multi-pronged” approach, including improving operational ability to avoid load shedding so that Eskom can make electricity sales, resolving disputes with the national energy regulator to be granted “cost-reflective tariffs”, as well as recovering debt owed by municipalities.

“I do not think there is one silver bullet that is going to fix the Eskom debt challenge,” he said. 

Treasury’s allocations to the power utility have helped buoy its balance sheet, and De Ruyter has previously said no additional bailouts will be required this year.

When asked about progress on the restructuring of the entity, De Ruyter said that the boards for the three entities – generation, transmission and distribution – have been appointed are operating. 

The restructuring of Eskom into three separate entities was first announced by President Cyril Ramaphosa in February last year. All three entities will still fall under an Eskom holding company. 

“I think if you look at trends in the energy and electricity industry, the days of the vertically integrated monolithic utility like Eskom are behind us,” noted De Ruyter. 

The separation of the utility into three entities will notably “level the playing field” and increase competition in the generation side of the business, and attract more private investment, he said. 

As for transmission, it is a “natural monopoly” and it is unlikely to have two transmission networks competing with each other, he said. It would not make economic sense to sell the transmission network, as it is an asset for the country.

In terms of distribution, there is already competition in this space with municipalities and Eskom selling directly to consumers, he added.

“In the view that we will have less coal fired generation capacity going forward, we need to structure ourselves in a way to attract private investment to come in and compete and give us the most effective way of generating electricity in South Africa.

“That is why we are having to separate into three entities, setting ourselves up to enable this new era of electricity generation in South Africa by allowing new entrants into the business,” he said.

Speaking more generally on trends in the energy sector, De Ruyter said over time it will transition into the renewable space and he expected to see growing private investment. As this happens, it is important not to leave behind the communities who for generations have built their livelihoods on coal mining and coal-fired power stations. “The notion of a just energy transition is important,” he added. –Fin24