Breaking up is hard to do for Eskom

Having seemingly lost the battle to keep the National Transmission Company South Africa (NTCSA) and its grid assets within Eskom after pressure from lenders and business, the power utility has turned its focus to stitching together a sound financial plan for separation acceptable to key stakeholders.

Business Times can today report that Eskom is looking to hire consultants to assess the funding implications and credit considerations the move to separate the NTSCA will have on the group — which is expected to shell out more than R300bn in capital expenditure by 2030.

The move to do a deep-dive financial impact assessment comes four months after President Cyril Ramaphosa discarded the utility’s revised unbundling strategy that would have seen it establish a fully independent transmission system operator while retaining transmission assets within the company.

The plan, which was approved by the minister of electricity & energy, Kgosientsho Ramokgopa, failed to find favour with the president after an uproar led by the business community.

Instead, the president established a dedicated presidential task team to oversee the process. There are concerns among some in Eskom’s corridors that the establishment of the independent transmission system operator (TSO), which will own the NTCSA assets, will undermine the financial viability of Eskom.

The NTCSA has a mammoth, capital-intensive task of building 14,000km of new high-voltage transmission lines over the next decade to accommodate new renewable generation and stabilise the national grid — at a cost estimated in the region of R440bn.

Eskom, in its market-sounding exercise, said the consultants’ work will focus on supporting Eskom’s treasury department in assessing and managing the funding and credit-related implications arising from the NTCSA transaction.

“Eskom is progressing the separation of the NTCSA, which will have an impact on the group’s funding structure, debt profile and lender arrangements. The transaction requires detailed assessment of funding implications, lender engagement and credit considerations,” the group said in its request for proposal.

“The adviser will assist in evaluating funding structures, analysing debt and liquidity impacts, engaging with lenders and other capital providers, assessing credit rating implications and developing appropriate financial models and valuation analyses strictly for the purposes of informing funding decisions, debt capacity and credit risk management.

Fitch said it had forecast a cumulative capex of R322bn by Eskom between the 2026 financial year and the 2030 financial year

“The advisory services will be undertaken in support of treasury’s mandate to optimise funding, manage financial market risks and maintain effective engagement with lenders, investors and rating agencies.”

Ramaphosa set the ball rolling in 2019 in a bid to break Eskom’s historical monopoly and usher South Africa into a competitive multimarket electricity system aligned with global best practice.

Key to this is the unbundling of Eskom into three distinct units: distribution, generation and transmission.

The discarded revised unbundling plan by Eskom, which would have retained the grid assets under its control, was seen by critics as a means for the company to maintain its long-standing monopoly on the energy sector.

Business Unity South Africa (Busa) and Business Leadership South Africa (BLSA) earlier this year wrote to Ramaphosa urging him to reject Eskom’s revised strategy — arguing that without owning grid assets, the TSO lacks balance-sheet capacity to raise financing for the R440bn transmission expansion needed to connect new renewable generation and support economic growth.

The TSO, under the 2019 plan, which Ramaphosa re-affirmed in February, will own and expand the national transmission grid and operate the national electricity market.

The TSO is also expected to guarantee non-discriminatory access for all electricity generators — a central condition for genuine competition.

In April 2024, the National Energy Regulator of South Africa (Nersa) gave the green light for Eskom to transfer its control over independent power producers to the newly established NTCSA, which duly began trading both Eskom and privately generated electricity in July 2024.

Fitch said it had forecast a cumulative capex of R322bn by Eskom between the 2026 financial year and the 2030 financial year. The rating agency said almost 42% of capex would be directed to transmission, 40% to generation, and the rest to distribution.

“The capex is required to achieve the targets set under the 2025 integrated resource plan by expanding the grid, improving flexibility and accelerating renewable energy deployment,” Fitch said.

The establishment of an independent TSO remains a key milestone in South Africa’s transition to a fully competitive electricity market by 2030 under the Electricity Regulation Amendment Act of 2024.