Power utility Eskom is in crisis, according to president Cyril Ramaphosa, and it needs to completely restructure its business model.
While delivering his state of the nation address on Thursday, Ramaphosa said that government will initiate a plan to split Eskom’s business into three separate entities, as expected, which will operate as Eskom Holdings.
The business will focus on generation, transmission and distribution, he said.
According to the president, Eskom has come up with a nine-point turnaround plan which is supported by government.
“In line with this plan, Eskom will need to take urgent steps to significantly reduce its costs. It will need more revenue through an affordable tariff increase,” he said.
Steps also need to be taken to reduce municipal non-payment and confront the culture of non-payment that exists in some communities.
“It is imperative that all those who use electricity – over and above the free basic electricity provided – should pay for it.”
Government will also support Eskom’s balance sheet, and the minister of finance will provide further details on this in the Budget Speech.
“This we will do without burdening the fiscus with unmanageable debt,” Ramaphosa said.
New business model
“To ensure the credibility of the turnaround plan and avoid a similar financial crisis in a few years’ time, Eskom will need to develop a new business model.
“This business model needs to take into account the root causes of its current crisis and the profound international and local changes in the relative costs, and market penetration of energy resources, especially clean technologies,” the president said.
“To bring credibility to the turnaround and to position South Africa’s power sector for the future, we shall immediately embark on a process of establishing three separate entities – Generation, Transmission and Distribution – under Eskom Holdings.
“This will ensure that we isolate cost and give responsibility to each appropriate entity. This will also enable Eskom to be able to raise funding for its various operations much easily from funders and the market,” Ramaphosa said.
“Of particular and immediate importance is the entity to manage an independent state-owned transmission grid combined with the systems operator and power planning, procurement and buying functions.
“It is imperative that we undertake these measures without delay to stabilise Eskom’s finances, ensure security of electricity supply, and establish the basis for long-term sustainability,” he said.