South Africa needs to deal with its ‘Eskom problem’: IMF

Eskom should abandon its outdated business model, reduce its footprint in the sector, and compete on a level playing field with private participants, including the producers of renewable energy, says the International Monetary Fund (IMF).

In a statement issued at the end of discussions with South Africa on Friday (11 February), the group said that the embattled power utility remains a critical risk to the country’s economy due to the strain it places on the fiscus and its inability to provide a stable power supply.

“Urgent steps to be taken by the company include improved procurement processes to reduce costs, better service delivery through enhanced operational efficiency, faster collection of arrears from municipalities, and the continued rationalisation of its wage bill,” it said.

“Importantly, any government support should be conditional on achieving key milestones in these areas, and any solution to Eskom’s debt problem should avoid undermining reform incentives.”

Despite the improved financial performance in the first half of FY21/22, driven by the tariff increase and demand recovery, Eskom still relied on budget support to service its debt, the IMF said.

While some progress has been made on separating Eskom’s transmission division, the company’s planned unbundling will require complementary legislative action and a decision on how to address the company’s unsustainable debt level, it said.

“Options being discussed include an upfront assumption by the government of part or all of the debt or continued annual transfers, which staff estimates would be higher than stated in the Medium-Term Budget Policy Statement (MTBPS).”

It added that Eskom’s low productivity and quality of service delivery has translated into rising tariffs and repeated power outages despite subdued demand during the pandemic.

New regulations 

President Cyril Ramaphosa announced amendments to the Electricity Regulation Act in his state of the nation address on Thursday, which he said will help reduce the country’s power issues.

These ‘far-reaching’ amendments will enable a competitive market for electricity generation and the establishment of an independent state-owned transmission company, the president said.

“In addition to closing the energy supply shortfall, we are implementing fundamental changes to the structure of the electricity sector,” he said.

“Eskom has established a separate transmission subsidiary and is on track to complete its unbundling by December 2022. The utility has continued with its intensive maintenance programme, to reverse many years of neglected maintenance and underperformance of existing plants.”

Read: IMF sends warning to South Africa

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South Africa needs to deal with its ‘Eskom problem’: IMF