SA Sunday Times on Eskom 2/220 Dec 2020 13:37
Industry experts have welcomed the restructure but there are concerns that the government will not go all the way and make transmission completely independent and transform the industry.
There are concerns, too, that simply splitting off transmission, in the absence of other reforms, including a solution to Eskom's debt problem, could leave the rest of Eskom even more financially stressed.
"They are setting up a potential problem of a stronger independent transmission, system and market operator — with a lower cost of funding — that could make the Eskom holding company weaker," said Intellidex analyst Peter Attard Montalto.
Futuregrowth's Olga Constantatos said many utilities had gone the route of splitting into the three areas of generation, distribution and transmission and it made a lot of sense, but it could not be done in isolation.
"Splitting Eskom is part of the answer but it is not going to solve the underlying problems of the debt spiral and the death spiral, which is tariffrelated," she said. The "death spiral" refers to higher tariffs driving down demand for electricity, prompting Eskom to ask for higher tariffs.
University of Cape Town professor Anton Eberhard said 110 countries had unbundled transmission entities in the past 2030 years.
"The independent transmission, system and market operator [Itsmo] creates a transparent and fair platform for procuring and contracting new, leastcost power," he said.
"Ultimately the impact will be profound." Leastcost power would be mainly solar and wind, backed up by gas and utilityscale batteries, in line with SA's integrated resource plan. Eskom's share of generation would decline over time, he said. Eberhard is concerned, however, that there is insufficient leadership from the government to set timelines for the next step, which is taking the Eskom Itsmo subsidiary out as a completely separate stateowned transmission entity, with an independent board.
"That next step will be necessary to unlock the huge quantum of investment required to meet our future power needs." DECLINE IN REVENUE
For the six months to September, which included the Covid19 crisis and 19 days of power cuts, Eskom reported a 10.3% decline in sales volumes and revenue that was flat despite an 8.7% increase in tariffs.
At R15.3bn, the finance costs on Eskom's huge R424bn debt burden wiped out the R14.3bn it made in operating profit. It was only thanks to the government's bailout cash that it managed to pay the interest on its debt. It expects a fullyear loss of R22bn, making this the third full year in which it will have incurred a loss of more than R20bn.
Eberhard pointed out that government bailouts to Eskom since 2008 had totalled R188bn, including R56bn in the current year.Eskom CFO Calib Cassim said Eskom's average cost of debt was 9.8%, with debtservicing costs totalling R94bn for the year.
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