Eskom’s privatisation is back on the agenda but it seems more by necessity than desire. Eskom needs to be recapitalised and government doesn’t have the funds available.
MoneyWeb comment that as Eskom lurches from crisis to crisis and the battle to keep the lights on grows more acute, the privatisation debate has resurfaced. The conversation dates back to when Thabo Mbeki introduced the controversial ‘managed liberalisation’ policy, which was supposed to usher-in the privatisation of several State-owned entities.
“Consideration is also being given to ring-fencing and selling stakes in Eskom’s noncore businesses or power stations, as well as into Eskom’s business as a whole,” the National Treasury said in response to an Engineering News Online enquiry.
Earlier, Finance Minister Nhlanha Nene said that government would consider private equity injections into the utility, while maintaining a majority shareholding, describing Eskom as the “most pressing risk” facing the country. The National Treasury insisted there was a need “to explore all options so that South Africa can have a financially sustainable Eskom in the long term and resolve its energy challenges.”
“Partnering with strategic investors from the private sector would enable the company to harness technical expertise to improve the performance of the power system. Another key benefit would be that the cash that Eskom would receive immediately, can be used to strengthen the company’s financial position ensuring it is able to continue to play its strategic role,” the National Treasury explained.
It did not comment directly on the prospect of a partial listing of the State-owned company (SoC) as hinted to by African National Congress (ANC) secretary-general Gwede Mantashe, who indicated that consideration could be given to the so-called “Chinese model”, of listing a portion of an SoC, but retaining a majority interest. Goldman Sachs chairperson and CEO Lloyd Blankfein mooted a similar approach during a recent visit to South Africa. He argued that South Africa should consider taking a cue from China’s “hybrid system,” where SoCs remained controlled by the central government, but where shares in the companies were also floated on stock exchanges, subjecting them to stock exchange discipline and transparency.
The National Treasury stressed that it remained government’s intention that, in line with the White Paper on Energy, Eskom continued to play a leading role in electricity supply and that the State retained control of the utilty. But alternatives were being explored, owing to “Eskom’s constrained balance sheet and government’s constrained fiscal position,” cautioning that the alternative was for electricity tariffs to be increased significantly, or for taxpayer to be funds injected into Eskom. Together with the possibility of private investment in Eskom, a continuing increase of private generation capacity, through independent power producers (IPPs,) was also being explored.
“Government’s IPP programme has been successful. A total of 5.2 GW has already been procured through the first four bid windows of which 2.5 GW have already reached financial close,” the National Treasury said, adding that the average cost of electricity procured through the programme had reduced in each of the three bid windows.
The Coal IPP programme, it said, would add an additional 2.5 GW. Government would also consider amending regulations so that the private sector could build generating capacity to meet its own requirements and supply the surplus electricity to the grid.
“This option means that Eskom doesn’t invest capital building additional power stations to generate electricity yet the electricity is still made available to power the economy.”
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