New Eskom CEO warns against hasty unbundling of firm

We must be careful not to create risks that may end up causing a less stable system – Andre de Ruyter.
Image: Moneyweb

The new chief executive of power utility Eskom said on Sunday that a plan to split the loss-making company should not be rushed, because risks associated with the process need to be assessed and managed properly.

President Cyril Ramaphosa announced last year that Eskom would be split into units for generation, transmission and distribution, as part of plans to overhaul of South Africa‘s power sector and open the industry up to more competition.

A government paper showed in October that Pretoria plans to set up a transmission unit within Eskom by the end of March 2020 and complete the legal separation of all three units in 2022.

But in an interview with eNCA television on Sunday, Andre de Ruyter said while Eskom was committed to a restructuring of the power industry as set out in the government paper, the utility wanted to carefully manage risks associated with the process.

“What we are careful of is with a precipitous unbundling to create risks that may end up causing us to have a less stable system,” said de Ruyter, who took charge of Eskom on January 6.

“For us to rush into full legal separation from day one creates a number of risks – transfer of assets, our lenders will be concerned about assets that they have loaned us money against, there could be capital gains tax events that could cost us a lot of money,” he added.

The government paper had set out a vision for a restructured electricity supply industry, where Eskom could relinquish its near-monopoly and compete with independent power producers (IPPs) to generate electricity at least cost.

One or more Eskom generation units will be created to compete with IPPs and the distribution model will be reformed so more power can be procured from small-scale producers.

“There is a lot of planning that needs to go into the unbundling and restructuring of Eskom. We need to be quite careful on how we implement this not to precipitate all of these risks that we first need to understand, assess and manage them properly,” de Ruyter said.

Eskom supplies more than 90% of South Africa‘s power, but its creaking fleet of coal-fired plants struggle to meet electricity demand.

The utility implemented severe nationwide power cuts in several bursts last year and sporadically earlier this month. The power cuts have pushed the economy to the brink of recession and piled pressure on Ramaphosa, who came to power with a pledge to revive investor confidence and lift economic growth.

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COMMENTS   11

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Andre de R likely knows very well what the deep-rooted problem is for SOE’s.

The proposed “unbundling” by CR is mere talk….to indicate to the voting public (and rating agencies) that “we the ANC is working on a solution” (whether this solution will work, is besides the point).

Unbundling will likely increase Eskom’s operating cost. Now you’ll have 3 head-offices, along with associated costs. Koste in triplikaat! And the 3 parts now have to liaise with each other, so then you’ll have “liaison section” within each division.

So now Eskom’s “generation” section, is expected to bill the “transmission” dept at wholesale price. In turn “Transmission” will now add mark-up, and bill “distribution”. Then “distribution” will add markup and bill the customer (be it direct or municipal).

As if this unbundled arrangement will work any better. You wish!

It’s like having a private vehicle that became so heavy on fuel, that it drains most of your net salary.
So now…the CORRECT WAY would be to remove dead weight from vehicle (i.e. remove that wicker basket on roofrack to improve aerodynamics; remove emply Cadac 9kg gas cylinder rolling around in your trunk, and also the old case of wine); then give proper service (..incl. remove the sand out of airfilter! Remove old gunked up oil filter. New spark plugs.) Repair that gash in the fuel pipe! Let everyone pay that wants an occasional lift.

The ESKOM WAY to tackle the above, would be to create 3 sections: you yourself will take care of the annual licensing & insurance commitments; your sister will take over the fuel payments…and she will top-up fuel when she has spare money; and your brother pays for the maintenance & repairs..again, when he has funds available. Remember now to plan together…

In the end, no-one will be able to drive it, during this whole misunderstanding….the engine (“generation”) will be separated from the chassis lying on the floor; the removed gearbox (“transmission”) would lie in another corner of workshop; and the axle/diff/half-shafts (“distribution”) would be left somewhere no-one recollect where it was last placed…

It’s encouraging that he is already looking at the issues systemically rather than in compartments for local optimization. A perspective that several areas of the country urgently require.

“…there could be capital gains tax events that could cost us a lot of money,” he added.

Which assets in Eskom are worth more than their base cost?

Take very careful note : Eskom Distribution should not be allowed to compete against councils within their urban edge! That WILL lead to FUBAR!

It seams as if Mr. de Ruyter is using his brain. That is perhaps the first time in 25 years that any brains is used at Eskom.

Indeed he is using his brain… He is in it for the pay-cheque, which you and I will pay for dearly…

Remember Coleman Andrews and SAA…

We never learn… show me anyone willing to run an SOE free or at least the same pay an MP…

Andre was never the 1st appointment and his history is not stellar. Nampak a disaster and his Sasol share trading leaves questions.
Anyone who takes this position knows very well that u r against a wall.
Me think already state intervention. He will go after a few corrupt contracts. Labour will stay as before??
Soweto will still not pay, and the old plants need a complete refit, costing billions.
Debt plus,excess labour, poor payment and refit cost a very tall ask for Andre.

Looks like he is saying our beloved president does not have a clue what he is talking about.

Must say. It’s crossed my mind before.

As long as SA’s socialist government governs Eskom, the utility (bundled or unbundled) will continue on it’s current death spiral. The best and only solution is privatize Eskom. Same solution for SAA.

My advice to Mr de Ruyter, support IPP projects. This will contribute to a growing economy and relieve the pressure on Eskom to get its house in order. Maintenance is a long term project.

De Ruyter says what Ramaphosa wants to do by March this year took Old Mutual no less than THREE years i e PROPER PLANNING! (Old Mutual recently successfully unbundled)
Goes to show just how STUPID the ANC politicians are when it comes to running a business!

End of comments.

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