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SA to split Eskom in rescue plan – Ramaphosa

The power utility is in crisis, says the president in his 2019 state of the nation address.

President Cyril Ramaphosa vowed to rescue the ailing state power utility by providing it with financial support and splitting it into three entities after it suffered massive losses and piled on debt.

Eskom will be split into generation, distribution and transmission businesses under a state holding company, enabling each unit to manage its costs more effectively and making it easier for them to raise funding, Ramaphosa said Thursday. He didn’t specify how much money the government will give Eskom, saying details will be provided in the budget later this month.

“This we will do without burdening the fiscus with unmanageable debt,” Ramaphosa said in his annual State of the Nation address in Parliament in Cape Town.

The company is seen by rating companies as a key risk for Africa’s most-industrialised economy, with blackouts and huge debt a drag on growth prospects. It’s struggled to produce enough power with old, unreliable plants even as demand has declined, putting it in what’s known as a “death spiral”.

“For us what is important is, as the president indicated, if we don’t take these tough decisions, the repercussions of not taking action are more severe,” Eskom chief executive officer Phakamani Hadebe said after the speech.

Read: The other side of the messy R8bn Medupi, Kusile story

While breaking up the company may make it easier to manage and improve its operational performance, it won’t immediately address its financial woes, with the company sitting with more than R400 billion of debt.

“Eskom is in crisis and the risks it poses to South Africa are great,” Ramaphosa said. “We need to take bold and decisive action. The consequences may be painful but they will be even more devastating if we delay.”

The reorganisation is risky for Ramaphosa. The unions who helped the former labor leader rise to the presidency oppose the move because they say it will lead to job losses and privatisation. South Africa is expected to hold elections in May, and the ruling African National Congress will rely heavily on union backing to maintain the political dominance it’s enjoyed since taking power after the end of apartheid in 1994.

Read: Unions warn Ramaphosa on jobs after Eskom split pledge

Yields on Eskom’s dollar bonds due in August 2028 rose 5 basis points to 5.97% at 8:16 pm in Johannesburg. The rand pared a decline of as much as 1% and was 0.2% weaker against the dollar.

Eskom’s current structure isn’t optimal and the breakup makes sense, according to Iraj Abedian, the head of Pan-African Investments and Research Services, who has advised the government on economic policy.

“National transmission has no place in the belly of Eskom,” he said. “It must be a national utility. It’s a natural monopoly. It cannot, should not be privatised.’’

© 2019 Bloomberg L.P

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Nothing split here – other than some atoms at Koeberg.

The only workable solution:

a. FIRE TWO THIRDS OF THE STAFF.

b. CUT THE POWER TO SOWETO – PERMANENTLY.

If the above is not implement immediately, those that actually work in jobs that generate wealth and do pay for electricity, have only one of two choices:

1. LEAVE SA IMMEDIATELY.

2. GET OFF THE GRID COMPLETELY.

Agree

But when splitting up, CR’s brother-in-law, Patrice Motsepe will end up with the juicy parts.

Remember Russia after fall of communism, when cadres bought state assets for a song and never looked back?

Splitting into three entities is the standard approach often taken overseas when privatising the electricity sector. I think the goal is to break a monopoly into parts where no one has control over the whole process. The parts fight each other instead of screwing the customer. Efficiency suddenly becomes very important. The transmission and distribution parts can buy electricity from *any* generator not just Eskom. This little fact doesn’t get a lot press coverage. So this introduces massive competition right where it’s going to do the most good. Those power stations will have to very efficient so no more looting, deferred maintenance. Under such a model, disasters like Kusile and Medupi can’t happen.

“Overseas” – – – indeed.
It can work there – but in SA, with greed and corruption and employing people who cant do the job, it will also fail.
SA is in serious trouble – – –

Well I liked this part of h9s speech. Maybe one thing I wouldnhave done differently is to spin off eskom nuclear, aka koeberg by itself too

Eskom is a proxy for the ANC. They inherited the best utility in the world from the previous government. Eskom had the best engineers and technicians in the world and provided the nation with the most affordable electricity in the world. The efficiencies at the old Eskom attracted energy-intensive industries that created jobs and filled the Treasury.

The fact that Eskom has to be broken up in an attempt to rescue it, describes the absurdity of ANC rule. They are breaking up Eskom to save the ANC actually. The ANC kills Eskom before the IMF kills the ANC. What about the debt though? What about the rest of the bankrupt SOE’s? Hey! what about the bankrupt municipalities? Are you going to break them up to?

The breakup of Eskom is only the beginning. Next to be dismantled will be SOE’s and ANC municipalities, and after that, the ANC itself will fall apart.

As we all know, The Freedom Charter is the root of the problem. It is very disheartening to see the only real alternative, the DA, borrowing from the Freedom Charter to attract votes.

The DA needs to read Sun Tzu “The Art of War”. The DA is making a strategic mistake by attacking the ANC at its strongest fortification – BEE. Instead of protecting themselves, and staying true to their own strengths(Free market principles and property rights), they send their inferior forces(policy uncertainty) to attack the bastion of the ANC(BEE). The DA demoted their most valiant officer, the previous head of economic policy. The DA strategists are making all the mistakes in the book. They use their own weakness to attack the enemy’s position of strength. Just read Sun Tzu guys, and get some direction please. You are wasting precious time.

Easy for you to say. Why don’t you address the elephant in the room that Eskom from the previous government excluded the rest of South Africa. Infact Most of our SOEs were tailored to fit the minority thus they are drowning.

Solutions:
1. Government need to think Private-Public partnerships (Thats if private sector wants to come to the table and be part of South Africa)
2. Government SOEs needs to make room for younger ,new, inovative minds on the table to bring new solutions.
3. Socialist minset must be thrown out the window
4. SMMEs need a stronger presences in The South African Education System carriculum. To assist Remove useless subjects in Primary and High School and see more buisiness people and entreprenuers interacting with school kids.
5. Education system needs an extreme makeover to be designed by Private sector and SMMEs so that a matric certificate’s value can assist a young person to start their own business if they don’t meet University requirements.
6. SOEs need to meet international standerds nothing less. More Interaction with private sector less with Government.

Sadly the DA has lost the plot. They need to bring the heavyweight politician Zille back. Only hope. Maimane is a nice guy but a lightweight and out of his league.

It won’t work. Eskom needs to cut operational costs and reduce its debt.

Nice. Another extra two SOE’s for them to loot and rape.

@ Octavian -Exactly – 3 Molefe’s and Koko’s and other cadres stealing 3 times as much. Duane above has summed it up nicely. We are stuffed.

I wonder if CR(ANC) sometimes sit and think what the cost will be just to start repairing general infrastructure……suddenly R400 billion of ESKOM debt doesn’t sound as bad.

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