The request for proposals (RFP) issued for the appointment of a transaction adviser to support the establishment of a fully independent Transmission System Operator (TSO) confirms that the adviser will not re-evaluate the policy decision to establish the TSO as a State-owned entity outside of Eskom and with ownership and control of the transmission network.

This policy decision was reaffirmed as “feasible and in line with international best practice” in a Phase I report by the Eskom Restructuring Task Team (ERTT), and was subsequently endorsed by President Cyril Ramaphosa at the end of July.

In February, Ramaphosa set up the ERTT to develop a detailed proposal and implementation plan for the creation of such an entity, contradicting an earlier Eskom plan for the TSO to be set up without the transmission assets and for those to continue to be held by an Eskom Holdings subsidiary.

The RFP, which is now available, states that the assignment is confined to advising on an optimal transaction structure and assisting with executing the transaction in accordance with the approved roadmap.

This, too, is in line with Phase II, during which the ERTT is expected to deliver a detailed implementation plan with timeframes for completing the restructuring “in the manner proposed”.

The RFP, which includes various time-defined milestones for the adviser, states that the establishment of the TSO should be completed by December 31, 2027.

Issued for the National Treasury by the Infrastructure Finance and Implementation Support Agency, which is hosted by the Development Bank of Southern Africa, the RFP has a submission deadline of September 28, with a compulsory briefing session for prospective bidders to be held on September 14.

Should a bidder meet the various qualifying criteria outlined in the document, including proof of at least two assignments with a minimum transaction value or asset value of R50-billion where the company successfully led or advised on corporate restructuring, the submission will be evaluated using an 80/20 points system, with 80 points related to price and 20 points for broad-based black economic empowerment.

LENDER ENGAGEMENT

The appointed adviser is expected to provide integrated financial, legal and tax advice to the National Treasury on the transaction, as well as on a lender-engagement strategy.

“The proposed restructuring is likely to trigger consent requirements across a substantial portion of Eskom’s debt portfolio, so a strategy for engaging with and securing the required consents from lenders must also be developed,” the document reads.

The project scope, thus, specifically requires the transaction adviser to advise on the development of a strategy for and facilitate engagements with rating agencies and lenders to secure the “consents, waivers, amendments or approvals” required to close the transaction.

The adviser is also expected to facilitate engagements with potential lenders to secure cost-effective financing for Eskom, the TSO and the fiscus to finance the transaction and future capital investment.

It is also expected to confirm the opening capital structure of each entity, as well as the allocation of existing debt and government guarantees, while advising on the issues to be addressed in the execution of the transaction, including the transfer of staff, assets, and contracts.

Besides a step-by-step implementation plan for the legal separation of the National Transmission Company South Africa from Eskom, a dispute-resolution mechanism between stakeholders during the course of the project should also be recommended.

The document reaffirms that this should be performed while meeting several core principles, from maintaining energy security and ensuring that Eskom is no worse off than its current financial position following the restructuring, to positioning the TSO to be able to raise the funding required for investment in infrastructure in line with the Transmission Development Plan.

By excluding from its scope any revisiting of government policy in relation to the TSO, the RFP appears to draw a line under a period of uncertainty about how the unbundling process would unfold, particularly given recent statements by Eskom chairperson Mteto Nyati that questioned the immediate transfer of the utility’s grid assets to the TSO.

The remarks drew strong criticism from Business Leadership South Africa (BLSA) and even a rebuke from the Presidency.

Nyati has since met with both Ramaphosa and BLSA, after which Nyati endorsed government’s commitment to establish a fully independent TSO with ownership and control of the transmission assets as “the right policy”, while still raising execution risks.

In her weekly newsletter, BLSA CEO Busisiwe Mavuso has welcomed the release of the RFP and its “ambitious” timetable, indicating that the transaction should be concluded in the next 18 months.

“It will be highly positive if this timetable can be achieved,” Mavuso writes.