National Treasury director-general Dr Duncan Pieterse has described moves under way to transfer ownership and control of Eskom’s grid assets to an independent Transmission System Operator (TSO) in the coming 18 months as a prerequisite for the investment and competition needed for affordable electricity.

Pieterse co-chairs the Eskom Restructuring Task Team (ERTT) set up by President Cyril Ramaphosa in February to develop a detailed proposal and implementation plan to deliver an independent State-owned TSO.

A Phase 1 report by the ERTT, which has been endorsed by Ramaphosa, has set out a high-level approach to establishing an independent TSO in a manner that leaves Eskom no worse off while ensuring that the TSO is financially sustainable and able to invest in the transmission network.

“Phase 2 of our work is currently under way. This includes the development of a detailed implementation plan, legal due diligence, and a lender engagement strategy, in addition to implementing no-regret actions to prepare for the restructuring. Our detailed implementation plan is due to be submitted to the President later this year,” Pieterse told delegates to an RMB Morgan Stanley conference this week.

He said the unbundling of Eskom was in line with the policy set out in the 1998 White Paper on Electricity and international developments, with more than 100 countries having restructured their vertically integrated utilities, including emerging markets such as Brazil, China, India and Türkiye.

Pieterse highlighted the example of India, where the transmission assets of six of the country’s power generating entities were amalgamated in 1989 to create the Power Grid Corporation of India Limited. The grid had since been massively expanded and there had been downward pressure on wholesale electricity tariffs.

He said the appetite to invest in new generation continued to grow locally, with about 32 GW of mostly private sector renewable energy projects in the grid connection process.

“We must ensure that these new generators have fair and equal access to the grid, and that, once they are on the grid, the system operator dispatches their power on a level playing field with Eskom power.”

The restructuring of Eskom would remove the inherent conflict of interest in vertically integrated monopolies such as Eskom, which was why the unbundling of the TSO was included as a condition of the R234-billion Eskom Debt Relief package in 2023.

NEXT STEP: SECURE NTCSA’S INDEPENDENCE

“It was therefore no accident when the National Transmission Company of South Africa (NTCSA) was established two years ago as a subsidiary of Eskom. The next step is to secure its independence by transferring ownership and control of the assets to an independent TSO.”

Such an entity, with its own balance sheet and transparent cashflows, would also be better placed to raise funding in the market at competitive rates and to partner with the private sector to deliver new transmission infrastructure, Pieterse added.

“We aim to implement the unbundling over the next 18 months and will in the interim put governance and regulatory measures in place to strengthen the NTSCA’s independence from Eskom.”

While acknowledging that reform “is always uncomfortable”, he stressed there was now broad agreement on the need for an independent TSO, highlighting that the National Treasury had worked closely with the management teams of Eskom and NTCSA in compiling the ERTT’s Phase 1 report.

The concerns centred primarily on the future of Eskom and the impact of this transaction on the fiscal framework.

“It is therefore important to emphasise that this transaction will be structured so that Eskom is not worse off, the transmission entity will be financially sustainable, and our fiscal strategy will remain on track.”

He noted that the South African government had spent R464-billion of taxpayers’ money to support Eskom over the past decade.

“We therefore have no interest in doing anything to compromise the future viability of Eskom. Government will ensure that the unbundling process is carefully sequenced and managed to address all risks.”

In the week prior to Pieterse’s speech, the Infrastructure Finance and Implementation Support Agency, which is hosted by the Development Bank of Southern Africa, issued a request for proposals (RFP) for the appointment of a transaction adviser to support the establishment of the TSO.

The RFP has a submission deadline of September 30, with a compulsory briefing session for prospective bidders to be held on September 18.