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South Africa’s President Ramaphosa Encouraged to Split up Eskom

Eskom South Africa could be splitted into three separate firms under proposals from experts President Cyril Ramaphosa has hired to help revive the ailing state power company, two sources familiar with the matter told Reuters.

Reforming Eskom is vital to get Africa’s most industrialized economy firing on all cylinders. It supplies more than 90 percent of the nation’s power but is drowning in debt.

A Sustainability Task Team, picked by Ramaphosa, is due to report to the president next week, but shared its preliminary thoughts about Eskom with senior members of the ruling African National Congress (ANC) at a two-day meeting that ended on Monday.

One senior ANC source briefed by the task team said it proposed a “functional unbundling of Eskom,” which would involve separating it into three state-owned entities responsible for power generation, distribution and transmission.

A second source who met the task team recently confirmed it favoured splitting up Eskom – a strategy which analysts say should encourage greater efficiency and transparency.

Ramaphosa’s task team also told senior ANC members that Eskom, which has around 420 billion rand ($30 billion) of debt and is regularly cited as the biggest threat to the country’s public finances, needed another government bailout to survive, said the senior source, who asked not to be named.

“The ANC recognizes that there is a need for a serious turnaround strategy for Eskom. But it feels very strongly that it should not lead to privatisation or massive job losses,” the senior source said.

Eskom’s debt pile was built up due to heavy staffing, stagnating power sales and rising coal costs that it has not been able to pass on to customers, analysts say. Cost overruns on building two major power plants have also hit its finances.

Traders said leaks about the task team’s proposals, which were also reported in South Africa’s Business Day newspaper, pushed Eskom bonds higher on Thursday, with the 2023 and 2025 bonds hovering near five-month highs.

Ramaphosa has made shoring up ailing state firms like Eskom a priority since replacing Jacob Zuma as president in February, but progress has been slow because of severe fiscal constraints.

He also has to deal with divisions in the ANC over how to manage the economy and trade unions which want to avoid layoffs.

Ramaphosa rejected a proposal by Eskom’s board of directors last year for the government to take 100 billion rand of the utility’s debt, saying other options needed to be looked at.

He told the World Economic Forum in Davos this week that his government would release Eskom’s turnaround plan “in the next few weeks”.

The task team’s members have agreed not to disclose their recommendations publicly, and Ramaphosa could choose to ignore their ideas. But analysts say action is needed as creditors are reluctant to lend more to Eskom without a credible rescue plan.

Eskom spokesman Khulu Phasiwe said he could not comment on the task team’s proposals. “The presidency will make formal pronouncements on this matter,” he told Reuters.

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