BUSINESS NEWS - When African Bank collapsed, there was clear focus on separating the ‘good bank’ from the ‘bad bank’ and salvaging whatever was possible.
Restructuring the debt-ridden Eskom into generation, transmission and distribution might be done in much the same way.
President Cyril Ramaphosa made the decisive announcement during his State of the Nation address last Thursday (February 7), but little detail has yet been made available.
In its tariff application for the next three years, Eskom did distinguish between the three units, which are all different licensees in terms of legislation.
The utility has just had its regulatory asset base revalued, and although the valuation itself was questioned during public hearings about the proposed tariff increase, it does provide an indication of the possible asset allocation once Eskom is split.
Valuations
For 2019/20 the value of Eskom Generation’s asset base is set at about R1 trillion, Eskom Transmission’s at R129 billion and Eskom Distribution’s at R111 billion.
It is clear that Generation is a much bigger business from an asset point of view than the other two.
Less clear is what the allocation of Eskom’s R420 billion debt will be between the three.
It is well known that Eskom’s biggest borrowings were for building the new Ingula Pumped Storage Scheme and Medupi and Kusile power stations, and this debt should, therefore, be allocated to Generation. But Eskom also borrowed to cover its operational expenses when Nersa repeatedly failed to grant it the full revenue it applied for.
What part of that should be allocated to Transmission and Distribution?
PowerX CEO and former Nersa regulator member for electricity Thembani Bukula estimates that 80-90% of Eskom’s mountain of debt should be allocated to Generation.
Generation gap
That would mean that Generation would be left with most of the debt headache, but fewer assets and a smaller income, since some of the revenue would be stripped out and allocated to Transmission and Distribution.
As things stand, the auditors have been worried about Eskom’s ability to continue as a going concern. Generation on its own would look even worse.
It would be a very bad bank.
For Transmission and Distribution, this could, however, be good news.
Bukula says both these businesses are fairly healthy. In fact, Transmission is a truly world-class business, he says.
Granted, Distribution will inherit the consumer debt from non-paying municipalities and Soweto residents, but it might be in a better position to truly focus on collections once it is standing on its own feet.
Strategic function
Transmission is the most strategic asset within the current Eskom framework. Transporting electricity from the generator to the distributor is a strategic function that governments usually retain control of in deregulated energy markets, says Bukula. It is then operated by a neutral system operator who guarantees non-discriminatory access to the grid.
