South Africa mulls partial privatisation of ailing utility Eskom

By bne IntelliNews May 13, 2015

South Africa will look at options to partially privatise its heavily indebted national power utility Eskom, which struggles to meet electricity demand and finance its crucial new build programme.

The government has revived a discarded policy of the late 1990s, which stipulated that the private sector could take an up to 30% stake in Eskom’s power generating assets, Treasury director-general Lungisa Fuzile told the Business Day in an interview. Hence, the cabinet has asked the Treasury to research various options and come up with proposals, with preliminary ideas including the sale of power stations or an initial public offering (IPO) of Eskom shares.

Eskom, which accounts for 95% of the country’s total electricity output, is seriously troubled by problematic plant performance and unplanned outages, causing power supply shortages that are a key hindrance to a stronger growth of Africa’s most developed economy. The company has identified a ZAR225bn ($18.7bn) shortfall in funding over five years through March 2018 for its new build programme, which includes the construction of three large coal-fired power plants – Medupi, Kusile and Ingula.

The state has agreed to provide an additional support package to Eskom, but it might not be enough to cover the company’s financing needs. The first ZAR10bn tranche is set to be transferred in June and another ZAR10bn should be injected by the end of the year. The government is still considering whether to sell stakes in other companies, and exactly which, to raise more funds for the utility.

On its part, Eskom has made an urgent application to the national energy regulator (Nersa) to increase the electricity tariff by 25.3% for the 2015/2016 financial year. This includes the 12.69% price increase that was approved by Nersa in March. The regulator's decision is expected on June 29.

If the 25.3% hike is approved, Eskom would earn more than ZAR53bn, according to a statement by Nersa. A total of ZAR32.9bn will be used for the purchase of diesel for Open-Cycle Gas Turbines (OCGT) to supplement coal fired plants, ZAR19.9bn will go for the purchase of extra electricity from the independent power producers and an unspecified amount will cover the impact of the increase in environmental levy.

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