Eskom unbundling faces fresh hurdles as energy reform drags on

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JEREMY MAGGS: South Africa’s flagship reform initiative, Operation Vulindlela, has flagged one of its oldest and most critical targets – the restructuring of Eskom – as still facing significant challenges, even as other reforms make headway, with energy reform still stalling in many respects, and that obviously has implications for growth and load shedding risk.

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I want to talk now to Rudi Dicks, who’s head of the Project Management Office in the Presidency. Let’s find out why progress is lagging and what it might mean for the energy sector and the economy.

Rudi, welcome to you. This is an important issue, you’ve described Eskom restructuring as, I quote, “facing significant challenges”. Why is progress still so slow after years of reform?

RUDI DICKS: Well, I think let’s look at it as a glass half full. Jeremy, I think if you look at some of the outcomes of last year, it’s quite an important part of the overall reform that moves into a competitive market and ultimately brings down prices, and that’s an important thing.

So there have been quite a number of steps.

Firstly, the (1:11 ….. ) received their market operator licence last year, they also set out the grid access rules for private investors and how those rules work. This is all important as we move towards the launch of the South African Wholesale Electricity Market (Sawem) in the next few months.

Listen/read: Operation Vulindela: Challenges and triumphs

There are a couple of things that need to happen. for example, the electricity market code has to be issued as well, and it’s a complex thing. It’s behind because we’ve got to deal with the whole complexity of how one unbundles.

There are financial implications, there are technical implications, and these things have slowed us down in terms of moving the reform at the pace that we (want).

The objective still remains that the Electricity Regulation Act has set out for the unbundling of Eskom by 2029.

We still feel we are on target, but we have to move through some of the technical and financial constraints that are there, and they’re real.

This is the important parts and that’s why we’re saying we’ve got to get expertise in, we’ve got to work with Eskom and with the ministry, and we’ve got to get this right.

JEREMY MAGGS: Let’s talk about getting the expertise in, in just a moment. But I acknowledge the complexity around it. You’ve raised technical and financial bottlenecks. Is that principally it, or are there also political considerations?

RUDI DICKS: No, it’s principally, in my view, the Cabinet has made a decision on the reform programme and on the restructuring of Eskom. The president (Cyril Ramaphosa) has made that fairly clear, and that’s what we’ve got to work through.

We’ve got to ask how we get there in the best possible way and how we deal with the financial risk.

We don’t want a fiscal risk to the sovereign because we didn’t do this properly. That risk is real; Eskom is just coming out of a debt moratorium.

How do we deal with the debt allocation to the National Transmission Company South Africa, or TSO (Transmission System Operator) in this instance? How do we deal with assets? For me, those are fundamental things.

We’ve got to create a competitive market. We’ve got to have a fair playing field.

We’ve got to ensure that private investors feel that the incumbent is part of a competitive process, and that the incumbent is not controlling who buys electrons, or who invests in assets or not. Those are important things, but it is complex.

Jeremy, just to remind you and the listeners, it was very much the same when we had to create the subsidiary, the National Transmission Company South Africa. We initially set a target way back in 2019, then in 2020 there was Covid-19, and we eventually only operationalised that in 2024, just before the elections.

The National Transmission Company South Africa became fully operational, and we had to go through a whole series of issues: lender consent, avoiding covenant breach, transferring assets, transferring property, transferring staff.

These things do take time. They’re not insurmountable. They can be resolved, and we know we can do this.

JEREMY MAGGS: Rudi, there is the argument that corruption and historical mismanagement at Eskom are perhaps deeper than technical reform can fix. How do you respond to that?

RUDI DICKS: I can’t really, because I don’t quite know what is happening in Eskom from a management point of view. I know that Eskom has played a significant role in trying to deal with that, dealing with the vestiges of state capture and fixing things.

I know Dan (Marokane) and the team, and the board, have been working really hard. It’s the same thing with monopolies, whether public or private, it’s difficult to let go and difficult to allow for competition.

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Generally, this is the problem. We’ve got to express quite clearly, as the government that owns Eskom, that we’ve got to create a competitive environment.

Ultimately, this is not just for the sake of competition, it’s about price, it’s about energy security, and it’s about ensuring that we can get investment into the energy sector.

JEREMY MAGGS: I want to circle back to bringing the expertise in. This is not the first time I’ve heard that. What is happening in that respect? Where are you headhunting, and is it successful?

RUDI DICKS: I think the key drivers would be National Treasury, through asset and liability management, and of course Eskom and the National Transmission Company South Africa.

We are laggards in reform on this matter, more than 110 countries, there are global experts and local experts at many of the financial consultancy firms that are able to do this.

There are people who can do that. We’ve got to pull on the right resources. Some of the banks here are familiar and have put in options, for example, way back in 2019. I don’t think there is a lack of technical expertise.

It’s about pulling them in and finding the best possible solution so that we avoid risk to both the utility and for us to bear that cost as the sovereign.

JEREMY MAGGS: Just a final one. I acknowledge the glass-half-full analogy that you raised, but there are delays. Does this risk more load shedding this year? It’s not unfair to say the public is desperate for some certainty in that respect. Where is your headspace on that?

RUDI DICKS: I’ve always said load shedding risk will remain as long as you don’t reform. That’s quite important.

But I’m quite certain that we will not have load shedding this year.

Eskom is producing excess electricity. The reserve margins are way up. A lot of people have found alternative energy. There’s been a doubling of rooftop PV. Many of the projects that we announced way back in 2022, 2023 and 2024 are coming online.

I certainly don’t think that, but the risk is there if we don’t reform the energy market. We’ve got to move away from a vertically integrated system to a competitive market where the South African Wholesale Electricity Market exists.

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That is what has to happen, we’ve got to have a transmission system operator that manages that market, and a very strong regulator to deal with any regulatory challenges.

I’m fairly certain that why we’re doing this is not only to avoid load shedding, but to ensure energy security and sustain growth in the energy market going forward.

JEREMY MAGGS: Rudi Dicks, thank you very much indeed, head of the Project Management Office in the Presidency. I appreciate your time. Thank you.

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