Debt-ridden Eskom will be broken into three separate entities, namely generation, transmission and distribution President Cyril Ramaphosa has said.
The president delivered the State of the Nation Address in Parliament on Thursday night, where he announced details on the restructure of the power utility.
Eskom has a debt burden of R420bn. Analysts have warned that if it defaults on its debt it will have implications on the sovereign credit rating, as government will have to step in to bail it out.
"Our electricity company Eskom is in crisis and the risks it poses to SA are great. It could severely damage our economic and social development ambitions. We need to take bold decisions and decisive action when it comes to Eskom.
"The consequences may be painful but it may be even more devastating if we delay taking action," Ramaphosa said.
Part of resolving the crisis involves minimising costs to consumers and taxpayers, while transitioning the company which is sustainable. While doing this, the national fiscal framework must be safeguarded. "We also need to achieve a positive impact on our sovereign credit rating and pay attention to the rights and obligations of Eskom's funders," he explained.
Eskom has developed a 9-point turnaround plan, which government supports. In line with the plan, Eskom will have to take steps to reduce costs, generate more revenue through an affordable process and take steps to reduce municipal non-payment.
"Government will support Eskom's balance sheet and the finance minister will provide further details of this in the budget speech in a few days," Ramaphosa said. "It is an imperative to embark on this path without burdening the fiscus with unmanageable debt," he added.
"To ensure the credibility of the turnaround plan and avoid a similar financial crisis in a few years’ time, Eskom will need to develop a new business model," he said.
The new business model will have to take into account the root causes of its current crisis and the international and local changes in relative costs, as well as market penetration of energy resources, especially clean technologies, the president said.
The new model will also have to take into account the role Eskom should play in clean generation technologies.
"To bring credibility to the turnaround and to position South Africa’s power sector for the future, we shall immediately embark on a process of establishing three separate entities – Generation, Transmission and Distribution – under Eskom Holdings," Ramaphosa explained.
This will isolate costs to each individual entity and will enable Eskom to raise funding easily from the market, he said.
"Of particular and immediate importance is the entity to manage an independent state-owned transmission grid combined with the systems operator and power planning, procurement and buying functions.
"It is imperative that we undertake these measures without delay to stabilise Eskom’s finances, ensure security of electricity supply, and establish the basis for long-term sustainability," Ramaphosa said.
Unions Numsa and NUM are against this as they fear it would introduce privatisation and lead to job losses, particularly in the coal sector, Hilton Trollip, a researcher with UCT on energy policy, told Fin24.
But Trollip said that job losses are inevitable as there is a drive towards cheaper power costs. Electricity from renewable independent power producers are far cheaper than that of coal-fired power stations, he explained.
"Whether Eskom unbundles or not, there are going to be job losses," he said.