Ramaphosa says govt will let municipalities buy power from independent producers


President Cyril Ramaphosa has said that government will start the procurement of emergency power from projects that can deliver electricity into the grid within three to 12 months from approval, and would let municipalities procure their own power from independent power producers.

The president made the announcement in his State of the Nation Address on Thursday evening. The address started about one and a half hours late.

"We will ... put in place measures to enable municipalities in good financial standing to procure their own power from independent power producers," he said, to applause. 

The president said that, over the next few months, government would implement measures to "fundamentally change the trajectory of energy generation in our country". Load shedding would remain a possibility for the immediate future, he added.  

While SA's energy regulator would continue to register small-scale generation for own use of under 1 MW without the need for licences, the president also promised the regulator would ensure that all applications by commercial and industrial users to produce electricity for own use above 1MW are processed within 120 days.

"It should be noted that there is now no limit to installed capacity above 1MW," he said. 

Eskom has about R450bn of debt and does not earn enough from electricity sales at current prices and volumes to pay off the interest on this debt without government aid.

Mining industry employers organisation, the Minerals Council, said it was encouraged by Ramaphosa's commitment to "rapidly and significantly increase generation capacity outside of Eskom".

The council's members include some of the largest power users in the country.  "The sporadic availability of power and instability of the national grid is seen as one of the greatest threats to the South African economy," it said. 

Eskom funding

Ahead of the State of the Nation Address, a number of meetings took place between labour, government and business to discuss a proposal by trade union federation Cosatu to slash the utility's debt by about R250bn. The talks were held under the the auspices of the National Economic Development and Labour Council.

The Cosatu proposal would create a special purpose finance vehicle using funds sourced from state-run asset manager the Public Investment Corporation and other state institutions. The federation previously said that government, unions and business had "in essence" accepted that its proposal could serve as a basis for the debt restructuring plans.

But while some held out that Ramaphosa would be able to announce the broad outline of the deal at his State of the Nation Address, Cosatu walked back expectations this week, telling Bloomberg on Wednesday it wouldn't be able to reach a pact with business by the time Ramaphosa addresses the nation. 

On Thursday Ramaphosa did not give specifics about what he termed the "social compact", but said that trade unions, business, community and government were "committed to mobilising funding to address Eskom’s financial crisis in a financially sustainable manner".

"They would like to do this in a manner that does not put workers pensions at risk and that does not compromise the integrity of the financial system," he said. 

He said the social partners were seeking an "efficient, productive and fit-for-purpose Eskom that generates electricity at affordable prices for communities and industries"."This requires both a drastic reduction in costs – including a review of irregular contracts – and measures to mobilise resources that will reduce Eskom’s debt and inject fresh capital where needed".

In the wake of the president's address, trade union Solidarity said that while it welcomed steps towards the decentralisation of power generation there was "no plan to address Eskom’s huge debt problem".

"It appears that besides pension money government has no plan to deal with the huge Eskom debt crisis," said the union. 

The Public Investment Corporation, meanwhile, which under the Cosatu proposal would be form part of special purpose finance vehicle that will take on over half of the utility's debt, said on Thursday ahead of Ramaphosa's address that it had not yet been consulted on the plan. 

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