Eskom’s National Transmission Company starts trading today

Eskom’s National Transmission Company starts trading today

THE National Transmission Company of South Africa (NTCSA) gets off to a quiet start today as a principal dealer in electricity as questions linger over the utility’s balance sheet, debt burden, power in lead land acquisitions, and whether it will convince investors to buy into investment needed to unlock more renewables, including 1 400km a year of new power lines for the next decade.

The division, led in an acting capacity by Eskom’s head of transmission Segomoco Scheepers, is expected to operate according to the market code, ensuring fair access to the grid for all those qualified to generate electricity in an open-access market.

The new market system is envisaged as an improvement over the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), in which investors must wait for specific bid windows to open, limiting the number of preferred bidders that can connect to the grid and sell power.

The system, allowing for the continuous participation of new entrants, is expected to boost electricity generation capacity, foster healthy competition and, ideally, result in more affordable electricity prices.

Part of the measures to empower the NTCSA include an announcement on Friday by the National Treasury of advanced plans to pilot a model that will enable the private sector to participate directly in the development and operation of transmission grid infrastructure, drawing lessons from the country’s experience in procuring generation capacity from independent power producers (IPPs).

The Treasury’s deputy director-general, Mmakgoshi Lekhethe, confirmed that Eskom had been given permission to raise funding for grid investment despite still being bound by the terms of a debt-relief package that constrains its ability to raise new debt more generally.

The NTCSA’s 13-member board of directors was appointed in January with Priscillah Mabelane, an executive vice-president at Sasol, as chairperson.

Dr Brian Armstrong, a professor at the Wits Business School and former Group CEO of Telkom, is the NTCSA’s lead independent director.

The NTCSA’s board also has energy economist Lungile Mashele; chartered accountant and former Denel chief financial officer, Carmen le Grange; and a notable larger composition of ICT professionals, including Busisiwe Vilakazi, the former senior researcher at the CSIR; Sentech chairperson Sedzani Mudau, Auke Lont, and Anu Sing.

It is expected to peel off the slightly more than 3 000 transmission staff out of the more than 40 000 employees, later to be split with other divisions.

The NTCSA will be responsible for payment from creditors and employee salaries, and recover money from customers, including the more than R54 billion municipal debt, settle the inter-company loan obligations as agreed, as well as liaise with Eskom and the Treasury regarding liquidity requirements.

Until the completion of Eskom’s full turnaround plan, the NTCSA will not be able to incur new debt facilities on its own balance sheet.

The DA’s representative on energy, Kevin Mileham, said as much as the launch of the NTCSA was welcome as the first positive commitment to opening up market access, it would be preferable that the NTCSA quickly fulfilled the target of being an Independent System Operator (ISO) in the next five years.

“Eskom is currently both a player and a referee at present. We would like to see it transition as quickly as possible and we have to be careful that it does not become a monopoly but gives room for private sector participation,” Mileham said.

Energy analyst Chris Yelland said it remained to be seen how the market would read the NTCSA’s toxic debt inheritance from Eskom, with expectations that the division would have to shoulder part of the R450bn debt burden, though the bulk of the debt responsibility would be borne by the generation division.

“It is a very toxic situation with the Eskom debt which is at over R450bn now. Whatever revenue is made is not even half of that which is required for its debt cover ratio. The debt is too high, it is not sustainable,” Yelland said.

“The NTCSA cannot raise the money it needs to develop the infrastructure because of this debt.”

Yelland also said transmission was a good business that did not require as much human capital, making a good case for the division.

“It would have been a good thing if, at the launch, whenever they have it, they present the starting off balance sheet of the NTCSA so that it is clear where it is starting from. When it presents future annual reports, it should be clear how it has been working,” he said, alluding to the five-year period in which NTCSA should claim its own independence from Eskom.

The Congress of South African Trade Unions (Cosatu) has maintained that caution is needed with the unbundling of Eskom.

In his report of the first 100 days in office earlier this month, Eskom Group CEO Dan Marokane said the new entity was being set up to operate as a fully independent subsidiary even though it would continue to be owned by Eskom Holdings and be located on the Megawatt Park campus.

“I think what becomes important is the drive that the independent NTCSA board will have, working with the management team, to ensure that it provides equal access to all participants in the sector,” he said.

Marokane also stressed the priority being given to investing in new grid capacity in line with a Transmission Development Plan that envisaged the addition of 14 000km of new power lines by 2032, as well as the installation of 122 600 MVA of new transformation capacity.

BUSINESS REPORT