Both Ramaphosa and public enterprises minister Pravin Gordhan promised Eskom, the state electricity utility, would be “unbundled” by end-2022, which has yet to happen.
In order to be split into three separate companies Eskom needs permission from its creditors. This is still outstanding in February 2023, as is a licence for the transmission subsidiary to operate within the country.
Private partnerships should by now be in place at the key ports of Durban and Ngqura. But, echoing affairs at Eskom, state logistics company Transnet is heavily indebted and mired in controversy, and this promise has also not been fulfilled.
South African president Cyril Ramaphosa will deliver his annual state of the nation address (Sona) on 9 February 2023. Themed #LeaveNoOneBehind, the speech will reportedly outline his government’s progress so far, and its plans for the next financial year.
Ramaphosa is expected to speak about crime, corruption, energy, the economy and gender-based violence, among other subjects. With punishing electricity blackouts, water shortages and rising costs of living, the president has a lot to cover.
As in previous years, Africa Check will listen out for key claims by the president. Will he stay on the right side of the facts? Tune in to find out.
As an appetiser, we look back at two key promises made during Sona 2022 – did his government deliver?
Promise: “Eskom has established a separate transmission subsidiary and is on track to completing its own unbundling by December 2022.”
South Africa’s state electricity utility Eskom has been under sharp scrutiny in recent years. Declining generating capacity has led to increasingly frequent electricity blackouts, euphemistically referred to as load shedding.
One proposed solution to these issues is the “unbundling” of Eskom. This would involve the separation of Eskom into three separate companies – generation, transmission, and distribution – each with its own board and responsibilities.
Rampahosa was not the only public official to promise that the unbundling process would be completed by December 2022. During his 2021 budget speech, public enterprises minister Pravin Gordhan said: “The legal separation of the Transmission Company will be completed by 31 December 2021, while also working towards legal separation of the Distribution and Generation Companies with Eskom Holdings by 31 December 2022.”
But as of February 2023, this had not yet happened.
Eskom still technically bundled up
Ramaphosa was correct to say that Eskom had established a separate transmission subsidiary – the mouthful that is the National Transmission Company South Africa SOC Limited (or NTCSA).
However, in a June 2022 update to investors, Eskom said there were still various conditions to be met before the NTCSA could “be operationalised as a separate wholly owned subsidiary”.
These included “obtaining the relevant creditor consents”, Anton Eberhard, professor emeritus at the Power Futures Lab at the University of Cape Town’s Graduate School of Business, told Africa Check. Eskom still needed permission from “the people who fund Eskom through purchasing its bonds” for its transmission division to be unbundled, he said.
In June 2022, Eskom said it owed around R72.7 billion in outstanding debt to “16 debt facilities”. It sought to get permission from these creditors by the second or third quarter of 2022, which would have put it on track to meet Ramaphosa’s promise.
However, as of November 2022, Eskom listed these permissions as a condition that still needed to be met before unbundling was completed. While the separation of Eskom’s financial accounts from those of the NTCSA was “mostly done”, according to Eberhard, obtaining the permission of Eskom’s creditors was still an obstacle.
The NTCSA also needs a licence to operate, from the National Energy Regulator of South Africa (Nersa). This had not been granted by November 2022.
Until these conditions have been met, Eskom will continue to operate a transmission division, rather than handing these responsibilities over to the new company.
Apart from this, Eberhard told Africa Check that a separate NTCSA board had not been appointed and that the company was “still not operational”.
No further updates from Eskom have been provided. Africa Check contacted several Eskom spokespeople, but none provided any comment on the organisation’s progress towards unbundling.
What is ‘unbundling’ Eskom meant to do?
South Africa’s unbundling plan was first announced during Ramaphosa’s 2019 state of the nation address.
“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,” he said.
According to Anton Eberhard, professor emeritus at the Power Futures Lab at the University of Cape Town’s Graduate School of Business, this process was meant to separate “the potentially competitive components – that is, generation” from transmission and distribution. Because these required a great deal of infrastructure (such as power lines crisscrossing the entire country to transmit electricity) they were what Eberhard called “a natural monopoly”.
A natural monopoly is a long-established economic concept referring to markets in which it is cheapest and most efficient for only one company to provide a good or service.
Unbundling Eskom is therefore meant to make it easier for other electricity producers to compete with Eskom’s generation company. This should reduce electricity prices and encourage so-called “independent power producers” (or IPPs) to supplement Eskom’s declining generating capacity.
Another reason for unbundling, Eberhard said, was that “transmission is a relatively well-run business and separating it from Eskom’s technically and financially struggling generation business enables the heart of the system to be protected”.
That said, unbundling does have detractors. Research and activist organisation the Alternative Information and Development Centre based in Cape Town has argued that unbundling may lead to the privatisation of South Africa’s electricity sector. This in turn, it says, would lead to higher electricity prices, more precarious jobs for energy sector workers, and slower adoption of renewable energy technology.
Promise: “Transnet will soon ask for proposals from private partners for the Durban container terminals, within the next few months, which will enable partnerships to be in place at terminals by October of 2022.”
Speaking about the urgent need to address the decline in the functioning of the country’s ports, Ramaphosa said state-owned logistics company Transnet would focus on “improving operational efficiencies at the ports through procuring additional equipment and implementing new systems to reduce congestion”.
In line with this, he said the company would put out a request for proposals from private sector partners for the upgrade of key ports, Durban and Ngqura, and have these partnerships in place “at both terminals by October 2022”.
Transnet’s financial and operational challenges
Transnet brands itself as the “custodian of ports, rail and pipelines” in South Africa. Its shipping division, the Transnet National Port Authority (TNPA), manages the nine major import and export ports across the country.
Like Eskom, Transnet is no stranger to crisis. The company was named as a key organisation involved in wide-scale corruption, referred to in South Africa as state capture. In 2021, Transnet weathered infrastructure damage from catastrophic floods in KwaZulu-Natal province. This was while it was embroiled in a legal battle with a Chinese parts manufacturer, and dealing with widespread infrastructure theft and workers striking for better wages.
Financially, the company continues to struggle with catastrophic debt, totalling some R128 billion in 2022. Against this backdrop, Transnet approached the private sector to partner in upgrading its port and rail systems.
The Durban port, which reportedly handles 60% of the country’s imports and exports, has been ranked near the bottom of ports around the world in terms of efficiency, with other South African ports also ranking poorly. This was according to a 2021 report by the World Bank.
The partnerships involve upgrading the Durban and Ngqura ports via special purpose vehicles (SPV) between Transnet port terminals (TPT), the organisation’s shipping division, and the partner companies.
An SPV is an entity a company can set up that allows financial risk to be diverted onto investors. New revenue sources are created for the company, and investment opportunities are created for the partners.
This would fund the expansion of the two ports. According to Transnet, the SPV would create revenue from clients using the terminals, and existing client agreements would be transferred to the SPV. But, Transnet said, this would not mean selling any assets. After 25 years the terminals would revert back to the company.
Private partnerships only expected to be in place in mid-2023
In August 2022, Transnet announced it had shortlisted local and international private companies as potential partners. These companies had until the end of the year to submit proposals, with preferred partners meant to have been appointed in February 2023 – well past Ramaphosa’s promised deadline of October 2022.
As of 9 February 2023, there was still no indication of partners having been appointed.
Africa Check reached out to TPT to find out more. The process was still ongoing and was in the “advanced stages of the partner selection process”, with the request for proposals stage due to close in March 2023, they said in a statement to us.
When asked about the expected timeline, the TPT said: “The final stage of the process involves obtaining the necessary governance and regulatory approvals and financial closure.”
As it stands, the TPT has said the preferred partner is “expected to be in place by mid-2023”.
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