National Treasury finalising sustainable solution to Eskom debt

Monday, July 25, 2022

The National Treasury is working to finalise a sustainable solution to Eskom’s substantial R400 billion debt, says President Cyril Ramaphosa.

Addressing the nation on the energy crisis on Monday, the President said the debt continued to be a huge burden on Eskom’s ability to address its many challenges. The country has over the past three weeks experienced rolling power cuts.

He said the Minister of Finance would in his Medium-Term Budget Policy Statement in October outline how government would deal with this matter in an effective manner.

Government, he said, would use climate funding provided through the Just Energy Transition Partnership to invest in the grid and repurpose power stations that have reached the end of their lives.

Eskom will be constructing its first solar and battery storage projects at Komati, Majuba, Lethabo and several other power stations. “These will result in over 500 MW being added to the system,” he said.

In an effort to combat rife crime and corruption confronting the power utility, the South African Police Service (SAPS) has set up a special law enforcement team to help Eskom in confronting crime and corruption.

“A number people have been arrested in recent days and several others are already being prosecuted for corruption and fraud involving Eskom contracts.”

With improvements in the regulatory environment and mobilisation of society, the President said Eskom would be well positioned to carry out its maintenance and investment programmes.

There can be no longer any excuses, he said. “These steps will allow us to limit load shedding to lower stages and reduce the risk of such severe load shedding in future.”

This includes taking a pragmatic approach to the local content requirements for these projects and prioritising the need to build new capacity as quickly as possible.

The Department of Trade, Industry and Competition together with the Independent Power Producers Office will provide further details in this regard within the coming days, said the President.

Government is already working with industry to accelerate the most advanced projects, several of which are already entering construction.

“These changes have fundamentally changed the generation landscape. Following the success of this reform and the enthusiasm shown by the private sector, we will remove the licensing threshold for embedded generation completely,” he said.

This will enable private investment in electricity generation to rise to higher levels.

“While they will not require licences, all new generation projects will still have to register with the regulator and comply with the technical requirements for grid connection and our environmental legislation.

“One of our greatest challenges in adding capacity to the grid is the time that it takes for any energy project to receive the necessary approvals and commence construction. The process, from design to commercial operation, has tended to take more than three years due to lengthy regulatory processes and red tape,” he said.

While existing legislation may be sufficient in ordinary times, the current crisis “requires that we act decisively and more speedily”.

He said government would in this regard be tabling special legislation in Parliament on an expedited basis to address the legal and regulatory obstacles to new generation capacity for a limited period.

On Monday the President raised this in a meeting he held with leaders of political parties represented in the National Assembly. During this engagement, there was broad agreement that the process should be hastened once the special legislation was tabled in Parliament.

“We will in the meantime waive or streamline certain regulatory requirements where it is possible to do so within existing legislation. 

“This includes reducing the regulatory requirements for solar projects in areas of low and medium environmental sensitivity. It also means Eskom can expand power lines and substations without needing to get environmental authorisation in areas of low and medium sensitivity and within the strategic electricity corridors.”

Beyond this, he said government was also establishing a single point of entry for all energy project applications, to ensure coordination of approval processes across government.

The President said he had instructed departments and entities to review all existing time frames and to ensure all applications are processed on an urgent basis.

“These measures are preferable to declaring a state of disaster or even emergency, as some have suggested. These interventions will allow us do what is necessary to accelerate new generation capacity while protecting the rights of all South Africans and upholding the rule of law.”

He said the country did not need a state of emergency or national disaster “to implement common sense regulations that should help in resolving our energy crisis”.

“We intend to enable businesses and households to invest in rooftop solar. South Africa has great abundance of sun which we should use to generate electricity. There is significant potential for households and businesses to install rooftop solar and connect this power to the grid,” he said.

To incentivise greater uptake of rooftop solar, Eskom will develop rules and a pricing structure – known as a feed-in tariff – for all commercial and residential installations on its network.

This means that those who can and have installed solar panels in their homes or businesses will be able to sell surplus power they don’t need to Eskom.

Eskom restructuring

The restructuring of the power utility into three entities (generation, transmission and distribution) was proceeding accordingly.

With an independent transmission company already established, he said Eskom was on track to separate its generation and distribution businesses by the end of 2022.

Boards for the transmission and generation entities will soon be appointed.

“Broader reforms to establish a competitive electricity market will be expedited through the finalisation of the Electricity Regulation Amendment Bill to enable private sector investment. These changes will radically transform the structure of the electricity sector for future generations.”

The reforms, the President said, would “diversify” the country’s energy sources and improve the security of supply.

“These changes will allow more generators, both private and state-owned, to compete on an equal footing. The grid will remain state-owned.”

Eskom will continue to be “the mainstay of our country’s energy industry as we improve its efficiency, financial sustainability and performance.”

National Energy Crisis Committee

To ensure the measures announced during Monday’s address are implemented in a coordinated manner, the President has established a National Energy Crisis Committee, which will be chaired by the Director-General in the Presidency.

“[It] brings together all the departments and entities involved in the provision of electricity,” he said.

The Committee will draw on the best available expertise from business, labour, professional engineering entities and community-based organisations. 

The relevant Ministers will report to the President directly on a regular basis to ensure that there was swift implementation.

The measures, he said, were not just to address the country’s immediate constraints.

“Our ultimate objective is to achieve long-term energy security, so that we never have to experience an electricity shortage again.

“We aim to do this by stabilising Eskom and improving plant performance, establishing a competitive electricity market, opening the way for private investment in new generation capacity and increasing our investment in renewables. These measures are necessary to revive economic growth and create jobs.

“In the process, we will position our country as a leading player in the transition to new and sustainable energy sources, turning this crisis into an opportunity for future growth and resilience,” he said.

The utility was now recruiting skilled personnel, including former senior Eskom plant managers and engineers from the private sector.

These skilled personnel will support various personnel and help to ensure that world-class operating and maintenance procedures are reinstated. 

WATCH | Briefing on stabilising long-term energy supply 

Click here for more on the Energy Action Plan