ISMO think tank debates Eskom grid

Barclays credit rating report on Eskom needed…

Ompi Aphane, deputy director general, department of energy (DOE),  said that Parliament had two options if it was to debate the Independent Systems and Market Operators (ISMO) Bill and try to move matters forward in order to satisfy the needs of investors and IPP bidders.

He told parliamentarians of the portfolio committee on energy, who had instructed a working group made  up of DOE, department of public enterprises and national treasury, to investigate possibilities of separating the transmission grid as a state utility stand alone separated from Eskom,were caused by the fact that the working group had been unable to meet its reporting deadline for reasons that a financial report had to be completed first on the issues facing Eskom’s credit ratings.

Two options on way forward

Aphane said the options facing the energy committee  were whether to continue debating the ISMO Bill allowing for the probable licensing of independent power producers (IPPs) on the basis that the parliamentary process could be adapted to the findings of the working group or hold up the ISMO Bill and continue the debate only when the findings of the working group were known, which could be some time yet.

A third option, suggested by opposition MPs, was to consider upfront that Eskom was to lose the assets of the transmission grid; that a new transmission system operator (TSO) was to be established by the state; compensation made to Eskom and debate the Bill as far they could on these assumptions because the matters were so urgent.

The committee is now to consider its options and advise DOE accordingly on the outcome. Meanwhile the DOE working group will continue with its work.

Other considerations

Ompi Aphane said there were a number of areas of public concern which included the independence of the assets transferred from Eskom; the need to incorporate a “willing buyer, willing seller” concept and progress on energy renewables reports currently with NEDLAC.

He told parliamentarians that the vexed area of transferring the assets and the effect this would have on Eskom had been given to Barclays Capital to complete a report to the working group, not yet received. The legal impact was being considered by the Eskom legal team, as were the more secondary issues of human resources and technical impacts.

Issues surrounding the NERSA licence originally issued to Eskom had to be considered insofar as whether this should be re-issued having been revoked or amended. Broad outlines of what the new regulatory transmission body or TSO would look like and the basis of its power purchasing agreements with Eskom had not yet been fully investigated.

Conditions for the new independent supply operator

Most importantly, the new TSO will require “back to back” power supply agreements with customers for its purchased power agreements with Eskom.  The transfer of intellectual property and IT supply systems was also a major factor not yet included.

Major issues still surrounded the transfer of land and the situation with regard to land tenure agreements was still a matter for finalisation in general principle.   Also, there were issues surrounding the fact that rural customers were often subsidised at the expense of large customers, whilst some large customers had special rates  – all of which agreements and considerations had to be taken into the structuring of the new TSO.

Under the TSO modelling plan, Ompi Aphane estimated that the loss where key industrial customers were concerned could amount to R5.6m.    He said that “it had been agreed that national treasury would seek to engage with funders to explain the restructuring to mitigate any concerns on Eskom finances, so that debt providers were comfortable”.

NEDLAC ready on renewables and nuclear

It was reported that NEDLAC had completed its work on the energy renewables and nuclear energy reports and these would be submitted to cabinet shortly.

The final report of the working group, Aphane said, would give its view on the finances of Eskom itself including the impact on Eskom’s existing debt instruments;  the matter of Eskom’s credit rating;  Eskom’s ability to raise finance in the future and the state’s ability to fund Eskom going forward.

Opposition MPs stated that any loss of benefits by Eskom would surely be countered by gains in the formation of a new TSO and they felt that the deep concerns of Eskom regarding credit rating agency opinions were somewhat over-rated in it’s chase to secure a healthy balance sheet.

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