UCT says state should buy national grid from Eskom

The state should own South Africa’s national electricity transmission grid as an independent unit, as is common in many other countries, thus separating the grid from the operations of Eskom to in order to improve the perception in an investor’s mind of how the electricity generation industry was structured in this country. This was proposed by UCT’s Graduate School of Business (UGSB).

In a submission before the parliamentary portfolio committee on energy on the Independent System and Market Operator (ISMO) Bill, Joseph Kapika, on behalf of Prof. Anton Eberhard of UGSB, presented the case for the separation of the two structures – South Africa’s national transmission grid currently owned by Eskom, and that of Eskom itself as an operational generating body.

In complete contrast to an earlier Eskom proposal, which had mitigated for a slowing down of the process of allowing independent generating bodies proposed by the ISMO in order to preserve Eskom financial credibility, Kapika said that the reverse was needed and that the process of establishing ISMO should be speeded up in view of the dismal track record of Eskom over the last few years to run the system.

Furthermore, UGSB suggested that the minister of energy and thus Department DOE through ISMO, be given full responsibility for energy and electricity planning in South Africa.

He added that in the view of UGSB, Eskom would find itself totally unable and unqualified to deal with independent power producers (IPPS) and the hybrid power market in general. Similarly they were not the right people to handle procurement for independent power structures, whatever the type and route taken for the ISMO process.

In a radical suggestion which resonated well with a number of MPs, Kapika said that the entire grid should be bought by the state from Eskom in a simple transfer.  Costs, say it was R50bn he said, should be simply transferred as cash to Eskom in return to re-enforce their balance sheet and creditworthiness for such matters as power stations.

This would ensure a level playing field for investors, Kapika said, independents therefore establishing that the grid was free of encumbrances from Eskom and its track record.

MPs asked Joseph Kapika whether USGB felt this move would bring prices down or would such a move better control licensing of IPPs and bring security of choice to the system.   Kapika replied that whatever was said and done with ISMO, the process of establishing a level playing field for investment was the most important issue and affected both subjects.

He added that the fact that Eskom controlled 90% of the power generation and controlled also the grid gave the perception of unfairness and uncompetitiveness and therefore the perception that Eskom completely controlled the entire electricity market from start to finish was a sorry state affairs for any investor to consider.

When asked why there was only a 2% IPP input at present in the form of investors to the system, mainly solar, and what was causing the blockage, Kapika replied that it had much to do with the dominance of Eskom but UGSB had also looked to other countries “to see what had happened with their IPPs and ISMOs”.

They had found that there were many issues involved but it was quite clear that it was not just high prices that attracted IPPs to make an investment. The answer had to be that in South Africa there had to be better definitions of powers and ownership between what the ISMO does and cannot do and what Eskom owns and should not own.

This was urgent, Kapika said, and thought should be given to the idea of separation of control over the segments of the industry as soon as possible.

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