President Cyril Ramaphosa has endorsed the Phase I report of the Eskom Restructuring Task Team (ERTT), setting the stage to restructure South Africa’s electricity sector to create competition, unlock investment, reduce electricity prices and ensure energy security for sustained economic growth and job creation.

The report, which was presented to the President on July 30, sets out recommendations for establishing an independent Transmission System Operator (TSO) separate from Eskom. 

It included an analysis showing that the restructuring is feasible, in line with international best practice and can be done in a manner that does not compromise Eskom’s financial sustainability. It also highlighted that the growth in municipal arrear debt to Eskom would need to be addressed because of the threat to Eskom and the broader electricity sector and it identified several actions that can be taken immediately to enable the restructuring. 

“This report shows how government can ensure that the architecture of the electricity sector can change as the sector continues to evolve, creating the foundation for South Africa's growth. It is welcomed that all the key stakeholders are aligned on this objective," Ramaphosa notes in a statement.

The Presidency adds that the Phase 1 report reflects a clear and unified vision across government to establish an independent TSO – a key enabler of a successful competitive wholesale electricity market that is expected to deliver reliable and cost-effective electricity. This reform will support higher rates of economic growth, investment and job creation. 

In Phase II, which starts immediately and will proceed over the next three months, the detailed transaction structure and implementation plan will be developed, the Presidency informs.

Meanwhile, in the Phase I report, the ERTT has proposed that a working group develop a consolidated action plan, encompassing all initiatives aimed at arresting the growth in municipal arrears and identifying those to be scaled up and accelerated. Such initiatives include stronger enforcement of credit controls, rolling out smart meters and distribution agency agreements, and stricter licence enforcement, as well as the continued implementation of the Municipal Debt Relief Programme, Metro Trading Services Reform and the Electricity Distribution Industry Reform Roadmap. 

Actions identified by the ERTT for immediate implementation include interim measures to strengthen the existing National Transmission Company South Africa’s (NTCSA’s) independence, as well as the internal ring-fencing of the NTCSA’s different licensed activities.

In addition, first steps will be taken toward unbundling tariffs, clarifying the payment waterfall within the restructured market environment and developing mechanisms to insulate market participants from nonpayment.

The proposals to strengthen the NTCSA’s independence during the interim period until the TSO is established include various requirements to ensure good governance and strengthened regulatory oversight. Directors serving on the Eskom board will not be appointed to the board of the NTCSA, or serve on the boards of both the NTCSA and Eskom. The appointment of the CEO and senior management of NTCSA will be the sole responsibility of the NTCSA board. 

There will be clear delegation of authority from Eskom to the NTCSA of all decision-making related to the market, and financial and operational ring-fencing of NTCSA from Eskom. 

Decisions on access to the transmission network are to be relocated to the NTCSA and eventually to the TSO. This includes cases in which connections are at the distribution level but have implications for the market or transmission network.

Eskom Distribution will retain a Grid Access Unit to manage connections to its distribution network where projects connect at this level.