By Prof. Busisiwe Mavuso
- Minister Ramokgopa’s Eskom 2.0 expectations and Mteto Nyati’s reappointment give the board a clear mandate to prepare Eskom for a competitive electricity market.
- The board must help separate transmission into an independent operator, bring down R120bn in municipal debt and support the bondholder engagement that unbundling requires.
- Progress on the pricing policy is welcome, but the delayed wholesale market needs a firm start date.
- The Reserve Bank’s rate hike shows why institutional credibility matters, and Treasury must show the same discipline in next month’s Medium-Term Budget Policy Statement.
Electricity and energy minister Kgosientsho Ramokgopa last week helpfully set out the shareholder’s expectations for what he called “Eskom 2.0”. We have long said that Eskom needs to become an effective provider in a competitive electricity market, and the minister has made that objective clear to the board. He has set out an expectation that the board develop a roadmap for Eskom over the next 10 years that adapts to the entry of new generators and traders.
The minister also announced that chairman Mteto Nyati will serve as chairman for another three years: my sincere congratulations to Mteto. It is a signal of continuity after Eskom has successfully turned around its operating performance. His appointment is welcome, and I look forward to continuing to work with Mteto and his board to support system improvements, turning around Eskom’s municipal debt predicament with R120bn owed to it as of July, and ensuring Eskom is fit for a future competitive landscape.
That is going to be one with an unbundled independent transmission system operator, and while the minister did not say it, a key requirement of the board will be to work with the shareholder to ensure the successful separation of its transmission assets into the ITSO. Earlier this month, the National Treasury, through the Development Bank of Southern Africa, called for proposals from advisers to assist it with the unbundling process that will require extensive engagement with Eskom’s bondholders. The separation of transmission assets will affect the security bondholders rely on, and it is likely they will need to provide their consent. The Eskom board must play a key and supportive role in that process.
That is critical to the wider reform effort. The BLSA Reform Tracker keeps a tab on several reform deliverables relevant to the overall electricity sector overhaul. On the positive side, last month the Department of Electricity and Energy published the draft Electricity Pricing Policy that will support a competitive electricity market. That is due to be finalised by March next year. However, less positive is the launch of the South African Wholesale Electricity Market (Sawem) that has been repeatedly delayed. The last we were updated, the market was to begin trading with external participants this month. But that deadline is now passing, and we have not been updated on when we can expect full operation. I hope the minister will give us clear guidance soon. That will be an important step toward a competitive market which may finally see prices coming under competitive pressure.
As BLSA, our focus is on following through with the full electricity reform process that was agreed through the National Electricity Crisis Committee. As Minister Ramokgopa works toward implementing agreed policy for the sector, he can rely on our support to help ensure the success of Eskom 2.0 within a reformed electricity sector.
The electricity tariff hikes we’ve faced now for over a decade are a big part of administered price inflation, and over the last year electricity prices have increased at almost twice general inflation. There are many reasons why we should ensure that the future electricity market will be competitive, and helping to keep inflation in check is one of them.
The decision last week by the Monetary Policy Committee to increase interest rates by 25 basis points to 7.25% reflects its view that inflation must be reined in. It is the second hike this year. I know for all of us in business, higher interest rates are a headwind, but I also know that the strength and independence of our monetary authorities is a huge asset that benefits all of us.
Bond yields are under pressure internationally and governments are being tested for the credibility of their monetary policy. Some long-running stalwarts of the global monetary system are proving unreliable in the current context. But our institutional strength means that investors can see South Africa as a trusted partner and ultimately a good place to invest and lend to. That credibility, plus the price stability that comes with it, is something business strongly supports.
As we head toward the Medium-Term Budget Policy Statement next month, I hope our fiscal authorities reinforce that reputation for credibility. National Treasury has done well to regain credibility on our debt trajectory, turning around the rapid deterioration we experienced in the Zuma years. Treasury must show that it has stayed on course, even with an election approaching. That, too, will add to global recognition that South Africa is a good place to do business, feeding into the growth and employment agenda we are committed to.
