By Prof. Busisiwe Mavuso
- The delay to the independent transmission projects programme is an unfortunate slippage, but it is better than rushing to market with a procurement that fails or comes in overpriced.
- National Treasury’s new credit guarantee vehicle is real institutional progress that will give investors the confidence to commit billions to the grid.
- Unbundling Eskom’s transmission assets into an independent operator with its own balance sheet is the durable fix, and it must be concluded swiftly.
- Government should publish a full timetable through to financial close, alongside a timetable for the launch of the SAWEM, to build confidence.
The independent transmission project (ITP) programme is set to mobilise substantial private investment into building out the electrical grid infrastructure. It is critical to our economic growth targets as it will unlock greater electricity generation and access. But an announcement earlier this month from the Department of Electricity and Energy (DEE) and National Treasury has delayed the request for proposals from the third quarter of this year to the second quarter of next year. That is an unfortunate slippage of the timetable.
The good news is that there has been real institutional capacity building to support the process. A delay is better than rushing to market with a call for proposals that can’t then be properly managed or lead to excessive pricing because bidders can’t assess the risks. A failed procurement would lead to more delays and be more expensive than a pause while government gets it right.
One important intervention is the creation of a credit guarantee vehicle that will protect investors from credit risks stemming from the National Transmission Company South Africa (NTCSA). That vehicle is being created by National Treasury, the World Bank, FSD Africa and DBSA. The NTCSA is in the process of being unbundled from Eskom with the transmission assets. Once done, it will form the Independent Transmission System and Market Operator (ITSMO), which will be the counterparty to investors building out grid infrastructure. It will be the first time that private investors are investing in transmission lines in South Africa. Given the ITSMO is still in the process of being established, bidders would face a counterparty that does not yet have its own balance sheet or credit history. So the guarantee vehicle provides an important risk management function that will ensure bidders have the confidence to make long-term multi-billion rand investments. The guarantee vehicle was incorporated in August and is now being geared up to be able to support the programme.
But the timelines are a concern. On the current trajectory, the new grid infrastructure is unlikely to be in operation by the end of the decade. While the announcement targets the RFP in the second quarter, it made no commitment to the timings thereafter, which will need to include bid adjudication and negotiation with the winners before getting to financial close when the construction can actually begin. A clear timetable for that whole process now would help manage expectations and enable planning. The grid is already the binding constraint for new electricity generation, as we cannot get electricity from where it is cheap to generate to where it needs to be consumed.
Eskom and BLSA are aligned on concluding the establishment of the ITSMO with Eskom’s transmission assets unbundled to it. Swiftly finalising that process will help build confidence in the whole grid investment outlook, as investors will then know exactly what they are dealing with. The ITSMO will be the buyer of grid capacity from investors, so its own creditworthiness will be important in the risk outlook. The guarantee vehicle will help, but having a robust institutional buyer underpinning it will provide additional confidence. The first phase of grid investment calls for only 1,164kms of new lines even though the NTCSA’s plan is to have 14,500kms by 2034. So this procurement needs to be swiftly followed by others.
I welcome the DEE and National Treasury’s commitment to the process and the institutional development that has happened. It would build confidence if we had a complete timetable through to financial close and for associated reforms like the SA Wholesale Electricity Market, which has also been subject to deadline slippage and is key to facilitating competition in the electricity sector.
Business will play a fundamental role. Banks and fund managers will be critical investors in grid infrastructure, and we are supporting Eskom and other key role players to conclude the restructuring process. Of course, none of this is for its own sake – electricity reliability and competitive prices are growth enablers – they allow businesses to invest and expand, ultimately creating the jobs our country desperately needs. Sticking to reform timetables will help us get to that destination sooner.
My congratulations to Navi Pillay on winning the Nobel Peace Prize last week. She becomes South Africa’s fifth Peace Prize winner and an example to the world of professionalism and a commitment to justice and human rights. The prize is a reminder of the important role South Africans have played in international institutions and in developing human rights jurisprudence. I wish her all the best.
