Abstracts

5 suffered time and cost overruns, construction defects, and labor problems. According to the South African Parliament (2019), the total cost of Medupi and Kusile had tripled by March 2019, whereas only half of the combined generation units at Medupi and Kusile had begun commercial service. While government policy failure, state capture, and mismanagement, all made easier by Eskom’s vertically integrated nature, were the face of its recent decline, there is another important factor: coal. The domination of coal in generation (see Table 1) makes the South African electricity sector extremely inflexible. The country’s coal deposits are in the Transvaal region in the northeast, where almost all the electricity is generated. Eskom incurs high transmission costs as it transmits power from the northeastern provinces to the rest of the country. Coal-powered capacity expansion projects are also capital and time intensive; they often are marked by cost and time overruns like those experienced at Medupi and Kusile. Furthermore, it is going to be extremely difficult for South Africa to finance new coal projects going forward as global investment firms increasingly buckle under pressure to divest from coal-fired power stations. All this is in addition to the reality that only one global investment rating firm yet remains to downgrade South African government bonds to junk status 3 because of the debt-riddled nature of the country’s economy (Toyana, 2019). Restructuring Eskom This configuration is no longer suitable to meet the country’s energy needs and has made the business susceptible to the kind of problems it has recently experienced… (DPE, 2019, p. ii). What Has Been Done So Far In October 2019, the DPE released a plan that dismisses Eskom’s configuration as 3 Junk bonds carry a much higher risk than most bonds issued by governments or corporations. If South African bonds become universally rated as junk, the country will pay higher rates to borrow, lose its place on the World Government Bond Index, and lose out on billions in potential investments (Toyana, 2019). unsuitable for the twenty-first century and details the government’s plans to restructure it: Roadmap for Eskom in a Reformed Electricity Supply Industry. The Roadmap lists unbundling Eskom, improving transparency in the utility’s governance, resolving the debt crisis, and ensuring sustainable livelihoods for workers and communities as key steps toward change. The document has been received as a positivefirst step in the transformationof South Africa’s electricity sector, but government can do more to minimize Eskom’s reliance on financial support from government, facilitate private participation to address the lack of competition in generation, and encourage the use of renewable sources of electricity. The Roadmap generally recognizes Eskom’s challenges as broadly falling under structural, financial, and operational categories. It outlines the structural separation of the generation, transmission, and distribution functions of Eskom into separately managed subsidiaries under Eskom Holdings. The government argues that unbundling Eskom will create transparency to protect against corruption, enhance management focus, and improve efficiency. The Roadmap also addresses Eskom’s financial challenge and mostly assumes continued government financial support to ensure Eskom continues to meet its debt obligations. This support includes a total of R100B ($7B) over the next three years, on top of an existing R350B ($25B) government guarantee (National Treasury, 2019, pp. 6, 62). This financial support is conditional on the implementation of various operational measures that include stringent performance reporting regimens and cost containment in coal procurement and compensation. The most important commitment that the government makes in the Roadmap recognizes the potential social impact of restructuring Eskom. The government pledges to establish a fund to retrain and re-skill workers who may be displaced by the eventual decommissioning of coal-fired power stations. Although internal progress has been made towards unbundling Eskom, no significant portion of the Roadmap has been completely executed as of this writing.