South African electricity public utility firm Eskom may miss the government set target to split into three separate units by 2022 due to challenges outside its control,the company’s chief executive Andre de Ruyter has said.
The chief executive officer thinks that the issue of unbundling the firm is easier said than done.
“This is an enormously complex exercise which creates a number of very significant risks”, Eskom Group CEO Andre de Ruyter told energy analyst Chris Yelland in an exclusive interview published on EE Business Intelligence.
De Ruyter said that one of the challenges posed by the move is the need to consider the approximately R60bn assessed tax loss that Eskom has built up over the past few years, an asset that could be lost if the unbundling proceeds without understanding the tax issues.
“If you start to unbundle the company, you create separate asset bases, and lenders would become very concerned about their security.” referring to Eskom’s R450bn debt burden.
However, De Ruyter says that the first phase of the division is underway and progressing well. The company is going to be divided into three subsidiaries – transmission, generation, and distribution.
Although unbundling may seem like a necessary move to boost company operations, it should be noted that it is usually conducted as a last resort.
For example, back when gambling was still legal in the country, most online VIP casinos in South Africa would voluntarily undergo these processes in order to be labeled trustworthy by the government. These tactics were later adopted by other brands as well.
De Ruyter is non committal as to when the unbundling process would conclude. “we are managing this very closely,” he said.
It all started in October last years when a Special Paper on Eskom was released by Public Enterprises Minister Pravin Gordhant.
The paper, now redubbed “Roadmap for Eskom, details plans to separate the transmission component of Eskom into a subsidiary of Eskom Holdings by March next year (2020), while the generation component will be divided into three clusters to create intra-company competition.
Eskom is also fighting corruption allegation with two of its former managers arraigned in court in 2019 for corruption and fraud charges. Prosecutors said at the time that an investigation had revealed “gross manipulation” of contracts related to the construction of two new large power stations.