DPE update on the unbundling of Eskom; with Minister

Meeting report

Progress report on unbundling of Eskom: Minister’s comments

Mr Pravin Gordhan, Minister of Public Enterprises, explained the timelines of government's roadmap for Eskom's supply from the year 2020. The roadmap had commenced with the divisionalisation and relinking of Eskom, establishing divisional boards, and appointing the various heads. The functional separation of divisions was completed in March 2021, where transmission, generation and distribution were prioritised.

The legal separation of the Eskom transmission division into a subsidiary was at an advanced stage. However, on 27 July, the National Energy Regulator of South Africa (NERSA) approved a licence to operate only the transmission system (excluding the trading and the import/export applications) within the national boundaries of South Africa. NERSA stated that the trading and import/export applications would require further consideration before being submitted to NERSA's electricity subcommittee.

Minister Gordhan said that Eskom planned to commence trading by November, but this depended on the approval of the trading licence from NERSA and whether Eskom would obtain consent from their lenders. The appointment of the National Transmission Company of South Africa (NTCSA) board of directors was underway, while all staff in the transmission division had been engaged in transfer principles and processes. The Minister said that the unbundling of Eskom would not result in any job losses or have a detrimental effect on the staff.

He told the Committee that support was required from NERSA and the Deeds Office for the unbundling of the transmission division. NERSA still needed to expedite the decision to issue a trading and import/export licence to the NTCSA. The assistance needed from the Deeds Office was in the form of the legislative amendments required for subsidiaries to have the right to access land, like the rights that Eskom had.

Minister Gordhan said there had been progress on unbundling the distribution and generation divisions of Eskom. Functional separation had already been completed in March 2021, with due diligence for legal separation being concluded. An interim divisional board of directors for both divisions had been appointed. A new generation operating model had been implemented, with due diligence still undergoing assessment by the Department. The operationalisation of the generation company was expected to be around March  2024

See attached presentation

Discussion

The Chairperson asked that Ms T Modise (ANC, Eastern Cape) assist him by taking questions from Committee Members, as he was having connectivity issues.

Mr M Nhanha (DA, Eastern Cape) commented that the meeting had started later than it was scheduled because the Chairperson had connectivity issues. The delay was a clear testament to how the Committee should not continue to have virtual meetings, but physical ones in Parliament to avoid losing the stewardship of the Chairperson and the contributions from other Members.

He recalled an announcement by the President during the State of the Nation Address (SoNA) of an addition of two Ministers -- the Ministers of Electricity and Mineral Resources, respectively. Subsequent to this announcement, there had been opposition to these appointments by the National Union of Metalworkers of SA (NUMSA) and other trade unions. He asked the Minister how far he had gone in terms of engaging various role players like NUMSA. How had the opposition to these announcements impacted his and the Department's work in discharging a directive from the President?

Since Eskom would be restructured into three entities, how would Eskom’s debt be apportioned to the three entities that were yet to be established, considering that Eskom had accumulated the debt as one unit?

Mr M Magwala (EFF, Western Cape) asked for clarity on what the Minister had said regarding Cabinet’s decision to restructure Eskom and how this would affect workers, even though it had been previously mentioned in a report that no one would lose their job. How would the workers' pension funds and other assets be transferred? Would their benefits remain the same? Were the entities or divisions of Eskom that would be established 100% owned by the government? Were there going to be individuals owing shares in these entities, as it was still important to safeguard and prevent the privatisation of Eskom?

Mr Nhanha asked if he could take advantage of the presence of executives in the meeting to ask for clarity on a matter unrelated to what was being presented to the Committee. He referred to an announcement that had been made regarding a holding company that would be overarching all the state-owned entities (SOEs). Analysts had expressed different opinions, and some were positive, but the common denominator in the analyses was the composition of the board of the holding company. He asked the Minister how much work had been done on the appointment of the board, and could South Africans be confident that the appointment of the board was not based on the cards they carried, but the required skills they possessed.

Minister’s response

Minister Gordhan thanked Mr Nhanha for his question, and clarified that the decision to restructure Eskom was not that of a single minister, but of Cabinet. The Department of Public Enterprises (DPE) had been given the responsibility to implement that decision, in collaboration with the board of Eskom.

There had been various levels of engagement between the DPE and the unions. He had been with the National Union of Mine Workers for approximately four hours at a workshop, where different voices were heard. The Department would continue to interact with the unions.

Minister Gordhan said that the restructuring of Eskom had become a political football, and the question of what was in the best interest of the country should be asked. What would be left behind for future generations? He referred to his opening remarks, and pointed out that these sorts of restructuring processes took a while to complete and settle down. The second level at which unions were engaged was within Eskom itself, through a consultative forum that Eskom had established.

There would not be any job losses as far as restructuring was concerned. The presentation pointed out that there would not only be a separation of functions, but also the architecture of a new electricity system in South Africa.

In response to the question on Eskom’s debt, he said that there had been consultations with certain groups of lenders that had had an impact on different functions of the entity. Further consultations were still taking place between Eskom’s management and groups of lenders that would be impacted by the restructuring. There was an understanding that the debt relief provided by government had lightened the burden.

One of the many processes that the Minister outlined was moving people, accounts, and the creation of separate accounts and information technology (IT) systems, as well as financial issues such as debt and capital. The Department was still in the middle of those processes, and would make pronouncements as soon as they had absolute clarity.

The Minister thanked the Committee for the opportunity to give an update on the restructuring process of Eskom, and said the Department would avail itself as soon as they had more updates.

Further discussion

The Committee Chairperson returned to the meeting and thanked the Minister for the presentation. He asked that the Minister respond to the claims that Eskom was being sold, and if there was an intention to do so. He also asked that the Minister re-emphasise that Eskom would not be privatised, because there were a lot of claims to that effect in the media.

He asked how the restructuring of Eskom would affect workers. Would they be transferred to the different divisions of Eskom? Would there be any retrenchments? He added that it was important to be upfront with these issues so that comfort could be given to both the workers and the citizens of the country.

One of the challenges that SOEs faced was the absence of overarching legislation for all the SOEs. What was the status of this legislation?

Ms T Modise (ANC, North West) asked if the Department of Public Enterprises would use the same methods or criteria when appointing the board of directors.

Responses

Minister Gordhan answered the question on workers, their benefits, and their rights. He assured the Committee that the restructuring of Eskom would have no detrimental effects on workers. He added that there was political mischief surrounding Eskom, and nowhere in any documentation had there been a reference to selling the entity. Interested individuals would need a lot of money to buy Eskom, but there was still no intention to privatise, nor to sell out the fiscus. The crowding investment from different areas did not mean that government's 100% ownership of both the transmission and distribution companies would be diluted.

Regarding the overarching legislation, he said there had always been recommendations to have an overarching set of policies that would also address the point made by Ms Modise regarding appointments and remuneration. This would assist in categorising the differences and complexities at the board and management levels. The state intended to take forward the recommendations made by the Council which had spent two years researching this kind of approach, and the electricity system.

The Minister said there had been publication of the bill for public comments in the government gazette, and advised the Committee Members to look at it. He added that it was understandable that there had been both positive and negative responses.

He said that the people appointed to the board had accomplished backgrounds in business, finance and governance, because these entities were businesses that would have both commercial and developmental purposes. The President was the major shareholder on behalf of government, and would determine the composition of the board itself, so the overarching legislation would be embellished with appropriate policies that would ensure a consistent framework in every respect.

He referred to Malaysia and their example of board appointments, and said that South Africa had a similar method but in a slightly fragmented manner, but it would be consolidated.

Further discussion

A Committee Member said that he had not expressed his opinion on the establishment of the holding company, and that his support thereof was a debate for another day, since the decision had already been taken.

Ms Modise asked that the Minister give the Committee a timeframe on when Eskom would conclude its restructuring.

Minister's response

The Minister thanked the Committee for the opportunity to give them insight into the restructuring process. He estimated the conclusion of the process would be towards the early part of next year, and may even take longer. They would work with the Eskom team to ensure an appropriate level of urgency, even though other countries had taken much longer to conclude processes similar to the restructuring of Eskom.

Minister Gordhan said that the Department needed to inspire confidence in South Africa’s institutions and processes and the financial markets because many of the country’s entities borrowed money from the same markets. He hoped that all Members of the Committee shared the responsibility to create the right level of confidence.

The Chairperson thanked the Minister, and said that his presentation would go down in history as one of the most important interventions. It was important that Eskom did not collapse, and this intervention would ensure that the entity was protected and restored to its former glory as a national asset.

The Chairperson said that he had received a communication in the week before the meeting, that Denel had made a profit of about R390 million for the first time. He was not asking the Minister to respond now, but a critical question was simmering, regarding a grant of R1.2 billion which had been given to Denel as part of the rescue. Some people had suggested that the R390 million was the remainder of the unspent resources from the R1.2 billion grant injected into Denel's account. He asked if it was true that profits had been made.

He appreciated that the Minister was not prepared for this question, and it would be unfair to expect a response, but it was important for it to be raised so he could answer in writing.

The Minister responded, and said that Denel was not under business rescue, and anyone saying that was being mischievous, because business rescue had not been part of any discussion. There had been an amount of money set aside from the Treasury to help Denel pay its debts and salaries. Not all its debt had been paid off, but Denel was slowly beginning to make a profit and serve. The department's focus was currently on an increase in sales so that Denel could bring in revenue and meet its revenue targets.

He thanked the Chairperson for raising this matter, and assured him they would try to find out more information.

The Chairperson thanked the Minister for his openness on the matter, adding that it gave the Committee comfort that Denel would not be taken to business rescue. He was looking forward to engaging with him again shortly, because of the critical role of SOEs in the development and trajectory of the country.

The Chairperson excused the Minister, and asked that he and the Deputy Minister continue to avail themselves before the Committee because of the role of the Department of Public Enterprises in the national agenda.

Committee matters

The Chairperson briefed the Members on the status of their international study tour so that they could plan for the trip in advance. He said that the Department of International Relations and Cooperation (DIRCO) would no longer be helping committees with their accommodation, transport and all quotations, which meant that committees would have to request their own quotations. 

He had received a letter asking him to reduce the number of Members going on the tour. He had responded by saying that he would discuss it with the Members. There had also been a receipt of quotations from several travel agents for flights and accommodation. All the necessary documents would be sent to the relevant people for approval.

The meeting was adjourned.