Eskom Could Sell Some Coal-Powered Plants to Raise $29 Billion

(Bloomberg) -- South Africa could dispose of some of Eskom Holdings SOC Ltd.’s coal-fired plants and allow households to sell electricity back into the grid as part of a restructuring of the state-owned power utility.

The stations could be sold through a series of auctions and would include related staff contracts, coal-supply contracts and environmental obligations, according to an economic policy paper the National Treasury released for public comment on Tuesday. The plan could raise 450 billion rand ($29 billion), the Treasury said, citing an independent study.

The disposal of coal plants would be tied to a power-purchase agreement at a pre-defined, station-specific tariff, according to the paper.

Details of the proposal give another glimpse of the many options being considered to get Eskom back onto a sustainable footing and start reversing the damage the indebted company’s finances have brought onto the economy and the nation’s budget.

President Cyril Ramaphosa said in February Eskom would be split into transmission, generation and distribution businesses. The utility told senior managers last week that will take long as three to five years.

Selling plants may be opposed by labor groups, including the National Union of Mineworkers, that see privatization as resulting in job losses.

“Our thinking as the NUM is that the selling of power stations or whatever will not help Eskom,” Paris Mashego, the union’s energy coordinator, said by phone. Selling the plants to private investors also wouldn’t solve the issue of emissions that it’s trying to reduce, he said.

Solar Panels

The move to allow non-state entities to become power producers would signal a new commitment for investment in the sector. The pace of private renewable projects stalled after the government signaled a preference for nuclear energy, but deals were signed last year and the Department of Energy has said more would be welcome.

“Eskom’s unwillingness to sign independent power-purchase agreements with bidders in the past” has undermined investor confidence, the Treasury said. Enabling the independence of the single buyer’s office “will ensure the sustainability of independent power producers,” it said.

The option was also proposed on a smaller scale. The government would avoid large capital spend on power infrastructure if the system would allow households and business to sell excess electricity generated through solar panels back into the grid, Treasury said.

The government is giving Eskom a 128 billion-rand bailout over the next three years to keep it afloat and has appointed a chief restructuring officer to oversee the unbundling of the company, which doesn’t have a permanent chief executive officer yet.

“While Eskom’s pressing short-term operational challenges have abated somewhat, another crisis is on the horizon,” the Treasury said.

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