Eskom giving transmission unit R39.9-billion loan to make spinoff successful

Eskom Holdings SOC Ltd. said it will give the transmission unit that it’s transforming into a separate entity a R39.9 billion loan to make sure it can complete projects and be financially viable.

The loan will be guaranteed by the transmission unit’s assets with Eskom’s creditors able to call on them if the utility doesn’t pay them, it said in a presentation to creditors on Thursday. Government guarantees will remain in place.

The company will be known as the National Transmission Company of South Africa, or NTCSA.

Eskom’s board will approve an annual borrowing plan for the transmission company and this will come in the form of inter-company loans, the utility said. Any borrowing over and above the plan will need to be approved by Eskom.

The South African state power utility, which is R396 billion in debt, is separating into transmission, generation and distribution units that will operate as separate entities in a bid to improve its operational and financial performance.

The company has subjected South Africa to intermittent power outages since 2008.

The transmission unit, which will be the first business to be separated, will take control of employees, contracts and assets when all conditions are met including obtaining licenses from the national power regulator.

Transmission Network

Its purpose is to act as a national transmission network operator and a system market operator, allowing it to take in electricity from Eskom and privately run power plants as well as channeling imports from countries such as Mozambique.

The company is expected to buy 218,000 gigawatt hours of power annually, with 77% of that coming from Eskom power plants, 19% from independent generators and 4% from imports.

In turn, it will export 5% of the 212,000 gigawatt hours it expects to sell and the rest will be sold within South Africa.

As of last year it had 33,158 kilometers (20,603 miles) of transmission lines and 154,500 megavolt amperes of transformer capacity.

Eskom has previously said it may need to spend an additional 180 billion rand to strengthen and expand its transmission and distribution networks.

Separate Tariff

The company’s assets and liabilities will match at R80.5 billion each and will include a R20.8 billion equity injection from Eskom, according to the presentation.

From later this year the regulator will be asked to determine a separate transmission tariff, which will provide the company with revenue, while Eskom will still use a generation and distribution tariff.

“The resulting specific transmission tariff should be sufficient to enable NTCSA to run its operations in a manner that is cost efficient,” Eskom said in the presentation.

The inter-company loan consists of 17.7 billion rand to complete transmission projects while 22.9 billion rand will go into a general pool of funding. The rest, 700 million rand, is in the form of a derivative for risk management.

The company is forecast to break even around fiscal 2025 and make net income of more than 5 billion rand in fiscal 2027. A target of the third quarter of this year has been set for obtaining creditor approvals and licenses from the regulators to allow the separation to go ahead.

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Eskom giving transmission unit R39.9-billion loan to make spinoff successful