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Eskom CEO Plans Operations Overhaul; Slower Breakup Mulled

Paul Burkhardt

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The head of South Africa’s state power company will this week present a draft plan to change how the utility operates, as local media reported he’s considering unbundling the utility at a slower pace than envisaged by the government.

Stabilizing Eskom SOC Holdings Ltd. is the government’s top priority. The company has more than 450 billion rand ($31 billion) of debt and the cost of servicing those loans is higher than the revenue it’s generating. Eskom’s inability to provide a regular supply of electricity is curbing mining, manufacturing and other industrial output, and constraining growth in Africa’s most industrialized economy.

Chief Executive Officer Andre de Ruyter, who formally took up the position earlier this month, is “taking some ideas to the board” this week, Eskom spokeswoman Dikatso Mothae said on Sunday. He will specifically discuss changing the company’s approach to operations, she said, without providing further details.

In a plan unveiled in October, Public Enterprises Minister Pravin Gordhan set out a series of steps to restore stability to Eskom, including exposing it to greater competition, lowering fuel costs, increasing renewable-energy output and selling non-core assets.

Gordhan also called for the utility to be splits into three units -- power transmission, generation and distribution -- with the first of those divisions to be spun off by March. That step would ease the way for private generators to supply the national grid.

De Ruyter may take longer to consider the potential effects of the unbundling, including tax implications and the company’s relationship with financiers, the Johannesburg-based Rapport newspaper cited him as saying. One option being considered is to take two years to consult auditors, bankers and others to prepare for the implementation, De Ruyter told the paper.

“For us to rush into full legal separation from day one creates a number of risks: transfer of assets, our lenders will be very concerned about the assets that they have loaned us money against” along with other considerations, De Ruyter told Johannesburg-based broadcaster eNCA. “There’s a lot of planning that needs to go into the unbundling and restructuring of Eskom.”

In terms of restructuring Eskom’s business, De Ruyter disagrees with Finance Minister Tito Mboweni that the utility should be privatized, Rapport said.

“It’s a risk to privatize a so-called natural monopoly,” it quoted him as saying.

Still, De Ruyter accepts the need for private investment to increase reliable electricity generation.

“We need a lot more private investments to replace our obsolete power stations,” he said. “Not necessarily just with renewable energy, but with all sources that make sense.”

(Updates with comment by De Ruyter in seventh paragraph)

--With assistance from Rene Vollgraaff.

To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Paul Richardson, Rene Vollgraaff

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