The release of the latest Reform Tracker Quarterly Review by business organisation Business Leadership South Africa (BLSA) has shown that there has been broad progress across government’s reform agenda, with one notable exception – electricity.

“While loadshedding is thankfully a thing of the past, we must not be complacent,” says BLSA CEO Busi Mavuso in her latest newsletter, published on February 9.

Mavuso notes that the agreed electricity sector reform plan includes a fundamental reorganisation of how electricity is generated and distributed in South Africa, not only to ensure electricity stability, but also to introduce fair competition that can start to bring prices down.

Mavuso highlights the need to expand generating capacity to support economic growth, while investing in the grid to ensure the distribution of electricity from where it is produced to where it is needed.

She notes that this issue was escalated by State-owned Eskom’s briefing of the Parliamentary Energy and Electricity Portfolio Committee last week, when executives insisted on an unbundling approach that she says conflicts with policy.

“I am pleased the committee has also signalled its concerns and called on Eskom to appear before it again to explain itself.”

In the wake of the Tracker launch and comments to the parliamentary committee, Mavuso says she and the CEO of Business Unity South Africa jointly wrote a letter to President Cyril Ramaphosa asking him to clarify where he stands on electricity reform.

“To us, there is a clear and coherent plan in place that was developed through extensive negotiation by partners, including the National Electricity Crisis Committee, the government’s own Operation Vulindlela reform team and National Treasury, and the National Economic and Labour Council,” she says.

Yet, in December, the Department of Electricity and Energy approved a revised unbundling plan for Eskom that undermines agreed policy and threatens the outlook for grid investment, particularly, Mavuso argues.

She posits that the current policy envisages Eskom’s transmission infrastructure being unbundled into an independent Transmission System Operator (TSO), which would then have the balance sheet to enable it to raise finance to undertake significant grid infrastructure investment.

However, Mavuso says the plan signed off in December fundamentally changes this, leaving the existing transmission assets to remain within Eskom.

She explains that this means the TSO would not have its own grid asset base, severely limiting its ability to raise funds for investment.

“This casts a dark cloud over the future of electricity reforms. Grid investment is essential, and it must happen as fast as possible in line with the Transmission Development Plan.”

Mavuso says this plan indicates that 14 000 km of new lines are required at an estimated cost of R440-billion.

She explains that the grid is not currently configured to connect new sources of generation, largely where renewable-energy generation is most efficient, such as solar in the Northern Cape and wind in the Eastern Cape, to where it is used.

“This will become more acute as the economy grows and demand increases.

“The electricity stability we’ve enjoyed for the last 18 months will become more fragile, and either we will end up with more loadshedding, or we’ll strangle economic growth by killing off investment, or both,” she warns.

Mavuso notes that BLSA’s interest is in ensuring a business environment that is conducive to economic growth and employment.

In line with the agreed policy, business confidence has been rising, she says.

The BLSA Reform Tracker included a survey of BLSA members that found almost two-thirds are positive about the impact of reforms over the next 12 months.

These are major employers and investors in the economy, and that positivity will result in increased appetite to grow, Mavuso points out.

Among them, fully three-quarters said the business environment had improved as a result of electricity reforms in particular.

“The virtuous cycle of investment and growth, which we are trying to trigger, will not start if government does not follow through and deliver on the agreed policy.

“This is why BLSA invested in developing the Reform Tracker to ensure that agreed reforms stay on track.”

Mavuso says there is much that is making good progress, including improvements in the logistics system, visa processing rules, labour reforms, affordable housing, electoral reform and many others.

She notes, however, that the regression on electricity stands out in contrast to these successes.

“In our view, Section 34A of the Electricity Regulation Amendment Act is clear that the TSO is meant to be the licensed ‘transmitter’ – the entity that plans, manages and maintains the transmission power system”.

In practice, Mavuso explains that that requires full control over the transmission system.

She adds that the Act also makes clear that the TSO must be licensed by the National Energy Regulator of South Africa to perform these functions, which in turn implies that it must effectively control the grid it is responsible for.

There is no reasonable interpretation of these requirements other than it must own the grid assets, she says.

If Eskom continues to own the transmission assets, Mavuso warns that an obvious conflict of interest arises as it will be both the generator and distributor of electricity.

For other generators, this risks prejudicing their access to the grid on fair terms, she says, adding that, for investors who will be needed to pour billions into new grid infrastructure, this would pose a clear risk, resulting in much higher costs to finance expansion.

“Eskom argues that its obligations to bond holders imply that it must continue to own these assets. But this is simply not true. Bond holders are used to restructurings across the world that ensure State-owned entities adapt to the market realities they face.”

There are many ways to achieve the necessary outcomes without prejudicing bond holders, argues Mavuso, noting that the same bond holders stand ready to back new grid infrastructure if the planned restructuring is delivered.

There is ample scope to negotiate this, and Eskom’s view to the contrary is incorrect, she says.

“As we state in our letter to him, we think it is important that the President, as the ultimate custodian of policy in the country, makes his position clear.

“Billions of rands of investment and the economic growth and job creation that would follow depend on it.

“On Thursday, we will hear the State of the Nation Address, the President’s signature statement on the business of government for the year ahead. I hope it delivers the clarity we need to maintain confidence and unleash the investment business can make.”