January 31, 2020 / 9:09 AM / 17 days ago

UPDATE 2-Chief of S.Africa's Eskom appointing boards for planned breakup

(Adds plan to lower financing costs, quotes)

By Emma Rumney

JOHANNESBURG, Jan 31 (Reuters) - The new chief of South Africa’s Eskom is in the process of appointing boards for the separate generation, transmission and distribution units to be formed in the planned break-up of the state power utility, he said on Friday.

South African President Cyril Ramaphosa said last year Eskom would be split up in order to open up the power sector to more competition.

Eskom CEO Andre de Ruyter said the three units will be run as divisions with their own boards as a means to prepare for when they eventually become separate entities.

The boards will initially be staffed by current Eskom managers, with de Ruyter hoping appointments can be finalised by the end of next week.

De Ruyter had said on Sunday such a plan should not be rushed owing to the risks entailed including problems transferring assets against which creditors had loaned Eskom money. He said rushing the split could further destabilise South Africa’s power supply.

On Friday, however, he suggested that swift action was needed to begin preparing for the separation.

“We should be able to finalise these appointments, hopefully during the course of next week,” he said. “Once that is done we can start with running those three divisions like businesses with full accountability.”

Eskom produces more than 90% of South Africa’s electricity, but its ailing fleet of coal-fired plants have struggled to keep up with demand, leading to periodic crippling power shortages.

De Ruyter warned of a higher probability in the medium term of scheduled power cuts, known locally as “loadshedding”, as Eskom gets on with badly-needed maintenance.

“We will unfortunately have to expect some increase in loadshedding. We will have to give ourselves the space to fix what needs to be fixed,” de Ruyter said.

“If we don’t implement this maintenance plan there is a very real risk that the deterioration in our systems will continue.”

He added that the company would seek to refinance tranches of its debt as they reach maturity. Its current debt pile is estimated at 450 billion rand ($31.4 billion).

Interest charges on its balance sheet could rise because of this, especially in the event of a sovereign downgrade, he said, but added that Eskom was in talks with the Treasury and advisors to see how it could lower its funding costs, using existing sovereign guarantees to be tougher with lenders.

“There’s an opportunity for us from an Eskom treasury perspective... to rather frankly drive a harder bargain with our creditors,” de Ruyter said.

Eskom resumed power cuts on Thursday evening, cutting up to 2,000 megawatts from the grid as it struggled to replace the emergency capacity it used this week. ($1 = 14.3325 rand) (Additional reporting by Tanisha Heiberg Writing by Tim Cocks Editing by David Holmes)

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