Business Leadership South Africa CEO Busi Mavuso has backed the government’s decision to delay the independent transmission projects tender, but wants a timetable that runs all the way to financial close. Her views are set out in an opinion column published by TechCentral, so the positions below are hers.
The delay
On 1 October the Department of Electricity and Energy and National Treasury moved the request for proposals, or RFP, for the programme from the third quarter of this year to the second quarter of next year. Mavuso calls that an unfortunate slippage, but says a delay is better than going to market with a call for proposals that cannot be properly managed or that leads to excessive pricing because bidders cannot assess the risks. A failed procurement, she writes, would cause more delays and cost more than a pause while government gets it right.
The credit guarantee
She points to one important intervention: a credit guarantee vehicle that will protect investors from credit risks stemming from the National Transmission Company South Africa (NTCSA). National Treasury, the World Bank, FSD Africa and the Development Bank of Southern Africa are creating it. It was incorporated in August and is now being readied to support the programme.
The NTCSA is being unbundled from Eskom along with the transmission assets. Once that is done it will form the Independent Transmission System and Market Operator, which will be the counterparty to investors building grid infrastructure. It will be the first time private investors have put money into transmission lines in South Africa. Because that operator is still being established, bidders would face a counterparty with no balance sheet or credit history of its own, and the guarantee vehicle, Mavuso writes, gives them the confidence to make long-term, multibillion-rand investments.
The timetable concern
Her concern is the timetable. On the current trajectory, she says, new grid infrastructure is unlikely to be operating by the end of the decade. The announcement targeted the RFP for the second quarter but made no commitment on the steps that follow: bid adjudication and negotiation with the winners, before financial close, when construction can begin. A clear timetable for the whole process would help manage expectations and enable planning.
The grid, she argues, is already the binding constraint on new generation, because electricity cannot be moved from where it is cheap to generate to where it is needed. Eskom and BLSA are aligned on concluding the establishment of the transmission operator, and finalising that swiftly would build confidence, because investors would know exactly what they are dealing with. The operator will buy grid capacity from investors, so its own creditworthiness will matter. The guarantee vehicle will help, but a creditworthy institutional buyer would add confidence.
The first phase calls for only 1 164 km of new lines, even though the NTCSA plans to have 14 500 km in place by 2034, and Mavuso says this procurement needs to be followed swiftly by others. She also wants a complete timetable for associated reforms such as the South African Wholesale Electricity Market, which has also seen slipping deadlines and is key to enabling competition. Banks and fund managers will be critical investors in grid infrastructure, she writes, and BLSA is supporting Eskom and other key role players to conclude the restructuring.
More on the grid and energy reform is in our Energy & Infrastructure section.
