Eskom split to minimize risks to South Africa, Ramaphosa says

By Mfuneko Toyana and Wendell Roelf

JOHANNESBURG/CAPE TOWN (Reuters) - South African President Cyril Ramaphosa said his plan to divide struggling state power firm Eskom into three units would minimize risks to the economy, as a fifth day of power cuts hurt businesses and drove the rand to a six-week low on Thursday.

Eskom, which supplies more than 90 percent of the power in Africa's most industrialized economy, is technically insolvent, the government said on Wednesday, warning that an urgent bailout was needed to help it manage its $30 billion debt.

"Restructuring will reduce the risk of a massive Eskom that at times has been termed 'too big to fail', placing government in a position where all our eggs are in one basket," Ramaphosa said in a speech to parliament.

"It is not a path to privatization," he added, promising that a financial support package for Eskom would be accompanied by a turnaround plan and that officials would consult with trade unions, which have expressed anger at the proposed split.

Last week Ramaphosa - who faces a parliamentary election in May - pledged to separate Eskom into units for generation, transmission and distribution to increase efficiency and prop up the country's most important state company.

The former union leader is under pressure to revive an economy that stagnated under his predecessor, scandal-plagued Jacob Zuma, and the Eskom crisis will test his negotiating skills with his ex-colleagues.

Eskom cut 2,000 megawatts (MW) of electricity from the grid from 0600 GMT on Thursday, likely until 2000 GMT. On Monday the firm slashed 4,000 megawatts from the grid in its largest cut since the 2014/15 financial year.

Locally referred to as "load-shedding", the power cuts are an emergency measure to prevent the power system from a total collapse, Eskom says. Around a third of Eskom's 45,000 MW capacity is offline.

GRIDLOCK

The outages, the worst in several years, have spooked investors days before a budget speech by the finance minister and have prompted a sharp slide in the rand and government bonds.

The rand fell more than 1 percent versus the dollar to its weakest in six weeks on Thursday and is now down more than 4 percent this week.

For ordinary South Africans the cuts mean some mothers are struggling to cook for their children and traffic gridlock in major cities as traffic lights stop working.

"If the power goes off for more than six hours and we have to run the generators for that long it's going to be very expensive. We're not going to be able to afford the diesel," said Arno Steenkamp, a manager at a Johannesburg restaurant.

"If we can't make coffee and food it's going to hit our sales and we might have to close," he added.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Firms in the mining sector, the backbone of the country's economy, are looking at alternatives to reduce their dependence on Eskom and monitoring the situation closely.

Eskom hopes to end the power cuts by the end of the week.

Its woes, which reflect the failure of successive governments to take on labor unions, pose a potential threat to South Africa's credit rating, with Moody's the last of the top three ratings agencies to rate it investment grade.

There is also the risk that unions could go on strike.

The National Union of Mineworkers (NUM), the biggest union at Eskom, on Thursday warned Ramaphosa's African National Congress (ANC) not to take its members' votes for granted at the upcoming election.

Senior NUM officials are set to hold talks with Public Enterprises Minister Pravin Gordhan on Monday to express their disagreement with the plan to split Eskom, which the union fears will lead to massive job losses further down the line.

Ramaphosa said in parliament that cost-cutting at Eskom would not necessarily entail job cuts.

Eskom started cutting power on Sunday and intensified outages on Monday after seven generating units unexpectedly went offline.