Why Should We Oppose Unbundling? (Part 1)

Why Should We Oppose Unbundling? (Part 1)

Eskom Research Reference Group | Eskom Transformed | 13 August 2020

One of the most debated parts of the government’s plan for Eskom is the issue of unbundling. Simply put, this means that Eskom will be separated into three different entities: Generation, the part that owns the power plants and produces the electricity; Transmission, the part that owns the power lines and controls where the electricity goes; Distribution, which controls the selling of electricity to municipalities,individuals and corporations. 

The anti-unbundling camp is very sceptical of this plan, largely because they see it as leading to privatization, which will in turn lead to a range of problems, including job losses. While a lot of people support this view, there is also a gap in the mainstream explanations of how or why this would happen; a fact that often makes them appear unconvincing when they are pressed by pro-unbundling advocates. In order to answer this debate, we can take a look at what the plan for an unbundled Eskom actually is. 

Transmission is the center of the government’s plan for Eskom. Once it has been unbundled, they hope to give it its own board and management structure, and a mandate to work independently of the government. The role of this unbundled transmission will be the same as it always has – to buy electricity from the power generators and sell it to the distributors and consumers – but, this time, it will be run as if it were an independent business. 

Why is this so important? For one, an unbundled, independent transmission will be looking to turn profits. This means that it will be wanting to buy electricity at the cheapest price, while selling it at a higher price. This could mean higher prices for electricity, and because energy is a “natural monopoly”, in the Eskom CEO’s own words, there is no competition for transmission that would normally serve to drive prices down.

Most importantly though, unbundling transmission would mean that Eskom’s own power plants would have to compete to sell their power on the same basis as new independent power producers (IPPs), no longer favoured as part of a single “bundled” utility. Because all IPPs enjoy some level of government subsidy, they would be able to push their prices down, forcing Eskom’s own power plants to do the same in order to compete for this new independent transmission’s favour. 

What unbundling leads to is not necessarily privatization, but marketization. Unbundling is a necessary step for turning electricity into a commodity, and the generation and distribution of it into a market sector, where Eskom itself will compete as one player among many. 

This plan is destined to fail. Drawing on international experience, the Working Group’s research shows that marketization is not a solution but a curse; a move that will bring the South African energy crisis back to square one.

The next Eskom Explainer will explore this argument in detail, so keep an eye on the Amandla! Media page for more.

Is there a way to save Eskom, manage the climate crisis, protect jobs, and keep electricity a public service all at the same time? For [time], an international coalition of trade unionists, researchers, and environmental groups under the banner of the New Eskom Working Group has been working on a research document that answers “Yes!” to all of the above. the Working Group has prepared a series of short summaries, detailing the research’s answers to some common questions.

To download the Eskom Transformed report click here