Eskom’s unbundling, first proposed decades ago, became politically unavoidable when the utility was failing. Now that it is recovering, the case for urgent reform has become harder to make.
And yet, separating the power utility’s generation, transmission and distribution functions remains central to the wellbeing of South Africa’s electricity sector and economy. The next phase of growth depends on power at scale and competitive cost, which requires not just more generation but a different market, as well as division that doesn’t undermine Eskom’s recovery or delay investment.
Unbundling Eskom is no new plan; the government proposed it back in 1998 already. Except that plan met strong resistance and stalled. President Cyril Ramaphosa put it back on the table two decades later, leading to the creation of the National Transmission Company South Africa as an Eskom subsidiary.
But the structure has remained contested.
Take the about-turn in the transmission system operator (TSO) model. Late last year, electricity & energy minister Kgosientsho Ramokgopa approved a model under which a TSO would be independent but not own the transmission assets. That didn’t go down well with organised business and the Just Energy Transition Partnership’s lenders, leading Ramaphosa to overrule his minister within two months. In his 2026 state of the nation address, he announced a fully independent state-owned transmission entity that would own and control the grid as well as operate the electricity market.
A presidential Eskom restructuring task team was established to work out the details. It was given a December 2027 target for establishing that independent TSO, two years ahead of the statutory deadline under the Electricity Regulation Amendment Act.
The incentive to resist
Eskom has accepted the principle of an independent TSO but wants the grid assets to remain on its balance sheet for now, subject to its financial position and lender consent. Assets could be transferred “later on … if you still wish to”, chair Mteto Nyati said in early August.
It is a familiar corporate manoeuvre: assent in principle, resistance in implementation. And it led Business Leadership SA (BLSA) head Busisiwe Mavuso to accuse the board of “weaponising” the complexity of asset transfer.
Then, at the end of August, Eskom and BLSA released a joint statement endorsing the transfer of the assets to the TSO. But there’s no mention of an implementation date.
You can understand why there would be pushback from Eskom: an independent transmission operator would remove a valuable asset from its balance sheet and a strategically important source of revenue. Transmission contributes nearly 40% of Eskom’s core earnings, according to Moody’s, despite accounting for a significantly smaller share of its total assets. Transmission’s regulated revenue stream provides a relatively stable counterweight to the much weaker generation business, allowing an integrated Eskom to absorb some of the latter’s financial volatility.
Separation would expose the underlying economics: generation standing on its own, transmission earning a transparent regulated return.
There are political motivations standing against unbundling too. Though the TSO would remain state-owned, organised labour and some political constituencies view corporate separation as a first step towards privatisation, making any transfer of assets out of Eskom politically sensitive.
None of this requires a conspiracy: Eskom wants its balance sheet protected and creditors their claims; labour wants an integrated public utility; and the government seeks a transition that does not create a new fiscal problem.
Each position is defensible in isolation — but collectively they can produce a result that is damaging to the economy. Everyone has a reason to postpone reform; in the meantime, South Africa bears the cost of delay.
That cost is not simply the risk of another Eskom crisis; it is the opportunity cost of a better-functioning electricity market.
The economics of a stronger Eskom
There’s no denying that Eskom has made a remarkable operational and financial turnaround. After years of load-shedding, declining reliability and mounting financial pressure, it has reported two consecutive years of profitability, with after-tax profits more than doubling to R30.3bn in the year to March, albeit with R144bn of debt relief transfers from the National Treasury over those two years.
In June, Fitch gave Eskom its first ratings upgrade in nearly two decades, though this reflected South Africa’s upgrade and Eskom’s strong linkage to the state more than its operational recovery. Still, the ratings agencies have stressed that sustained operational improvement and stronger liquidity are needed to preserve the gains.
But continued load reduction is a reminder that recovery has not eliminated structural strain, and the latest results reveal the limits of the recovery. Revenue rose by 4.1%, but on the back of a 12.7% tariff increase, while sales volumes fell by 6.2% on weak industrial demand, self-generation and energy efficiency. Higher prices are masking shrinking electricity demand, while Eskom carries a largely fixed-cost base.
So stronger finances buy breathing room, but they don’t offer relief from the structural pressures that make reform necessary. Because transmission underpins much of that financial strength, separating it reshapes the economics of everything left behind.
But it requires certainty. South Africa needs about R440bn in transmission investment over the next decade; grid congestion is already delaying projects and risking stranded generation that cannot be connected.
Without clarity on the grid’s ownership and financing, investors cannot price the network into which their generation must connect.
So while Eskom’s operational recovery reduces the immediate pressure for change, reform could lose urgency precisely when South Africa needs to accelerate transmission investment and unlock private generation.
Three futures
The Eskom of today is very different from the utility that made reform politically unavoidable: it is recovering, its credit metrics are improving and it is positioning itself to invest in the next generation of electricity infrastructure.
The launch of Eskom Green in July signals the role it intends to play in the electricity system of the future. Eskom has secured approval to establish Eskom Green as a wholly owned subsidiary able to raise funding for renewable energy infrastructure. Eskom intends to remain a major investor in new generation rather than simply becoming one generator among many.
It creates a fundamental tension: Eskom wants to compete in generation while retaining, at least for now, an important position in the transmission infrastructure on which its competitors depend.
South Africa once faced three broad models: an Eskom holding company with subsidiaries; an independent operator without the grid assets; or a fully independent TSO owning and controlling the transmission network.
The latest government position makes the third model the clear policy direction. The real uncertainty lies in the transaction structure, the treatment of Eskom’s balance sheet and the timetable for implementation.
The third model most cleanly separates the wires, a monopoly function, from competitive generation. It would not automatically produce cheaper electricity, but it would remove one of the biggest structural obstacles to a genuinely competitive generation market.
Eskom is a state-owned company, but it is also a corporate institution with its own balance sheet, employees, creditors and institutional interests. Those interests will inevitably shape its response to restructuring.
If the government wants Eskom to surrender strategically valuable assets in pursuit of a broader national electricity policy, it cannot rely on the company to restructure itself. The formal instructions have been given and the deadlines set. What is missing is the third ingredient of any credible instruction from a shareholder to a company: consequences for failing to implement within the stipulated timelines.
