SA’s plan to create a power transmission company that will attract the investment needed to strengthen the national grid has been hobbled by its restrictive debt arrangements with parent Eskom, reports Moneyweb.

Under the plan to separate the unit, which Eskom presented to its creditors on 10 June, the national power utility will extend a R39.9bn loan to the National Transmission Company of SA, or NTCSA.

That funding will be guaranteed by the NTCSA’s assets if Eskom, which is R396bn in debt, doesn’t meet its own obligations.

Eskom’s board will also approve an annual borrowing plan for the transmission company that will take the form of inter-company loans. Additional borrowing will need to be approved by Eskom.

The plan protects Eskom’s creditors by ensuring that NTCSA can’t ignore its obligations to the utility while paying its own debts.

Still, it hampers the transmission company, which will derive revenue by charging separate tariffs, from forming partnerships with private companies to strengthen and expand the grid, said a creditor and an adviser familiar with the terms. 

Eskom didn’t answer questions as to whether the arrangement was temporary or whether it would inhibit partnerships with private developers.

Informal approaches have been made to Eskom and the Department of Public Enterprises, which oversees the utility, to see if they would reconsider the structure, the creditor and adviser said.

‘Creditors at the Eskom holdings level don’t want to lose the security,’ said Vuyo Ntoi, co-managing director of Old Mutual’s African Infrastructure Investment Managers.

‘It will be a challenge if the transmission company can’t take on additional debt.’

Full Moneyweb report