The independent transmission project program is designed to attract significant private investment into South Africa's electricity grid. This is crucial for achieving economic growth targets as it will increase power generation and expand access to it. However, an announcement from the Department of Energy and National Treasury on October 1st led to the postponement of the Request for Proposals (RFP) from the third quarter of this year to the second quarter of next year, which is an undesirable delay to the schedule.
A positive aspect is the development of institutional capacity to support this process. The delay is preferable to rushing the call for proposals, which cannot be properly managed or which would lead to excessive pricing due to participants' inability to assess risks. A failed procurement would result in more delays and cost more than a pause while the government rectifies things.
An important step has been the creation of a credit guarantee mechanism to protect investors from credit risks associated with the National Transmission Company of South Africa (NTCSA). This mechanism is being established with the participation of the national treasury, the World Bank, FSD Africa, and the African Development Bank.
NTCSA is separating from Eskom along with the transmission assets. Upon completion of this process, it will form the Independent Transmission System Operator and Market Operator (ITSMO), which will serve as the counterparty for investors building network infrastructure. This will be the first instance where private investors fund transmission lines in South Africa.
Since ITSMO is still in its formative stages, bidders will face a counterparty that does not yet have its own balance sheet or credit history. The guarantee mechanism performs an important risk management function, giving participants confidence to make long-term investments worth billions of rand. It was established in August and is set to support the program.
Nevertheless, the timelines are concerning. At the current pace, new network infrastructure is unlikely to become operational by the end of the decade. Although the announcement targets the Q2 RFP, it has not specified subsequent steps: reviewing applications and negotiating with winners before financial close, when construction can actually begin. A clear timeline for the entire process would help manage expectations and ensure planning.
Limiting Factor
The grid is already a limiting factor for new generation. We cannot deliver electricity from places where it is cheaply produced to where it needs to be consumed. Eskom and BLSA agree with the completion of ITSMO formation, with Eskom's transmission assets being separated from it. Rapid completion of this process will boost confidence in the entire network investment forecast, as investors will know exactly what they are dealing with. ITSMO will procure network capacity from investors, so its own creditworthiness will be important in risk assessment. The guarantee mechanism will help, but a creditworthy institutional buyer underpinning it will provide additional assurance.
The first phase of network investment only covers 1,164 km of new lines, although NTCSA plans to have 14,500 km by 2034. This procurement must be quickly supplemented by others. The commitment of the department and the national treasury to the process, along with the institutional development that has occurred, should be welcomed. It would be beneficial to have a full schedule up to financial close and for related reforms, such as the South African wholesale electricity market, which has also seen postponements and is key to ensuring competition in the energy sector.
Business will play a fundamental role. Banks and fund managers will become critical investors in network infrastructure, and we support Eskom and other key players in completing the restructuring process. Not all of this is done for its own sake. Reliable electricity and competitive prices are drivers of growth: they allow businesses to invest and expand, ultimately creating the jobs our country desperately needs. Adhering to reform schedules will help achieve this goal sooner.