Opinion
- Unbundling without a credible financial backstop could trigger a R400 billion debt shock.
- Grid constraints and policy uncertainty are already delaying renewable energy investment at scale.
- Municipal debt and fiscal limits leave government with little room to stabilise the system.
South Africa’s power sector stands at a pivotal moment, yet the path being pursued risks deepening instability rather than resolving it. The push to fully unbundle Eskom’s transmission division and establish the National Transmission Company South Africa as an independent state owned entity is being framed as a necessary reform. In reality, without a clear financial and operational transition plan, it could accelerate Eskom’s structural collapse.
President Cyril Ramaphosa’s recent intervention to reject a revised internal unbundling model signals government’s intent to force full separation. The argument is well understood. An independent transmission operator would act as a neutral market platform, unlocking private sector participation and removing the perceived conflict of interest where Eskom is both generator and grid operator.
However, this policy ambition collides directly with Eskom’s fragile balance sheet.
Despite a notable operational recovery in 2025, including a return to profitability and a pause in load shedding, Eskom remains technically distressed. Gross debt sits at approximately R412 billion, while municipal arrears have surged to R110.5 billion as of March 2026. More concerning is the trajectory. Municipal debt is growing at an alarming rate and could exceed R300 billion by 2031 if left unchecked. Over 85% of municipalities in debt relief programmes are failing to meet basic payment conditions, undermining any realistic prospect of recovery.
Against this backdrop, the idea of carving out transmission as a standalone entity introduces material financial risk. Eskom CEO Dan Marokane has warned that a full legal separation could trigger cross default clauses on roughly R400 billion of debt. This is not a theoretical concern. It is a systemic risk that could cascade through South Africa’s financial system.
The proposed solution, that government would effectively capitalise the new transmission company, raises further questions. Eskom estimates that around R100 billion would be required simply to transfer transmission assets into the new entity. This comes at a time when the fiscus is already stretched. Government has committed between R230 billion and R254 billion in debt relief to Eskom through 2026, with approximately R140 billion already disbursed. Total taxpayer support over two decades now exceeds R500 billion. There is little indication that additional large scale bailouts are feasible or affordable to the fiscus.
In this context, unbundling begins to look less like reform and more like risk displacement.
At the same time, the broader electricity market is caught in a deepening quagmire. Transmission constraints are now the single biggest bottleneck to South Africa’s energy transition. While private generation capacity continues to advance, the ability to connect projects to the grid is rapidly diminishing. Key renewable energy corridors in the Northern Cape, Western Cape, Eastern Cape and now the Free State are effectively saturated.
Developers face an increasingly opaque environment marked by uncertain grid allocation processes, inconsistent enforcement of milestones and growing legal disputes. The result is predictable. Investment decisions are delayed, projects are stalled and the pace of private sector participation slows.
This is particularly concerning given the scale of infrastructure required. Eskom’s latest Transmission Development Plan outlines the need for between 14,000 km and 14,500 km of new high voltage lines by 2034, alongside 105,865 MVA of transformer capacity. The objective is to integrate approximately 56 GW of new generation, largely from renewable sources.
The challenge is not just financial, it is executional. Annual build rates must increase from around 300 km to 2,300 km, an almost eightfold expansion. Total investment required stands at roughly R390 billion. Yet progress remains slow, and institutional uncertainty is growing.
Proponents of full unbundling argue that an independent transmission entity is essential to attract this level of investment. There is merit in that view. Capital flows to clarity and certainty. But independence alone does not resolve the underlying constraints. Without addressing Eskom’s debt overhang, municipal payment failures and implementation capacity, structural reform risks becoming superficial.
There is also a timing problem. South Africa cannot afford a prolonged transition period where governance disputes delay decision making. The establishment of a task team under the National Energy Crisis Committee to define timelines by June this year is a step in the right direction, but it underscores the lack of alignment at the highest levels of policy and execution.
Labour resistance further complicates the landscape. Unions remain firmly opposed, viewing unbundling as a pathway to privatisation and job losses. Meanwhile, Groups like Business Unity SA (BUSA) and Business Leadership SA (BLSA) have pushed for full independence to ensure a level playing field for private renewable energy projects. The result is a policy environment characterised by competing priorities and slow progress.
What is emerging is a dangerous paradox. The very reform intended to accelerate the energy transition may in fact be delaying it.
If transmission unbundling proceeds without a credible plan to manage Eskom’s debt and operational dependencies, the utility risks implosion. If it is delayed indefinitely, grid constraints will continue to choke renewable energy growth. In both scenarios, the cost is borne by the economy and very likely, the South African tax payer, again.
South Africa does not face a binary choice between reform and stability. It faces a sequencing challenge. Financial restructuring, municipal debt enforcement and transmission investment must move in parallel, not in isolation. It boils down to good governance and intelligent navigation, the opposite of which has cause the quagmire in the first place.
Until that alignment is achieved, the energy transition will remain constrained, and the promise of a competitive, low carbon electricity market will continue to drift further out of reach.
Author: Bryan Groenendaal
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