Thulani Gcabashe, Eskom's CEO, is in his element. The electricity utility produced superb results last year, its lights are shining brightly across Africa and private investors are now able to share in the excitement.
Profits for the December 2001 year-end rose sharply from R1,9bn to R2,6bn despite a drop in sales. More good news came when Moody's Investor Services pushed up Eskom's foreign and domestic currency ratings to BAA2 and A3 respectively.
But the "crowning glory", as Gcabashe puts it, is the prestigious Financial Times Global Power Company of the Year award, which he brought home in December. The FT said: "Eskom has proved its ability to provide the world's lowest-cost electricity to its customers while developing economical, efficient and safe methods of combustion of very poor quality coal." It also lauded Eskom's technical excellence.
For now at least, Eskom is basking in glory. It has electrified more than 2m homes in the past five years and made advances in black empowerment, human resources development, technical efficiency and research in alternative energy sources. But it has done so as a protected monopoly. Until this year, there was no obligation on Eskom to pay taxes and dividends to government.
Imminent changes in the electricity supply industry will challenge and change Eskom. But investors will finally be able to get in on the act. In two to three years, the utility will lose its monopoly and have competition.
Government wants private-sector involvement in Eskom's generation and distribution divisions. At least 20% of Eskom generation will be sold to foreign and local power companies and 10% to black empowerment groups. A listing or two of privately held power distribution businesses may come one day.
But government is for now keeping its hands tightly on the core Eskom business.
Though Eskom will still dominate the electricity market, the prospect of a looser grip has pushed it to seek new revenue-generating ventures. Eskom Enterprises (EE) was set up three years ago to drive expansion locally and internationally.
In only two years of trading, the subsidiary's net profit jumped from R17,2m to R108m . If Gcabashe had any fears about Eskom losing ground through privatisation, they have been overtaken by optimism. "Five years down the line, Eskom will have a presence in a lot more markets . Whatever we lose from the sale of some of our assets will be made up through new investments and Eskom will continue to grow."
From operating as "simply a power utility", Eskom will become more of a telecommunications, energy and information technology company with a foothold in Africa.
The bulk of EE's revenue thus far has come from subsidiaries Rotek Industries, Technology Services International and Telecommunications. Through its various divisions, EE has secured several projects elsewhere in Africa, ranging from consultancy work, maintenance and operations to partnerships with power utilities. One of its goals is to establish an integrated African electricity grid .
EE has a bright future, thanks in large part to Eskom's support. Electricity consultant Fiona Thompson says the relationship between the two is questionable. EE is developing on Eskom's back and so enjoying particular advantages from government.
A case in point is EE's guaranteed stake in the second telephone network operator, says Thompson. Government has set aside a 30% shareholding in the second fixed-line network for its Esi-tel subsidiary and Transnet subsidiary Transtel.
It looks as though government is taking with one hand and giving with the other. This does not augur well for privatisation plans, says Thompson. If Eskom is to compete , it must convince the market that it is not getting "unfair advantage through government support", she says.
The issue becomes more contentious when Eskom generation expands into Africa through EE. If EE uses expertise from Eskom, it will be seen as getting an advantage over private players, Thompson says. At present, EE's profits go into recapitalisation. There is no obligation to contribute to Eskom's bottom line.
Indirectly, Eskom is building its future with government aid. It expects to have a well-established nonregulated business sector under its wing by the time privatisation is introduced.
Some analysts say that though Eskom has good management and insight, the utility has thrived over the years partly because it was a protected monopoly. And having overcapacity in generation has meant it did not have to invest in new power plants. But capacity will run out in 10 years and it will have to spend on new power generation.
New capacity will be needed across the continent, Gcabashe says. "EE is helping strengthen Eskom's ability to invest in outside markets and build capacity. EE is ringfenced - it has a separate balance sheet and keeps a loan account with Eskom to be payable at an agreed rate," he says. He says Eskom charges EE a commercial rate whenever its employees work on EE ventures.
"Eskom has a commitment to the New Partnership for Africa's Development . All our activities and EE's role must be seen in that context," Gcabashe says. A stronger Eskom will benefit SA and Africa , he says.