• National Treasury says selling off Eskom's coal power stations to independent operators could earn the state R450 billion. 
  • Power generation companies like Enel, Glencore or Électricité de France may be interested in buying these stations, analysts say.
  • It could settle Eskom's massive debt-burden.
  • For more stories go to www.businessinsider.co.za.

Selling South Africa's coal power stations could help settle Eskom's massive debt-burden - while solving some other problems too, experts say.

In a discussion document, released on Tuesday night, Treasury said government should sell Eskom's coal-fired power stations, possibly through a series of auctions, which could earn the state R450 billion.

Along with getting the power station, buyers will have to assume staff contracts, coal-supply contracts, supplier contracts, and environmental obligations, but in return they will get an agreement that government will buy their electricity at a predetermined tariff, Treasury said. The new document proposes dozens of interventions - including the deregulation of the fuel price and removing SA's electricity grid from Eskom's control - which Treasury believes could add 1 million jobs and bolster the economy. 

Read: Government just released a plan to create 1 million jobs and save the economy – here’s what you need to know

Traditional coal companies - including perhaps Glencore - would be a logical buyer for coal plants,” said Graeme Körner, director and portfolio manager at the asset manager Körner Perspective.

If these companies buy the plants, they will be able to supply the power plants directly with their own coal.

Alternatively, major international energy generation companies like Enel and Électricité de France may be interested, says says Chris Yelland, energy expert and investigative editor at EE Publishers.

“Multinational energy companies that have generation assets all over the world that would be fully capable or running [the coal plants].”

There might be a marginal increase in electricity prices for Eskom as these new companies have to make a profit, says Körner. But if Eskom is able to help pay off its massive debt with sales of power stations, it will be repaying much less in interest and therefore the interest saving might offset the increase in prices. Eskom has a debt pile of R440 billion. 

“The beauty for Eskom (of selling its coal plants) is that they are no longer responsible for making sure that their assets are in tip top shape," says Yelland. 

"This means the new owners, if they want to secure their revenue stream, have got to make sure the asset is well maintained, the staff is well complemented and the business is run efficiently,” said Yelland.

“At the moment Eskom’s power stations are running out of control. The work ethic is poor, the workmanship is poor and there is no accountability.”

Long-term power purchase agreements are good for long-term investors who are looking for steady sources of revenues, said Yelland. 

“The beauty of it for Eskom is it stops the price of energy going up at 20% at a time. In real terms the prices will rise in a fixed state for the next 20 years," said Yelland.

He says for the first time, in a very long-time, government is starting to use common sense.

“Treasury is a lone voice in government that speaks soundly with common sense backed with solid research.”

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