Eskom faces an uphill battle in its bid to delay its unbundling, which will see it lose control of its lucrative transmission assets, after the Development Bank of Southern Africa (DBSA) told transaction advisers that the grid split is set for the end of next year.The transmission assets account for about 37% of revenue. This is against Eskom’s stated plans that it would like to retain the transmission assets in the medium term to shield the proposed independent transmission operator (TSO) and Eskom from financial ruin, putting the exposure to a botched unbundling at R840bn, more than 10% of GDP.The DBSA has been tasked by the government to seek transaction advisers to establish an independent transmission operator (TSO) that will own and operate the country’s transmission assets by end-2027, sooner than what Eskom management has asked for.The DBSA, which is expected to play a project preparation & finance role in the mooted multibillion-rand grid expansion, has told potential advisers, which might be drawn from overseas, to preoccupy themselves with drafting a plan that articulates the approach to identifying, managing and securing lender consents across Eskom’s debt portfolio, a key concern raised by Eskom’s top brass.However, DBSA firmly closed the door on the transaction advisers reviewing the decision that has been taken by the government to strip Eskom of the transmission assets.“The proposed restructuring is likely to trigger consent requirements across a substantial portion of Eskom’s debt portfolio, so a strategy for engaging with and securing the required consents from lenders must also be developed,” the DBSA says in its request for proposal.“In addition, the National Treasury requires support in securing cost-effective financing for the transaction and capital expenditure requirements of Eskom, TSO and the fiscus.“The transaction advisers are not required to revisit or re-evaluate the policy decision (ie the establishment of a TSO with ownership and control of the transmission network and other assets associated with its statutory functions, separate from Eskom) and will be required to review and build on the work that has already been undertaken by the Eskom Restructuring Task Team (ERTT).”The ERTT, led by Treasury director-general Duncan Pieterse, was appointed by President Cyril Ramaphosa in February to lead the process after shooting down the revised unbundling proposed to and accepted by electricity minister Kgosientsho Ramokgopa in December.Under the discarded revised plan, the National Transmission Company South Africa (NTCSA) would have remained an Eskom subsidiary and kept ownership of the physical grid assets.Eskom’s concerns are that a rushed unbundling, amid surging municipal debt, will harm its balance sheet and violate group bondholder obligations.Ramaphosa last month endorsed the ERTT’s phase 1 report, which said Eskom must be stripped of its transmission for any meaningful reform to occur.Eskom has been under mounting pressure to accelerate its unbundling into three units, responsible for transmission, distribution and generation from big business, which has questioned the fidelity of the board in implementing the government’s decision to strip Eskom of its transmission assets.While supporting it, Eskom has questioned the timing and speed of the unbundling, arguing that a rushed process will leave the TSO and Eskom in a far worse position.Eskom chair Mteto Nyati used the entity’s annual report published last week to make a call for a staged process that would see the entity unbundle with the minimum possibility of financial ruin.“No issue this year has tested the board’s fiduciary resolve more than the reform of the electricity supply industry. The establishment of an independent, state-owned TSO outside Eskom, as required by the Electricity Regulation Amendment Act and reaffirmed by President Ramaphosa, is a defining moment for the electricity supply industry,” Nyati wrote.“We welcome the Phase I work of the presidency’s Eskom Restructuring Task Team (ERTT) and fully support the delivery of this policy objective. But support does not mean silence on the things that matter.“The establishment of an independent TSO is a material event for Eskom’s lenders, and it must be implemented in a manner that addresses lender requirements, avoids defaults on loans and ensures that Eskom is not placed in a worse financial position, while appropriately considering shareholder rights and interests.”The DBSA request for transactional advisers states that based on the ERTT’s mandate, the approach to establishing the TSO must fulfil the following core principles to achieve the end state of a fully independent TSO in a “manner that minimises financial, operational and fiscal risk while maintaining energy security and investor confidence”.These would include:• Maintaining energy security.• Ensuring full independence of the TSO from all market participants.• Ensuring Eskom is not worse off than its present financial position after the restructuring and that the TSO is financially sustainable.• Ensuring the TSO is able to raise the funding required for investment in infrastructure in line with the transmission development plan.• Avoiding any qualified opinion for Eskom, the National Transmission Company of South Africa (NTCSA), or the TSO, and ensure that lender concerns are addressed to avoid any default.Business Day believes the Eskom top brass are banking on phase two of the ERRT’s work to make a case that the end-2027 unbolting will lead to financial ruin.According to the TSO tender document, the transaction adviser will be required to:• Review the proposal developed by the Eskom Restructuring Task Team for effecting the restructuring and supporting documentation.• Advise on the tax-efficient execution of asset transfers, including degrouping tax, VAT, capital gains tax, dividends tax, securities transfer tax, transfer duty, company income tax, and carbon tax implications, and propose potential changes to the tax legislation to mitigate such implications.• Demonstrate detailed organisational experience and capability in delivery of transactions of a similar scale, complexity and nature internationally and in South Africa.• Transaction history should collectively demonstrate experience in corporate restructuring, demerger, carve-out or unbundling transactions, preferably of the electricity sector, regulated utilities or SOEs.Business Day