People sometimes take me to one side and ask if I’m “OK” dealing with the merry-go-round of structural reform attempts in SA. I gently reassure them, but the merry-go-round can sometimes start to grate. Now is such a time.

The issue is a confluence of factors regarding state-owned enterprises (SOEs) and reforms to our network industries. At its core are questions about how complex reforms are undertaken over a long period when they involve SOE directors, ministers who have conflicting policy-regulatory-shareholding “hats” and creditors, and where there are antagonistic instincts set against reforms. Corruption, vested interests and political connections all catalyse problems, but we should be clear they are not necessarily causal.

Major SOEs such as Transnet and Eskom will look quite different in future. State of the nation speeches, budgets, Operation Vulindlela releases, shareholder minister speeches and more make this clear. They will remain state-owned, they will own crucial infrastructure assets (now or after initial private investment periods) and they will enable markets and access — overseen by existing and new regulators. The private sector will increasingly operate them and provide maintenance and investment funded off balance sheet.

None of this should be controversial; it is policy. Yet the government too often hand waves at the end state for SOEs and does not fully map the path to get there. An iterative approach does not work from the starting point for too long because as you pull on the reform string difficult challenges arise where structural inflection points around balance sheets and capital structures, roles and responsibilities occur. This creates huge problems for directors and executives of holding companies even before we consider “stuck in the mud” instincts they may face internally.

This is particularly true with Eskom, and the contrast to Transnet is stark. In Transnet’s case the Freight Logistics Roadmap is clear that in future it will be largely an asset owner and market operator, and decreasingly an operator. Keen oversight from a minister who understands the end-state issues, and the Treasury jumping in earlier with backstop support, will need to be in place, with an eventually deleveraging and equity bailout or debt swap. But the path is broadly set and broadly understood, even if rocky.

By contrast, Eskom has a deeper problem. It has a less clear plan — assuming one can be stitched from the Eskom roadmap, the Electricity Regulation Amendment Act, the Energy Action Plan, and so on. It needs a clear, centrally stated and published plan agreed by cabinet, specifically referenced in its shareholder compact. The failure of the chief restructuring officer role six years ago wasted time and effort. Transnet has perhaps benefited from the fact that the same terrain has been covered, so there is a greater natural sense of momentum.

Eskom has taken to suing people to stop the train — something the minister is now attempting to reverse. Yet we must also understand that Eskom still has no answers on what its end state should look like, the backstops required to assuage creditors and allow unbundling, and how backstops can be provided to paper over the huge municipal debt hole.

Everyone must be clear: the municipal debt problem is not going to be solved any time soon. Solutions to this have continually been tried and have failed, with ministers and others debasing their credibility by promising they will work. Instead, Eskom must be given support to allow it to leapfrog this problem while slower-burn solutions around municipal reforms take hold over a five-year period. Similarly, all sides must be cognisant that the Eskom of the future will have meaningfully lower revenue and assets. The government needs to take a clearer view on this trajectory and communicate it, as well as how the end of state capital structure will work.

Creditors — both banks and asset managers — have been sitting on huge spreads to fund Eskom over the years, for not only guaranteed debt but also unguaranteed debt that benefits from a near 100% quasi-guarantee. The government has for years been too afraid to talk about restructuring this debt and imposing haircuts, something foreign emerging market credit investors find highly amusing for the amount of returns generated.

It is worse than this though. The structure put in place by financial adviser Lazard only applied to the holding company. The department of public enterprises and the Treasury did not receive sufficient expert independent advice, and nor did the National Transmission Company SA. The solution was designed with the holding company’s vested interests in mind.

This structure is now causing huge problems for the unbundling process and must be removed. Moreover, Eskom is overplaying the need to protect creditors, with its own vision overlaid for maintaining asset levels. And why is it talking about keeping transmission assets at a holding company level, and only leasing them to the transmission company? This is simply avoiding the problem.

Creditors are complex beasts, with credit committees and bankers demanding too much protection. Boards and executives of banks should step in and ask for simpler overarching protections from the Treasury as assets move about the SOE and out into subsidiaries. There can be no more free lunches.

Directors of SOEs find themselves hamstrung between fiduciary duties, policy and regulation, which leads to suboptimal outcomes. They need more direct guidance from shareholders, support from the Treasury and guidance on how monopolies move, in particularly by the Competition Commission.

The situation is replicable at other SOEs and must be arrested with perspective, considering what is the appropriate end state for capital structures, mapping a path there, aligned with reforms and the emergence of markets, and then ensuring appropriate protections and backstops are provided. What grates is that much of this has been obvious for the past six years and is only now coming to the surface, with Eskom highlighting that suing people was its only way forward. We risk this being repeated at Transnet.

Solving this requires more regular contact between shareholder ministers, a more activist finance minister, SOEs and open-minded creditors, and requires more regular apex-level publications and policy road maps to keep everyone on the straight and narrow, rather than each requiring every step to be perfect, as Eskom has tried to do. This is hard but not impossible.

• Peter Attard Montalto leads on political economy, markets and the just energy transition at Krutham, a SA research-led consulting company.

This article first appeared in Business Day.