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South Africa waits for Eskom rescue package
SOUTH AFRICA
SOUTH African President Cyril Ramaphosa is due to announce details of the government’s rescue package for Eskom on June 20 during his state of the nation address.
His o cial line is that the company is critical to South Africa’s growth and development, and that stabilising its nances and operational prob- lems is a key government priority.
Ramaphosa told a meeting with Eskom o - cials and government ministers in Cape Town June 18 that he would focus on implementing the existing nine-point plan for Eskom.
is focuses on: maintaining uninterrupted power supplies; cutting costs; improving oper- ational e ciency; and, increasing revenue and boosting collection rates.
Presidential spokesperson Khusela Diko said that the nance, mineral resources and energy and public enterprises ministers attended in a bid to create a uni ed approach towards rescu- ing Eskom.
In short, Eskom faces nancial oblivion, but is regarded by the government as too big to fail.
e government’s current proposals, which were revealed in the budget in February, allo- cated Eskom ZAR23bn ($1.55bn) per year until March 2022, although it would not take over any of the company’s debt.
National Treasury director General Dondo Mogajane told a meeting of the Group of 20 finance ministers in Japan in May that this ZAR69bn ($4.7bn) offer was not enough, and that the government had no choice but to increase the gure.
Mogajane said more funding for Eskom was “an issue of how much, and when.”
Eskom has su ered from alleged corruption and poor management in recent years, causing regular black-outs and the resignation of key executives. CEO Phakamani Hadebe to quit in May a er 16 months in the job.
Operationally, power plants and transmission infrastructure are badly in need of maintenance, with regular technical problems.
But it is the company’s nancial problems that pose the greatest threat. Its debt is estimated at $29bn, of which 62% is backed by the govern- ment in the form of sovereign guarantees.
The financing options available include: a government bail-out in the form of more loans; the state taking a larger equity stake in return for debt; and even partial privatisation.
e government has already ruled out any privatisation, referring to the company as the jewel in South Africa’s crown.
A second issue is reforming and even break- ing up the company. Ramaphosa said in February that generation, distribution and transmission
could be split up into separate units that would still be owned by a state holding company.
This is supported by those who want to increase corporate transparency and reduce cor- ruption, although it is opposed by trade unions worried about job losses.
Changes ahead
Yet some changes are making headway. ere are plans to set up an Independent System and Mar- ket Operator (ISMO). is would take over the grid, overseeing system operation and the pur- chase of electricity from generators and selling it to distributors and large customers.
Other proposals include allowing metropoli- tan municipalities to purchase electricity directly from independent producers (IPPs), rather than directly from Eskom.
However, with the economy contracting by 3.2% in the rst quarter of 2019 – the result of power cuts hitting industrial activity – the state’s ability to come up with the funds is limited.
e government is also not keen to damage its last investment grade credit rating — from Moody’s — which now appears to be hanging by a thread.
More than a bail-out is required if the gov- ernment is to avoid simply delaying its root-and- branch reform of the company.
However, given the company’s importance to the tottering South African economy, and the government’s poor record in promoting any change at Eskom, any reform is likely to be piece- meal and will fail to get to grips with Eskom’s fundamental problems. ™
Week 24 19•June•2019 w w w . N E W S B A S E . c o m P7