ESKOM: Government to pour R69bn more into a sieve
Despite talking tough, and likening Eskom to a sieve, finance minister Tito Mboweni has given it a R69bn cash bailout over the next three years. That assistance will be limited to R23bn a year during Eskom’s reconfiguration into three entities, Mboweni said during his maiden budget speech in parliament.
It is notably less than Eskom CEO Phakamani Hadebe would have wanted. For a start, the power utility had asked Cyril Ramaphosa’s government to take over R100bn of its R420bn outstanding debt, given that it cannot independently meet all its financial obligations.
The problem is that the debt attracts annual interest of R45bn, which dwarfs Eskom’s cash generated from operations. Add in the extra R50bn which Eskom must spend on expanding and maintaining power plants, and the utility plunges into a loss.
"Pouring money into Eskom in its current form is like pouring water into a sieve," Mboweni said.
"I want to make it clear: the national government is not taking on Eskom’s debt. Eskom took on the debt. It must ultimately repay it."
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It was a stark rebuke for Eskom, signalling that no white knight is going to come bail it out for its poor decisions.
It means that the utility will have to deal with the fact that its operating costs are far higher than the revenue it generates from selling electricity.
Eskom, which operates under a licence and has its prices regulated by the National Energy Regulator of SA, charges 85c a kilowatt-hour of power. But its primary fuel — coal — costs it R1.10/kWh to produce that electricity. Indeed, the generating costs of Eskom’s newest power stations far exceed this: it costs Medupi, for example, R1.34/kWh to generate electricity, according to the Budget Review.
This R69bn is the third bailout Eskom — crippled by corruption and runaway debt — has received from the state, its sole shareholder. In September 2015 the government gave it a cash injection of R23bn, and converted a R60bn loan into equity, when the utility had run out of working capital and funds to pay the wages of its 47,000 employees.
At the time, Nhlanhla Nene, then the finance minister, said the R83bn bailout would provide "short-term support"; he was convinced that Eskom had "turned a corner and is in better shape than in the past".
In fact, it went backwards. The corruption intensified, with Eskom being one of the central entities milked for cash by entities like Trillian, McKinsey and the Guptas in the state capture project. Its operations suffered, culminating last week in rolling blackouts that lasted five days.
Eskom’s debt is also likely to rise, as it is in the middle of a R300bn project to build new power stations. As it is, Eskom has raised debt with the backing of a R350bn guarantee from the state. This financial year, Eskom used up another R50bn of this facility, taking the government’s exposure to Eskom’s debt to R244.7bn, according to the Budget Review. That leaves less than R100bn of the guarantee which Eskom could use to raise new debt. This is a problem since Eskom has said it will increase its debt to about R600bn by 2023, when it completes the construction of the Medupi and Kusile power stations.
Mboweni said that for Eskom to receive the R69bn in funding, an independent chief reorganisation officer (CRO) must be jointly appointed by the finance and public enterprises ministers. "If you want money from the Treasury, then expect our CRO to be at your door. We can’t just be throwing [money] at the entities without placing them under curatorship. If a bank fails and the Treasury must get involved, the first thing we do is place it under curatorship. Why can’t we do the same for the state-owned entities?" he asked.
He added that this funding is being provided to Eskom so that it can pay off some of its debt. "It is not to pay salaries," he said. Presumably, that is what the new CRO will have to ensure.
One of the key issues that has trade unions hot under the collar is that Eskom will be unbundled into three entities, responsible for power generation, long-distance transmission of power, and distribution into homes.
But Mboweni’s budget also says the government will introduce an equity partner into the transmission company — something you can expect the unions to vigorously oppose, as they see it as a creeping form of privatisation that would herald job losses.
Mboweni denied this would amount to privatisation. Rather, he said, it follows logically that after unbundling Eskom, there will be competition in electricity generation and in the distribution of power to households and municipalities.
The trade unions that form the bedrock of the left-leaning faction of the ANC are opposed to the introduction of competition.
Said Mboweni: "Of all three companies, transmission is the one that will remain a monopoly. You can only have one transmission company in the market, but many generation and many distribution companies. It will carry power from whoever generates it."
Asked if the introduction of an equity partner into transmission was not privatisation, Mboweni had a few stern words for the ANC’s left-leaning members, whom he accused of having a romantic Soviet Union-era hangover.
"The issue of privatisation is still a hot potato in SA, despite the Soviet Union having collapsed many years ago," he said.
"If a business unit does not perform, there should be no emotional hanging onto it. That is the norm in the private sector."
It’s not what the unions would want to hear. But then, as Mboweni put it in parliament: "We face tough choices on Eskom."
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