Eskom runs out of cash as loan facilities dry up

• • Utility has 20 times less cash than needed May be unable to pay salaries by January

Eskom is in a precarious financial position and is desperately trying to avoid a liquidity crisis that may by January render it incapable of paying staff salaries and suppliers.

The power utility confirmed on Monday that it had 20 times less cash than needed to fund operations and said it had written to the public enterprises minister, alerting her of the impending calamity.

By the end of January, the utility will run on a cash deficit of R5bn. This eventuality will come to pass even as Eskom expects to successfully draw R3.8bn from existing credit facilities over the next few weeks.

Business Day can also reveal that the race to stave off insolvency began in earnest in July, with Eskom holding meetings with its shareholder minister and the finance minister. This was 10 days after Eskom chairman Zethembe Khoza had publicly denied there was any risk of a shortage in working capital.

In a follow-up letter dated August 28, Khoza wrote to the ministers: “The purpose of this letter is to highlight the liquidity risks at Eskom and the mitigating actions in place to address these concerns.”

In July, the Sunday Times revealed Eskom would run out of cash within three months as it had fallen below the R20bn liquidity buffer, a position it denied as misleading at the time.

The last time Eskom ran out of cash to pay suppliers and staff salaries, in September 2015, it turned to the government for an R83bn bail-out — R23bn in cash, while the balance of R60bn debt owed to the government was written off. At the time, Eskom had less than R20bn in cash.

“Yes, Eskom does have a big problem in our financial position. It’s part of our normal

reporting processes to inform the minister whenever we have a major reportable issue,” said spokesman Khulu Phasiwe.

“Our target is a liquidity buffer of about R20bn working capital and that has not been met. We have in the bank slightly more than R1.2bn.”

To keep Eskom running, the power utility requires at the very least R8bn cash a month.

In the letter, Khoza said the risks faced by the utility were compounded by the Development Bank of Southern Africa’s (DBSA’s) demand that Eskom repay its R15bn bond as it had fallen short of some of its debt covenant requirements, including maintaining a clean audit. In the year to end-March, Eskom received a qualified audit as a result of R3.6bn in irregular and wasteful expenditure.

The DBSA was later persuaded to waive the requirement of a clean audit as a condition of its investment.

Khoza said there was also a “longer-term risk given the uncertainty of the outcome of the 2018-19 tariff application before Nersa [National Energy Regulator of SA]”. Eskom has asked Nersa for an interim hike of 19.9% through the revenueclearing account mechanism. It aims to raise at least R63bn with the short-term tariff increase.

Phasiwe said the utility was having problems accessing previously agreed loan facilities due to allegations of corruption and lack of good corporate governance. “Our funders have asked us to sort out our corporate governance, and that has made it difficult to access funding.”

Asked what Eskom was doing to raise the needed cash, Phasiwe said details would be clarified in the interim results before the end of November.