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

Business Day - - FRONT PAGE - Sikonathi Mantshantsha and Kyle Cowan

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.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.