Eskom in a race against time to unbundle itself
• Failure of restructuring officer to submit report among the many challenges utility faces in dividing up debt
Eskom CEO André de Ruyter has warned that a vast amount of work lies ahead for the state-owned power utility if its unbundling is to be done and dusted by the government’s deadline of the end of 2021. In a quarterly state of the system briefing on Thursday, De Ruyter said the policy of the department of public enterprises to reform the electricity industry requires that Eskom be unbundled by the end of 2021.
A vast amount of work lies ahead for Eskom’s unbundling to be done and dusted by the government’s deadline of the end of 2021, the state-owned power utility’s CEO, André de Ruyter, has warned.
In a quarterly state of the system briefing on Thursday, De Ruyter said the policy of the department of public enterprises to reform the electricity industry requires that Eskom be unbundled by the end of 2021.
“That is an aggressive timeline, because of the fact that there is an enormous amount of work that needs to be done.
“Typically a large corporate restructuring exercise takes anything from two to three-anda-half years, if we can use the recent Old Mutual unbundling as an example. So these are not simple projects to implement.”
The unbundling is critical to reform SA’s electricity sector, which has faced supply shortages for more than a decade, and which remains in operational and financial crisis. Eskom’s survival has always depended on the suppression through government policy of competing power generation, but the adverse economic impact of rising power prices and unreliable electricity supply has put the government under immense pressure to reform the sector.
De Ruyter warned that there are many issues to consider in the unbundling, which must be “navigated very carefully if we don’t want the wheels to come off halfway through implementing this process”.
It is for this reason that Eskom has moved ahead with the “divisionalisation” of its business, a sort of test run before it embarks on the legal separation of its business units.
Boards and MDs have been appointed to each division, which will now be run as separate businesses. Each division generates its own income statement, and Eskom is setting up appropriate balance sheets and apportioning the relevant part of overall debt to each division.
Eskom’s enormous debt of R450bn has largely been incurred in the building of its two huge coal-fired power stations, Medupi and Kusile, which has run way over time and budget. The two stations, while operational, have yet to be completed.
It was thought that the chief restructuring officer appointed by the Treasury would produce the plan to deal with the restructuring of Eskom’s debt. The officer’s tenure was until the end of January and his report was expected to be handed over to the government in February.
But the report has not been submitted, De Ruyter said. “Therefore ... there have been no engagements between the chief restructuring officer and Eskom, and we are making our plans under the guidance of our board and also from the shareholder.”
Though most of the debt has been incurred by Eskom’s power-generation business, De Ruyter said all of its revenuegenerating divisions will have to be apportioned some share of the debt.
Eskom is trying to “understand exactly what the balance sheets of the various divisions will look like”.
The utility opted for the divisionalisation approach over an immediate legal separation so that it could iron out such issues without stoking concern among its lenders.
END-2021 IS AN AGGRESSIVE TIMELINE, BECAUSE THERE IS AN ENORMOUS AMOUNT OF WORK THAT NEEDS TO BE DONE
WE WANT TO ENSURE THAT WE DO NOT INADVERTENTLY COMMIT AN ACT OR BREACH OR DEFAULT UNDER OUR LOAN AGREEMENTS
“We will keep our lenders fully apprised of progress and we are taking them along on this journey in order to ensure that we do not inadvertently commit an act or breach or default under our loan agreements,” De Ruyter said.
Darias Jonker, Africa director at Eurasia Group, said Eskom’s briefing was thin on detail on debt restructuring, “in all likelihood because limited progress has been made in getting a key stakeholder, namely National Treasury, to agree to the plan”.
Amid the Covid-19 pandemic and lockdown, Jonker said, the fiscus is under immense strain and it is likely the “government is just too busy right now to give the debt-restructuring proposal the attention it requires”.