PIC bailed Eskom in the nick of time

ESKOM projected a R10-billion negative cash-flow for the first week of February and was saved from the brink of defaulting on its debt only by the one-month R5-billion bridging facility provided by the Public Investment Corporation (PIC), PIC chief executive Dan Matjila has revealed.

The disclosure is made in a letter sent by Matjila to the chairman of parliament’s standing committee on finance, Yunus Carrim. He outlined the rationale for the loan, which he said was needed to tide Eskom over until it obtained loans of R20-billion from a consortium of local banks. This could not happen immediately as processes and conditions precedent had to be finalised.

Without the R5-billion, Eskom’s going-concern status would have been jeopardised, Matjila told Carrim. A default would have put the PIC’s R95-billion government-guaranteed exposure to Eskom at risk.

The Public Servants Association and South African Federation of Trade Unions have objected to the loan.

Eskom spokesman Khulu Phasiwe conceded that cash-flow was a “big issue” but said that Eskom was generating cash from the sale of electricity and from the repayment of outstanding debt by municipalities.

The agreement entered into between the PIC and Eskom is for a money market instrument fully backed by a government guarantee in Eskom’s domestic mediumterm note programme.

The pricing of the facility, Matjila said, was determined by adding 75 basis points to the one-month Johannesburg interbank agreed rate, which meant that the pricing was above the benchmark rate of the Government Employees Pension Fund (GEPF) and therefore favourable to the fund.

The PIC, which has assets of nearly R2-trillion, acts as investment manager for the GEPF and other statutory funds such as the Compensation Fund.

Matjila said that some unions had expressed unhappiness with the PIC because they were not consulted beforehand about the investment, but he said that the GEPF was the PIC’s principal partner in the relationship. “The PIC is accountable to the GEPF directly in terms of the investment mandate signed between the two organisations. The PIC is under no obligation to consult or inform any trade union when it implements the mandate of the GEPF. The decision to invest the R5 billion was taken in consultation with the GEPF’s executive management and some members of their board of trustees.”