IS BRIAN MOLEFE STEADYING THE ESKOM SHIP?
With load-shedding seemingly under control, for now, finweek checks in with Eskom to gauge the situation at the parastatal.
asked to describe the climate at Eskom, CEO Brian Molefe replied: “Some sunny spells, mild in places, with occasional thundershowers.” A more scientific gauge of Eskom’s health, however, would be how the market views its financial liquidity.
Yields in Eskom’s benchmark bonds relative to those of Transnet have narrowed from a record 12% in April to about 2.5% today, suggesting there’s more ease with Eskom’s financial stability, no doubt aided by government’s equity injection of over R20bn.
It also helps that Molefe – who accepted the full-time post as Eskom CEO on 25 September – has roped in his colleague from Transnet, Anoj Singh, who is Eskom’s CFO, a role he occupied at Transnet. Says Singh: “The organisation is well positioned from a liquidity point of view for this and the next financial year.”
In addition to government equity, there’s a R15bn cash balance from the previous financial year and the possibility of another international bond. “We went to the UK and had a cup of tea. Investors said they would be receptive to an international bond, but no decision has been made yet,” says Molefe.
More controversially, Eskom hopes to reclaim R22.8bn in terms of its regulatory clearing account, which allows it to claw back its costs for previous financial years, in this case for the 2013/14 financial year.
It will achieve this by increasing the levy by up to 16%, although the application has to be cleared by the National Energy Regulator of South Africa (Nersa), an independent body that has disappointed Eskom’s clawback and tariff hopes in the past.
Industrial users in particular kick back against this, especially mining companies, where labour inflation is high and commodity prices are under pressure. This, and a certain evasiveness about executive pay – Molefe says no bonuses have been provided for two years – are some of Eskom’s thundershowers.
The organisation’s liquidity crisis seems to have been becalmed, however. There’s also a new management team in place and although Molefe has a track record of confrontation with stakeholders, he is also a strong leader.
“There are three things at Eskom that I quickly realised when I started running the company on an interim basis,” he told finweek in an interview. “The first is that it was profitable last year by R3bn, and had an EBITDA of R25bn.
“Secondly, there was more installed electricity capacity than demand so there was no structural problem. Thirdly, the capital programme had been launched so it is just a matter of ticking boxes. This is easier than having to create a new platform for growth.
There’s also a new management team in place and although Molefe has a track record of confrontation with stakeholders, he is also a strong leader.
“Eskom is not really a turnaround task but more a question of sustaining its trajectory,” he adds.
Molefe says that unplanned outages of power is below the targeted 7 000MW while new capacity has been added with just over 700MW of power from the first unit of Medupi and a further 2 147MW available through independent power producers.
Group executive for generation at Eskom, Matshela Koko, says commercial operation of its 1 300MW Ingula pumped storage scheme will come on stream earlier than planned. “Ingula will come in way ahead of the timelines you see.”
According to Eskom’s quarterly presentation, the first 333MW from Ingula is expected to come into commercial operation in January 2017 with another 333MW scheduled for that March.
The entire project will be commissioned by July 2017. “There is no delay at Ingula or Kusile unit 1 or Medupi unit 5,” said Koko. “We will make or exceed all timelines that you see.” The timelines set down by Eskom have an estimated probability of success of 80%, says Molefe.
Brian Molefe CEO of Eskom