With load-shed­ding seem­ingly un­der con­trol, for now, fin­week checks in with Eskom to gauge the sit­u­a­tion at the paras­tatal.

Finweek English Edition - - FRONT PAGE - By David McKay ed­i­to­rial@fin­

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

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