Eskom to get new board


Govern­ment will ap­point a new board for power util­ity Eskom, Fi­nance Min­is­ter Malusi Gi­gaba said on Wed­nes­day.

Tabling the Medium Term Bud­get Pol­icy State­ment (MTBPS) in Par­lia­ment, Min­is­ter Gi­gaba said the new board will be ap­pointed be­fore the end of Novem­ber.

He said govern­ment is con­cerned at devel­op­ments at the util­ity. The weak gov­er­nance is­sues that are cur­rently be­ing ex­pe­ri­enced at the util­ity has led to a qual­i­fied au­dit opin­ion and a vi­o­la­tion of some debt covenants with lenders.

“The fail­ures of gov­er­nance, lead­er­ship and fi­nan­cial man­age­ment at Eskom are of a grave con­cern. Eskom is sim­ply too im­por­tant to the coun­try to fail and we will not al­low it to,” said the Min­is­ter.

A Na­tional Trea­sury team with the nec­es­sary ex­per­tise will work with the De­part­ment of Pub­lic En­ter­prises - un­der which Eskom falls – to ad­dress gov­er­nance is­sues.

The team will re­port back pe­ri­od­i­cally, Gi­gaba said.

Min­is­ter Gi­gaba said Eskom is crit­i­cal to South Africa’s de­vel­op­ment with the link be­tween elec­tric­ity in­fra­struc­ture and eco­nomic growth.

Eskom, which has the largest state guar­an­tee of R350 bil­lion, fore­casts that elec­tric­ity sales growth over its plan­ning pe­riod will be flat, with rev­enue growth se­cured through tar­iff in­creases.

The Na­tional En­ergy Reg­u­la­tor of South Africa (Nersa) could grant tar­iff in­creases be­low Eskom’s ap­pli­ca­tion, as it did dur­ing the multi-year price de­ter­mi­na­tion process for April 2013 to March 2018.

Nersa re­cently ap­proved the process and time­lines for pro­cess­ing Eskom’s rev­enue ap­pli­ca­tion for the 2018/19 fi­nan­cial year.

Eskom is ask­ing the reg­ula- tor for a to­tal al­low­able rev­enue of R219 514 mil­lion. The to­tal al­low­able rev­enue ap­pli­ca­tion trans­lates to a 19.9% av­er­age in­crease in elec­tric­ity tar­iffs.

The mini-bud­get noted there are also risks that sales growth will per­form be­low pro­jec­tions, or de­cline as house­holds and busi­nesses im­prove their en­ergy ef­fi­ciency.

The MTBPS noted that any of the op­tions re­quired to sta­bilise Eskom could have sig­nif­i­cant fis­cal im­pli­ca­tions.

“If higher tar­iffs slow eco­nomic ac­tiv­ity, tax rev­enue col­lec­tions will be lower, de­lay­ing govern­ment’s fis­cal ob­jec­tives of clos­ing the deficit and sta­bil­is­ing debt. How­ever, if Eskom does not se­cure suf­fi­ciently high tar­iff in­creases its fi­nan­cial po­si­tion may weaken, re­quir­ing it to seek govern­ment as­sis­tance.”

In ad­di­tion, govern­ment has ex­tended its R350 bil­lion guar­an­tee from 31 March 2017 to 31 March 2023 be­cause of de­lays in Eskom’s cap­i­tal in­vest­ment pro­gramme.

The ex­ten­sion of the guar­an­tee will al­low Eskom to use the re­main­ing por­tion to com­plete its planned cap­i­tal ex­pen­di­ture pro­gramme.

The util­ity’s board has de­vel­oped a plan to ad­dress gov­er­nance con­cerns that they will share with lenders.

Mean­while, Nersa is ex­pected to rule on Eskom’s ap­pli­ca­tion for a tar­iff in­crease for 2018/19 as well as its Reg­u­la­tory Clear­ing Ac­count ap­pli­ca­tion.

“If these ap­pli­ca­tions are suc­cess­ful it would rep­re­sent a step-change in Eskom’s fu­ture rev­enues.

“Com­bined with strong cost man­age­ment, this could al­low the util­ity to cover all its obli­ga­tions without fis­cal sup­port.” said the MTBPS.


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