Flailing giant Eskom a threat to SA

The treasury said it is working with Eskom and the department of public enterprises to help the utility to secure the funding identified in its funding plan.

The government has issued R355-billion in guarantees to Eskom, about R210-billion of which has been used. Should the utility be unable to pay its bills, this could trigger a call on the guarantees, which would be too large for the fiscus to handle.

“As government is guarantor of a significant portion of Eskom’s debt, it has become a significant risk to the entire economy,” Gigaba said in his speech last week.

Moola cautioned that it is very difficult to ascertain Eskom’s true funding position because of the lack of visibility surrounding its arrangements.

If Eskom is able to draw down on all the funds announced as committed, then the company should get through this year without a liquidity issue, she said. But if some of the facilities have been withdrawn because of lenders’ concerns and particularly if Eskom does not have a new board by November, then the utility could be facing a liquidity issue, she said.

However, if there were liquidity concerns, they would probably have been tabled in the mid-term budget statement, she added.

Given the constraints on the budget, there are few ways for the government to support Eskom in the short term. It could borrow more — and widen the deficit. Assets could be sold, but this would involve a process and it is unlikely that it would be completed by the end of the financial year, she said.

In public hearings on the tariff applications, civil society, industry and economists have focused on Eskom’s financial state.

The government and Eskom appear to be counting on a favourable tariff decision to stabilise Eskom but stakeholders have warned that the economy cannot sustain further steep increases. They are particularly critical of Eskom’s poor cost controls and its crippling capital expenditure programme, which is increasingly being seen as unnecessary given the decline in demand for Eskomgenerated electricity.

Experts warn that dramatic and difficult decisions about Eskom’s future have to be taken. In a presentation to the Nersa hearing, Grové Steyn, of Meridian Economics, said one way for Eskom to stabilise its financial position would be to decommission some of its older power stations and halt its completion of the Kusile power station’s units five and six. This could free up about R17-billion, in spite of possible claims by contractors, according to his preliminary research.

“My impression [of Eskom’s financial position] is that it is dire,” Steyn said.

Eskom poses a systemic risk to the country because of the government’s guarantees and the exposure of government pensions, he said, also pointing to the utility’s importance to the economy as its major electricity supplier.

It is not clear whether Eskom is, in fact, facing an imminent funding crisis, he said, but it is clear that, in the long term, the company has to stop the haemorrhaging — and cutting back on its costly capital expenditure programme is a way to do this.