Flail­ing gi­ant Eskom a threat to SA

Mail & Guardian - - Busi­ness -

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.

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