Eskom solution not too far off
PROPOSAL: PIC’S INVOLVEMENT BEING DEBATED
Utility makes progress in meeting early separation targets.
Utility makes progress in meeting some of the early separation targets.
Efforts to address Eskom’s R450 billion debt burden have taken a back seat to the government’s focus on fighting the Covid-19 pandemic. Minister of Public Enterprises Pravin Gordhan said on Wednesday: “We cannot say that we have a debt solution and as soon as we settle down on the Covid-19-related issues we will be able to give direction on what should happen to the debt.”
He was responding to questions in a joint parliamentary committee briefing where Eskom management provided an update on the utility’s recovery plan and its progress in the unbundling process.
The power utility has met some of the early targets related to its separation into three entities (generation, distribution and transmission).
It has also made progress in meeting key elements of the turnaround strategy, but still faces challenges – including an unreliable generation fleet, declining revenues and an outdated business model – and cannot service its debt.
The R250bn question
Eskom chief executive Andre de Ruyter had previously said the utility would have to achieve a debt balance of R200 billion for it to be financially sustainable.
Prior to the lockdown, government was in discussions with business and labour social partners in the National Economic Development and Labour Council (Nedlac) about the feasibility of using money from the Public Investment Corporation (PIC) and two development banks to relieve Eskom of R250 billion of its debt.
The discussions, spurred by a proposal from the Congress of South African Trade Unions (Cosatu), reached an “advanced” stage in March.
Last week the idea of the PIC being involved in Eskom’s bailout resurfaced, when PIC board chair Reuel Khoza was interviewed by eNCA. He said the investment management firm, which holds R90 billion in bonds in Eskom, had developed a discussion document that proposes, among other things, converting the bonds into equity.
Regarding Cosatu’s proposal, Gordhan said the broad framework for the R250 billion bailout was close to finalisation and that Nedlac partners would meet “to see if we have an adequate meeting ground” on some of the issues in the proposal.
Last year Gordhan appointed the chief executive of the South African Institute of Chartered Accountants, Freeman Nomvalo, as Eskom’s chief restructuring officer to interrogate the utility’s debt burden and collate proposals on how to deal with it.
On Wednesday, Gordhan told MPs that those proposals, as well as anything new,
would be interrogated.
Internal trading
Speaking on Eskom’s restructuring, De Ruyter emphasised that the entity is “not moving slowly” by opting for a divisionalisation or corporate reorganisation strategy as opposed to a full legal separation as initially proposed in its restructuring roadmap.
According to the roadmap, the complete legal separation of the three divisions would have been completed by December 2022, but Eskom’s own timeline – the baseline moving forward – only sees full divisionalisation being achieved by March 2022, with a date for legal separation yet to be confirmed.
“This approach allows us to prototype and road-test the divisions before we go to a legal unbundling, and [this] will derisk the legal restructuring programme.”
De Ruyter added Eskom was working with the department to develop a market operator and a central purchasing agency to allow the transmission division to act as a buying agent for electricity generated by independent power producers.
We cannot say we have a debt solution