Eskom’s ‘plan’ to indebt the state

TO MOVE PART OF R419BN DEBT TO GOVT Africa’s largest energy utility not selling enough power to cover its own costs.

Eskom wants government to take on about R100 billion of its debt as part of a rescue plan to enable it to continue operating. The utility’s executives outlined the proposal to move the debt onto the government’s balance sheet to bond investors in London this week, according to Sanchay Singla, a money manager at Legal & General who attended a meeting with them.

The executives said they hadn’t formally raised the issue with Finance Minister Tito Mboweni or the National Treasury, according to a second investor, who asked not to be named. That made him doubtful the government would accept it, he said.

Eskom is saddled with R419 billion of debt, is not selling enough power to cover its costs, and has resorted to rolling blackouts as insufficient spending on maintenance constrains power generation. While it said last week it may need government help to survive, Mboweni told Bloomberg TV on Saturday there were limits to what the Treasury can do and the utility should tap the bond market for funding.

The government hasn’t received a proposal from Eskom, and any debt relief proposition will have to be assessed in the context of a turnaround plan that the utilit is expected to present soon, Treasury spokesperson Jabulani Sikhakhane said.

The government’s policy is that funding for state companies must be “done in a deficit-neutral manner”, he added.

Selling bonds is an expensive prospect. The premium investors demand to hold Eskom’s 2026 rand bonds rather than benchmark sovereign securities has more than doubled over the past five years to 124 basis points, even though the debt is government-guaranteed. Yields on the company’s 2025 dollar bonds are at the highest since March 2016, with the spread over US Treasuries climbing 184 basis points this year to 616 basis points. Eskom won’t comment further on the turnaround plan until all “stakeholders” have been consulted, said spokesperson Khulu Phasiwe. Public Enterprises Minister Pravin Gordhan declined to comment.

The Eskom executives said they wanted to raise power tariffs which are among the lowest of the 36 nations that form the Organisation for Economic Co-operation and Development, and were considering firing as many as 16 000 surplus workers, said the fund manager, who spoke on condition of anonymity said.

The option of job cuts, which has been previously reported, has been rejected by the unions. Eskom employs about 48 000 people.

Its debt reorganisation proposal was reported earlier by Business Day. If approved, it may add two percentage points to South Africa’s debt-to-gross domestic product ratio, the daily newspaper said, citing Eskom chairperson Jabu Mabuza.

Eskom’s troubles are emblematic of a decline at state-owned enterprises during the nine-year tenure of president Jacob Zuma, during which corruption became rife. His successor, Cyril Ramaphosa, has pledged to wipe out graft and has shaken up management at Eskom, Transnet and SA Airways.

Auditor-General Kimi Makwetu and ratings agencies have warned that Eskom is a risk to the health of economy. – Bloomberg