Gordhan issues call to arms on Eskom crisis
• Minister silent on utility’s finances
Public enterprises minister Pravin Gordhan and Eskom’s top leadership on Thursday declared that Eskom is in crisis with an unprecedented breakdown of old plants due to neglect and exceptionally poor performance of new units due to poor quality work by contractors.
But although Gordhan gave an extensive briefing on Eskom’s operational difficulties, he did not provide answers on Eskom’s bigger problem, its financial crisis.
The omission spooked bond holders, whose concerns are mounting as they may have to take losses on their holdings.
The yield on its $1.25bn of eurobonds maturing in 2025 jumped an enormous 46 basis points to 9.35%.
Yields on the benchmark government bond due 2026 rose 10 basis points as SA assets were hit by a broader global market sell-off.
Eskom faces difficulties on all fronts. In the past three weeks it has been unable to meet the demand for electricity, leading to the return of load-shedding for the first time since 2016.
The utility is also in the grip of a financial crisis, with debt of R419bn and rising, and is unable to service its interest payments from its own revenue.
The crisis led Gordhan to intervene this week and exhort management to be “activist” and behave with a greater sense of urgency. Chair Jabu Mabuza and CEO Phakamani Hadebe were asked to return early from an investor roadshow to London and the US on Monday in order to put together an emergency response to the crisis.
At a briefing in Johannesburg, Gordhan said that all senior managers had their leave cancelled and would be deployed to power stations to assist management with operations.
He said that there would also be “a reshuffle” of management at Eskom’s head office, but said he still had faith in the board and in Hadebe.
“We are in emergency mode; we are in crisis mode. When you are in emergency mode you deploy your resources to where they are needed,” he said.
Gordhan said the plan would reduce load-shedding by January and bring it to an end by March. No load-shedding is expected between mid-December and mid-January, when
demand usually drops over the holiday period.
Insufficient money has been put into maintenance since 2010 and work on some repairs has been substandard, resulting in more breakdowns.
Difficulties with coal supply, due to inherited problems with coal contracts and difficulties with diesel supply to run the open-cycle gas turbines, normally used as a last resort, have compounded the generation problems, Gordhan said.
Medupi and Kusile, Eskom’s new coal-fired power stations, which are still partially under construction, have performed poorly and have not brought the relief to the grid that had been expected.
“A forensic process is under way and the first signs are that big contractors are falling short in design and quality,” he said.
The contractors include some of the world’s biggest equipment manufacturers.
Gordhan named Hitachi as one of the companies for which there needed to be “consequences” for poor work.
However, both Gordhan and Mabuza gave little detail on plans to restructure Eskom and relieve its financial burden.
Mabuza told investors in London on Monday Eskom plans to ask the government for R100bn of “debt relief” by taking the amount onto its own balance sheet. The Eskom board has submitted a plan to the government for consideration, which deals with both its restructuring and its financial sustainability.
Gordhan said that a group of cabinet ministers would now scrutinise the roadmap drawn up by Eskom. There was “nothing definite about any amount of money” and funding for Eskom would be in the context of the roadmap, he said.
“Once we have all of the package, we will make it public.”
He declined to take questions on the debt swap proposal.
R100bn the amount of ‘debt relief‘ that Eskom is asking government for