Gord­han is­sues call to arms on Eskom cri­sis

• Min­is­ter silent on util­ity’s fi­nances

Business Day - - Front Page - Carol Pa­ton Writer at Large

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

/Freddy Mavunda

Crunch time: Pub­lic en­ter­prises min­is­ter Pravin Gord­han and Eskom board chair Jabu Mabuza brief the me­dia on Thurs­day about the power out­ages that have hit the coun­try.

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