Eskom bail-out could buy time for debate
Finance minister Tito Mboweni could announce the biggest bailout of a stateowned company in SA history on February 20. Depending on the size of the debt restructuring and recapitalisation package for Eskom — it could be up to R200bn — the move could create some breathing room for a proper debate about the future of the ailing electricity producer.
There are two ways to achieve a debt restructuring. The government could move R100bn of Eskom debt to the sovereign balance sheet, as the board and management have requested. A Nedbank report says that a R190bn bailout would set Eskom’s liquidity profile onto a sustainable path. “Using Moody’s debt-to-GDP ratio of 60% as a threshold, the government has the capacity to support Eskom to the tune of R212bn,” it reads.
The easier sovereign debtneutral option would be for the Public Investment Corporation (PIC), which has excess funding, to write off about R90bn of Eskom bonds. The second part of the package could be a R100bn recapitalisation in instalments over a few years. The Treasury could introduce a new tax to pay for the recapitalisation.
Eskom is a public asset that has multiple stakeholders, including its employees and those companies that supply it with coal, renewable energy and other products and services, affected mining communities, municipalities and the public. Eskom is also a macroeconomic policy issue that has a huge impact on growth, investment, employment and the budget.
The unions were correct to cry foul about the closed-door process of developing a plan to restructure Eskom that has involved foreign consultants such as Lazard and Boston Consulting Group and a task team. The issue has the potential to divide SA more than the so-called 1996 class project of neoliberal reforms that culminated in the Polokwane moment. It could be our Brexit.
The unions were also correct to cry foul about the plans announced by President Cyril Ramaphosa to unbundle Eskom into four companies — generation, transmission, distribution and a holding company. Lest we forget, in 2011 Eskom restructured and created three divisions that reported to former CEO Brian Dames. They had separate accounts. In the rest of the world, unbundling has always preceded privatisation and enormous job losses. Many workers see a reloading of the 1996 class project.
Unbundling could start a new feeding frenzy over many years by foreign investment bankers, consultants and lawyers. It will not deal with the company’s R419bn debt issue or any of the numerous operational issues that have resulted in load-shedding. Unbundling will also not affect the governance issues that have plagued Eskom for so long. It will just multiply them by creating four boards and four executive teams. The political management of the interfaces between the four companies will add more complexity to the system. Everyone will blame everyone else.
According to Eskom’s latest estimates of asset values, the generation business is worth R1-trillion, the transmission and distribution businesses R129bn and R111bn, respectively. This implies an 80-10-10 split. Up to 90% of Eskom’s debt could go to the generation business. However, as Moneyweb’s Antoinette Slabbert has noted: “That would mean generation would be left with most of the debt headache, but fewer assets and a smaller income. As things stand, the auditors have been worried about Eskom’s ability to continue as a going concern. Generation on its own would look worse.”
Ramaphosa says unbundling is in line with international trends. But he is way behind the international energy policy curve. Having experienced the chaos and instability of liberalised electricity markets, many countries are talking about rebundling. In the UK, most people support the opposition Labour Party’s plans to renationalise energy.
In SA, options that should be on the table include establishing a natural resources division such as Sasol, which gets coal at cost, that would increase Eskom’s ownership of coal mines and participation in renewable energy. Primary energy costs account for half of Eskom’s revenues.
The president must publicly release all the reports by the foreign consultants for public engagement and establish an Eskom restructuring panel that includes all stakeholders.