Eskom must meet 28 con­di­tions for bailout

• Trea­sury di­rec­tive in­cludes daily up­dates on util­ity’s cash po­si­tion; clar­ity on Medupi and Kusile

Business Day - - FRONT PAGE - Carol Pa­ton Writer at Large

The gov­ern­ment has sent Eskom a list of 28 con­di­tions that it must meet to get its lat­est R23bn bailout.

The con­di­tions from the Trea­sury in­clude daily up­dates on its cash po­si­tion, strength­en­ing its board and com­plet­ing an eval­u­a­tion of the costs and ben­e­fits of com­plet­ing its mega power sta­tions.

Eskom, which sup­plies 95% of SA’s en­ergy needs and is re­garded by econ­o­mists as the sin­gle big­gest risk for the econ­omy, ur­gently needs a cash in­jec­tion as it is un­able to meet its costs and obli­ga­tions to lenders and sup­pli­ers.

While gov­ern­ment has said all aid will be con­di­tional on Eskom meet­ing re­form tar­gets, it has also con­ceded that a fail­ure of the util­ity would be cat­a­strophic for the econ­omy, rais­ing ques­tions about the state’s abil­ity to en­force such con­di­tion­al­ity.

The Spe­cial Ap­pro­pri­a­tion Bill, un­der dis­cus­sion in par­lia­ment, will trans­fer an ad­di­tional R59bn to Eskom over the next two years. This is in ad­di­tion to the R69bn of fi­nan­cial sup­port Eskom will re­ceive from the gov­ern­ment be­tween 2019/ 2020 and 2021/2022 an­nounced in the bud­get in Fe­bru­ary.

The Trea­sury has also warned that Eskom has reached the end of the line for any fur­ther bailouts in 2019 as all the le­gal reme­dies that ex­ist to trans­fer money from the fis­cus have now been ex­hausted.

Brief­ing a joint meet­ing of par­lia­ment’s com­mit­tees on ap­pro­pri­a­tions on the loan con­di­tions on Wed­nes­day, the Trea­sury’s act­ing head of as­set and li­a­bil­ity man­age­ment, Tshep­iso Moahloli, said that it was their in­ten­tion to keep a much tighter over­sight of Eskom’s cash and debt man­age­ment, which will in­clude daily liq­uid­ity up­dates and monthly fi­nan­cial state­ments as well as an ex­pla­na­tion of all de­vi­a­tions from the an­nual bud­get that ex­ceed R100m.

It must also pro­vide a plan to

man­age the cash of the busi­ness within its avail­able re­sources.

MPs urged the Trea­sury to en­sure the reg­u­la­tions “had teeth”. Chair of the se­lect com­mit­tee on ap­pro­pri­a­tions Dikeledi Mahlangu said: “We mean busi­ness; it can’t be busi­ness as usual. There must| be con­se­quences.”

Pre­vi­ous at­tempts by the Trea­sury to hold Eskom to con­di­tions have not been suc­cess­ful. Though con­di­tions were im­posed on the con­ver­sion of a R23bn loan to eq­uity in 2015, both gov­er­nance and fi­nan­cial man­age­ment at the util­ity de­te­ri­o­rated re­gard­less.

In­cluded in the 28 con­di­tions are the re­quire­ment that sep­a­rate fi­nan­cial state­ments should be done for each divi­sion — gen­er­a­tion, trans­mis­sion and dis­tri­bu­tion — im­me­di­ately rather than wait­ing for the le­gal sep­a­ra­tion of the three parts into which Eskom is to be split.

The bailout is to be used only to set­tle debt and in­ter­est pay­ments and noth­ing else, and Eskom must sub­mit quar­terly board-ap­proved re­ports on all debt re­demp­tions and in­ter­est pay­ments.

The power util­ity must also dis­pose of the Eskom Fi­nance Com­pany by the end of March, sub­mit a monthly re­port on its ef­forts to re­cover out­stand­ing money for elec­tric­ity sales from all debtors, and re­port on ini­tia­tives to re­duce pri­mary en­ergy costs, which in­clude coal, diesel as well as re­new­able en­ergy from in­de­pen­dent power pro­duc­ers.

On the con­struc­tion of Eskom’s mega power sta­tions Medupi and Kusile — which are the cen­tral drivers of Eskom’s R450bn debt bur­den — the Trea­sury says that it wants to see “a de­tailed cost, tim­ing and ben­e­fit plan for the com­ple­tion”.

Moahloli said that the Trea­sury needed to know the cost of com­plet­ing Kusile, where two units of six have been com­pleted. The costs and time­lines for com­ple­tion for both power sta­tions are way over­due and they are rid­dled with de­sign flaws, which are sap­ping 50% of ca­pac­ity. The Trea­sury wants a re­port on the de­fects of the build pro­gramme and the steps that Eskom has taken to say what is due to them.

The Trea­sury has placed con­di­tions for the bailout on the de­part­ment of pub­lic enterprise­s, which is the share­holder de­part­ment of Eskom.

These in­clude the ap­point­ment of a CEO not more than a month after the en­act­ment of the bill, the strength­en­ing of the Eskom board by December 31, and the publi­ca­tion of a spe­cial pa­per on Eskom pro­vid­ing a road map for the re­struc­tur­ing of the com­pany also a month after en­act­ment, which is an­tic­i­pated to be by the end of Oc­to­ber.

Chief di­rec­tor of state-owned enterprise­s over­sight at the Trea­sury Ravesh Ra­jlal told the com­mit­tee that Eskom’s board needed to act with greater force­ful­ness. “There is no sense of ur­gency, no sense of a cri­sis. We be­lieve the board needs to be­come more in­volved in the cash man­age­ment of the busi­ness,” he said.

Ra­jlal said that Eskom faced sev­eral risks and if they ma­te­ri­alise — for in­stance, should it not sell the Eskom Fi­nance Com­pany in time; or if rev­enue falls shorter than ex­pected — the com­pany would find it­self in an­other liq­uid­ity cri­sis be­fore the end of the fi­nan­cial year.

After the ad­di­tional bailout flowed to Eskom “there are no other le­gal mech­a­nisms to fu­ture fund­ing be­fore next year’s bud­get.

“They need to find ev­ery­thing they need in the busi­ness. There is noth­ing more that the fis­cus can pro­vide this year.”

/Freddy Mavunda (See Page 9)

Wholly fo­cused: Bob van Dijk, the group CEO of Naspers, and Phuti Ma­hanyele-Dabengwa, the com­pany’s SA CEO, at the Dunkeld Ho­tel on Wed­nes­day. Naspers is now a wholly fo­cused in­ter­net com­pany, says Van Dijk.

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