Eskom must meet 28 conditions for bailout
• Treasury directive includes daily updates on utility’s cash position; clarity on Medupi and Kusile
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.”