Eskom in a race against time to un­bun­dle it­self

• Fail­ure of re­struc­tur­ing of­fi­cer to sub­mit re­port among the many chal­lenges util­ity faces in di­vid­ing up debt

Business Day - - FRONT PAGE - Lisa Steyn Min­ing & En­ergy Writer steynl@busi­nesslive.co.za

Eskom CEO An­dré de Ruyter has warned that a vast amount of work lies ahead for the state-owned power util­ity if its un­bundling is to be done and dusted by the gov­ern­ment’s dead­line of the end of 2021. In a quar­terly state of the sys­tem brief­ing on Thurs­day, De Ruyter said the pol­icy of the de­part­ment of public en­ter­prises to re­form the elec­tric­ity in­dus­try re­quires that Eskom be un­bun­dled by the end of 2021.

A vast amount of work lies ahead for Eskom’s un­bundling to be done and dusted by the gov­ern­ment’s dead­line of the end of 2021, the state-owned power util­ity’s CEO, An­dré de Ruyter, has warned.

In a quar­terly state of the sys­tem brief­ing on Thurs­day, De Ruyter said the pol­icy of the de­part­ment of public en­ter­prises to re­form the elec­tric­ity in­dus­try re­quires that Eskom be un­bun­dled by the end of 2021.

“That is an ag­gres­sive time­line, be­cause of the fact that there is an enor­mous amount of work that needs to be done.

“Typ­i­cally a large cor­po­rate re­struc­tur­ing ex­er­cise takes any­thing from two to three-anda-half years, if we can use the re­cent Old Mu­tual un­bundling as an ex­am­ple. So these are not sim­ple projects to im­ple­ment.”

The un­bundling is crit­i­cal to re­form SA’s elec­tric­ity sec­tor, which has faced sup­ply short­ages for more than a decade, and which re­mains in op­er­a­tional and fi­nan­cial cri­sis. Eskom’s sur­vival has al­ways de­pended on the sup­pres­sion through gov­ern­ment pol­icy of com­pet­ing power gen­er­a­tion, but the ad­verse eco­nomic im­pact of ris­ing power prices and un­re­li­able elec­tric­ity sup­ply has put the gov­ern­ment under im­mense pres­sure to re­form the sec­tor.

De Ruyter warned that there are many is­sues to con­sider in the un­bundling, which must be “nav­i­gated very care­fully if we don’t want the wheels to come off half­way through im­ple­ment­ing this process”.

It is for this rea­son that Eskom has moved ahead with the “di­vi­sion­al­i­sa­tion” of its busi­ness, a sort of test run be­fore it em­barks on the le­gal sepa­ra­tion of its busi­ness units.

Boards and MDs have been ap­pointed to each di­vi­sion, which will now be run as sep­a­rate busi­nesses. Each di­vi­sion gen­er­ates its own income state­ment, and Eskom is set­ting up ap­pro­pri­ate bal­ance sheets and ap­por­tion­ing the rel­e­vant part of over­all debt to each di­vi­sion.

Eskom’s enor­mous debt of R450bn has largely been in­curred in the build­ing of its two huge coal-fired power sta­tions, Medupi and Kusile, which has run way over time and bud­get. The two sta­tions, while op­er­a­tional, have yet to be com­pleted.

It was thought that the chief re­struc­tur­ing of­fi­cer ap­pointed by the Trea­sury would pro­duce the plan to deal with the re­struc­tur­ing of Eskom’s debt. The of­fi­cer’s ten­ure was un­til the end of Jan­uary and his re­port was ex­pected to be handed over to the gov­ern­ment in Fe­bru­ary.

But the re­port has not been sub­mit­ted, De Ruyter said. “There­fore ... there have been no en­gage­ments be­tween the chief re­struc­tur­ing of­fi­cer and Eskom, and we are mak­ing our plans under the guid­ance of our board and also from the share­holder.”

Though most of the debt has been in­curred by Eskom’s power-gen­er­a­tion busi­ness, De Ruyter said all of its rev­enue­gen­er­at­ing di­vi­sions will have to be ap­por­tioned some share of the debt.

Eskom is try­ing to “un­der­stand ex­actly what the bal­ance sheets of the var­i­ous di­vi­sions will look like”.

The util­ity opted for the di­vi­sion­al­i­sa­tion ap­proach over an im­me­di­ate le­gal sepa­ra­tion so that it could iron out such is­sues with­out stok­ing con­cern among its lenders.

END-2021 IS AN AG­GRES­SIVE TIME­LINE, BE­CAUSE THERE IS AN ENOR­MOUS AMOUNT OF WORK THAT NEEDS TO BE DONE

WE WANT TO EN­SURE THAT WE DO NOT IN­AD­VER­TENTLY COM­MIT AN ACT OR BREACH OR DE­FAULT UNDER OUR LOAN AGREE­MENTS

“We will keep our lenders fully ap­prised of progress and we are tak­ing them along on this jour­ney in or­der to en­sure that we do not in­ad­ver­tently com­mit an act or breach or de­fault under our loan agree­ments,” De Ruyter said.

Darias Jonker, Africa di­rec­tor at Eura­sia Group, said Eskom’s brief­ing was thin on de­tail on debt re­struc­tur­ing, “in all like­li­hood be­cause lim­ited progress has been made in get­ting a key stake­holder, namely Na­tional Trea­sury, to agree to the plan”.

Amid the Covid-19 pan­demic and lock­down, Jonker said, the fis­cus is under im­mense strain and it is likely the “gov­ern­ment is just too busy right now to give the debt-re­struc­tur­ing pro­posal the at­ten­tion it re­quires”.

An­dré de Ruyter

An­dré de Ruyter

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