Eskom faces‘liquidity challenges’

The department of public enterprises caused consternation on Wednesday after its presentation in Parliament, which stated that Eskom was “technically insolvent” and, based on its current trajectory, would “cease to exist” by April. The severity of Eskom’s financial difficulties are well known, but it is rare to see government officials describe its problems so baldly.

It backtracked a few hours later, issuing a correction removing any reference to Eskom being insolvent or ceasing to exist.

Instead, it stated that it faced “liquidity challenges”.

Public enterprises spokesperson Adrian Lackay said Eskom was not insolvent to the extent that its liabilities are greater than its assets, but rather that the problem was that it did not generate enough cash to cover its operating costs. Left unresolved, Eskom would, by April, “run out of money and not be in a position to pay their debt”, he said.

The company has amassed loans of R420-billion, which represents 15% of South Africa’s sovereign debt, according to the department.

The state has agreed however, to provide Eskom with financial support — the details of which will be revealed in the budget speech next week. Eskom also recently concluded a R15-billion loan from a consortium of banks geared towards funding its capital expenditure programme. At the time, Phakamani Hadebe, Eskom’s chief executive, said it was a sign that financial markets view Eskom in a “positive light”. — Lynley Donnelly