Eskom in the twilight zone where foreign bondholders call the shots

If South Africa is ever finally to fulfil the structural reforms promised to bondholders, and not in some distant future, the protests by Eskom workers provide just a glimpse of what people mean when they talk about the “pain” of following through with fundamental reforms. The toughened stance by the company’s board and management on wage increases is not something we’ve seen in the public space for as long as I can remember. It’s a stance that, more than anything, is informed by a new truth, namely that Eskom’s future is no longer in the hands of our politicians — that esteemed class — but rather in the hands of its creditors. These are lenders who are now unwilling to fund an institution that refuses to face up to its challenges of shrinking revenues and ever-rising costs.

And when lenders turn their back on a company, it’s disastrous, as in the case of one-time construction giant, Basil Read. From a company worth R2.7-billion more than a decade ago in the runup to South Africa’s 2010 World Cup, it’s now worth a mere R30-million. On Friday, the 66-year-old JSElisted company filed for business rescue.

It’s an outcome that South Africa can’t afford with any of its state-owned enterprises, and especially Eskom. That being the case, the fate of the electricity giant is no longer in the hands of our politicians.

Let that sink in just for a moment: because of its bad governance over the past decade, the country’s biggest state-owned enterprise is for all intents and purposes being run not from a government office somewhere in the middle of Pretoria, but by the private sector through bondholders. The many “high priests of privatisation” — for privatisation’s sake — should be rejoicing.

It’s clear their demands are being followed this year, through the appointment of a credible board, and a focus on reining in Eskom’s rising costs, with management starting wage talks with an offer of 0%.

Now that’s not how a public-sector corporation in a South African context has ever operated. You could see Public Enterprises Minister

Pravin Gordhan falling into old habits by seeking to strike his own separate deal with unions by promising a compromise of sorts. An act, that sitting in the bleachers, can only be read as undermining the new management in Megawatt Park.

But as protests continue, we’ll see if the political intervention can help find a way forward in the short term. But what of the long-term damage to the credibility of the board in the eyes of employees?

But back to South Africa’s new truth, one where markets are dictating terms. It’s a reality that every administration at some point or other one day faces — especially when previous administrations squandered the opportunities that come with a surplus. It’s a realisation that it is bond traders in the world’s leading financial capitals of New York, London and Hong Kong that determine its fate.

In former US president Bill Clinton’s first term, in a presidency that promised increased education spending, public works and middle-class tax cuts, all these promises fell by the wayside as his advisers suggested that the best thing the new president could do was to be fiscally disciplined.

Clinton was said to have raged at his aides: “You mean to tell me that the success of the economic programme and my re-election hinges on the Federal Reserve and a bunch of f ****** bond traders?”

As a nation, South Africa is in the same boat, and in fact in a worse position than both of the examples above. The first test of the country’s resolve to undertake the “painful” structural changes that our politicians so often talk about begins with Eskom’s Megawatt Park headquarters. For the credibility of his administration, President Cyril Ramaphosa can’t be seen to buckle under the pressure of unions, but by the same token he can’t really afford an extended period of load-shedding. Something has to give. I don’t want government to win this battle outright, because of my fear that we will one day walk down the US route where Reaganomics wins the day and the union movement collapses altogether.

Given our inequalities, a strong and credible union movement is necessary, even as we are forced to undertake a course of painful structural reforms.

The many ‘high priests of privatisation’ should be rejoicing