Lights out in 60 days – expert on Eskom

‘IT’S LIGHTS OUT IN 60 DAYS’

Downgrade by Fitch Ratings agency this week may be a huge blow to debilitated utility.

Lenders refuse backing unless corruption resolved.

Alate-night downgrade by Fitch Ratings agency on Wednesday may have dealt a massive blow to the financially debilitated Eskom. “The downgrade reflects the weakening liquidity of Eskom and uncertainty about its ability to meet its financial obligations,” the report signed off by Fitch Ratings principal analyst and director Richard Barrow said.

The department of public enterprises has not responded to requests for information on what its plan B is if Eskom goes belly up.

Barrow noted Eskom’s “Rating Watch Negative” reflected “the potential for further downgrade in case of lack of government’s tangible support”.

“We understand from management that government (through Treasury, the department of finance and the department of public enterprises) is now working closely with Eskom to resolve its corporate governance challenges to restore investor confidence and address liquidity risks.”

He also noted the lack of a liquidity turnaround plan, medium-term funding uncertainty, and that the board had not yet been ratified by parliament, and saw “Eskom’s links with the government as weaker than those of NamPower with Namibia”.

Partner at Mining and Energy Advisors and energy expert Ted Blom said as severe as the language was in the notice, it wasn’t fully expressing the trouble Eskom found itself in. “I think it’s mild,” said Blom. “I’m anticipating lights out within the next 60 days. Government will have to declare a state of emergency.”

Finance Minister Malusi Gigagba said there was no money to bail out Eskom and thanks to President Jacob Zuma dumping free higher education in Gigaba’s lap last year, Gigaba is between a rock and a hard place.

In January last year, Eskom said new capacity would fuel the growth of the economy and noted it had a surplus of 5 600Mw at peak, due to improved plant performance and new capacity to meet any increase in demand until 2021 – only three years away.

The problem is Eskom’s near R10 billion a month burn rate. Interim CEO Phakamani Hadebe said on Tuesday they had approached four of their lenders.

“All four of them said congratulations on these appointments [of the new board]. And they said, we like what is happening, we’ve been arguing and trying to raise this so many times with government,” said Hadebe.

“Then they said, unfortunately we are not in a position to discuss funding with you unless you deal with the elephant in the room – corruption. Right now, the board is shifting chairs on the Titanic. Eskom is trying to squeeze a 50% hike in price from the National Energy Regulator of South Africa, I’m gobsmacked,” said Blom. –