Cosatu got it right with Eskom

The Citizen (KZN) - - Opinion - Mukoni Rat­shi­tanga

The Congress of South African Trade Unions’ (Cosatu) pro­posal to de­ploy R250 bil­lion of Pub­lic In­vest­ment Cor­po­ra­tion (PIC) man­aged funds to re­duce elec­tric­ity util­ity Eskom’s debt has set the cat among the pi­geons.

Crit­i­cism of the pro­posal ranges from the like­li­hood of the cash in­jec­tion serv­ing as a dis­in­cen­tive for Eskom re­form, ex­ac­er­bat­ing the state’s fi­nan­cial li­a­bil­i­ties since gov­ern­ment em­ployee pen­sions are a de­fined ben­e­fit scheme, with the state bear­ing re­spon­si­bil­ity for pay­outs in the event of the Gov­ern­ment Em­ploy­ees Pen­sion Fund’s fail­ure to meet its obli­ga­tions.

Yet an­other crit­i­cism is the danger of moral haz­ard – the pro­po­nents of this ar­gu­ment im­ply that Eskom will not be able to hon­our its side of the bar­gain.

In fair­ness, it is dif­fi­cult to ig­nore this ar­gu­ment in the light of the go­ings-on in the State-Owned En­ter­prise (SOE) sec­tor.

It is also ar­gued that Cosatu’s pro­posal lacks a “de­tailed vi­sion on just how funds raised through pen­sions of pub­lic ser­vants will ever be re­turned with in­ter­est or just how the SOEs in ques­tion will be re­turned to prof­itabil­ity”.

While they may sound ap­peal­ing, the crit­ics ap­pear obliv­i­ous to the grav­ity of the elec­tric­ity sit­u­a­tion and the vi­tal need to re­store se­cu­rity of en­ergy sup­ply. For starters, the PIC is the sin­gle-big­gest holder of Eskom bonds of long-stand­ing, to­talling just un­der R100 bil­lion – the util­ity al­ready owes the PIC in any case. The ex­ist­ing debt could be con­verted into eq­uity and a for­mula found to cal­cu­late the per­cent­age.

From this point of view, the moral haz­ard ar­gu­ment turns on its head since the real haz­ard is a col­lapse of Eskom which would come to fruition by do­ing noth­ing to ad­dress the util­ity’s debt cri­sis.

The R250 bil­lion pro­posed by Cosatu – or what­ever amount is sig­nif­i­cant enough to re­duce Eskom’s debt – would be new money which in­creases what­ever would be the PIC’s debt/eq­uity swap. Some in the policy space ar­gue that gov­ern­ment could guar­an­tee re­turns at an agreed per­cent­age above in­fla­tion over a pe­riod of time.

Al­ready, na­tional trea­sury has bud­geted R59 bil­lion for Eskom over the cur­rent medium-term bud­get which could be utilised, in part or in whole, to pro­vide the guar­an­teed re­turn to the PIC.

This route would ob­vi­ate the need for a spe­cial pur­pose ve­hi­cle which might en­tail onerus costs the coun­try can least af­ford.

Eskom has not once de­faulted on its debt obli­ga­tions to the PIC, which does not mean that such a day might not arise. The PIC is in­vested in many listed and non-listed com­pa­nies through­out the econ­omy and it has an in­ter­est in the sus­tain­abil­ity of each one of them, in­clud­ing Eskom whose bonds it has pur­chased.

This week, Eskom lost an urgent ap­pli­ca­tion be­fore the High Court in Pre­to­ria to set aside the Na­tional En­ergy Reg­u­la­tor of South Africa’s de­ci­sion to refuse the elec­tric­ity util­ity a 17% tar­iff in­crease in the next two years. Un­der nor­mal cir­cum­stances, Eskom could pre­sum­ably have weath­ered the storm, but not at the mo­ment – it needs ev­ery cent it can master.

The ar­gu­ment that a PIC cash in­jec­tion into Eskom would mil­i­tate against the re­struc­tur­ing of the util­ity is tan­ta­mount to say­ing that the util­ity’s healthy fi­nan­cial po­si­tion is an anath­ema to the process. In view of the ap­petite of pow­er­ful vested eco­nomic in­ter­ests for the un­fet­tered mar­ket ac­cess of in­de­pen­dent power pro­duc­ers and the de­mand that Eskom stays out of the re­new­ables space, the ar­gu­ment re­veals more than it con­ceals.

Cosatu’s pro­posal might have its short­com­ings but the prin­ci­ple un­der­pin­ning it is com­mend­able and ex­udes the spirit the coun­try needs to ad­dress our press­ing prob­lems and chal­lenges.

The Cosatu doc­u­ment, “Key Eskom and Eco­nomic In­ter­ven­tion Pro­pos­als”, in which the pro­pos­als are con­tained reads, in part: “Cosatu’s ap­proach is based upon a so­cial com­pact, where all par­ties from gov­ern­ment to labour, business and so­ci­ety make a con­tri­bu­tion and where nec­es­sary, a sac­ri­fice for the sake of the na­tional in­ter­est.”

The fed­er­a­tion stresses that: “It is crit­i­cal to un­der­stand that [the pro­posal] is not a blank cheque or a donation.” It is tied to a num­ber of con­di­tions such as:

“A com­pre­hen­sive pub­lic au­dit of all Eskom con­tracts and ex­pen­di­ture, [in­clud­ing] coal sup­ply con­tracts;

Those who have looted must be ar­rested and their as­sets seized;

Those who mis­man­aged [the util­ity must] be dis­missed and held per­son­ally fi­nan­cially li­able;

Coal sup­pli­ers and in­de­pen­dent power pro­ducer (IPP) gen­er­a­tion con­trac­tors must be forced to re­duce their prices or their con­tracts can­celled and as­sets ex­pro­pri­ated;

Eskom’s gen­er­a­tion man­date must be ex­panded by the min­is­ter to al­low it to ex­pand its own re­new­able en­ergy gen­er­a­tion ca­pac­ity;

The rel­e­vant in­vest­ment in bat­tery stor­age for re­new­able en­ergy must be­gin, and;

A com­pre­hen­sive debt re­cov­ery plan be im­ple­mented to re­cover the bil­lions owed by de­part­ments, SOEs, mu­nic­i­pal­i­ties, com­mu­ni­ties (in­clud­ing Soweto) and con­sumers at large.”

Even if Cosatu did not ad­vance these con­di­tions, the amount of money re­quired to save Eskom re­quires ad­di­tional and strin­gent mea­sures in­tended to pre­vent re­lapse into the abyss.

In its state­ment yes­ter­day, the PIC listed “Eskom’s grow­ing debt bur­den, gov­er­nance re­forms, op­er­a­tional ef­fec­tive­ness, pro­cure­ment prac­tices and re­li­able sup­ply of power to the econ­omy” as part of the is­sues that mus be ad­dressed to se­cure a last­ing solution to the util­ity’s prob­lems.

Sup­pos­ing that the crit­ics are cor­rect, in­clud­ing with re­spect to the in­evitabil­ity of an all-round fa­tal­is­tic sce­nario of a moral haz­ard and the PIC’s fail­ure to make a re­turn, they are obliged to an­swer an urgent and crit­i­cal ques­tion about what hap­pens to Eskom’s liq­uid­ity in the short to medium term.

Says the Cosatu doc­u­ment: “[Eskom] threat­ens not only to im­plode the state but also the econ­omy. Not only are the jobs of work­ers at Eskom at risk but in fact all work­ers in the event of Eskom col­laps­ing.”

If Cosatu’s es­ti­ma­tion of the desta­bil­is­ing po­ten­tial of Eskom is cor­rect as one is per­suaded that it, does this not make the so­cial-com­pact­ing that the fed­er­a­tion is propos­ing that much more urgent? Or does the less than de­sir­able state in which many of our SOEs find them­selves and the weak­ened ca­pac­ity of the state in­spire other im­pulses whose man­i­fes­ta­tions the coun­try might yet again have to con­tend with in an­other decade from now?

Rat­shi­tanga is a con­sul­tant, so­cial and po­lit­i­cal com­men­ta­tor. ([email protected]­ter­linked.co.za)

Eskom threat­ens not only to im­plode the state but also the econ­omy

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