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Eskom’s Molefe: Borrowed money will be repaid with New & Revised tariffs

Eskom's Brian Molefe tells Tim Modise about his honorary degree and the utility's intention to borrow money from the domestic market. The acting CEO says Eskom will be able to repay the money as it will claw it back from new and revised tariffs. He also spoke about his new role as chairperson of the BRICS South African business chapter and says new opportunities have opened up for local businesses. – Tim Modise

Mr. Brian Molefe; thanks very much for joining us and talking to us here on Transformation on Biznews. I should correct myself and say ‘Dr Brian Molefe’ now that you’ve been awarded the Doctorate in the U.K. Well, there’s a little bit of a story there, I suppose. Tell me more.

Yes. The University of Glasgow awarded me with an Honorary Doctorate in Engineering, largely for the work that was done at Transnet. This was decided last year but the award was done last week, on the 2nd of July in Glasgow. Yes, they did give me an Honorary Doctorate.

I suppose it’s a very global compliment to the world that you did that. From my side, compliments and congratulations.

Thank you very much, Tim.

Whilst you were away, the regulator here in South Africa said that they would not be able to oblige you with the application for tariffs to be increased, as you were requesting, and they cited a number of reasons. I wonder what’s going to happen to the ‘Festival of Maintenance’, as you called it when you went to Eskom. Does this put you in trouble at all, the fact that you are not getting the rate hike you asked for?

No, not at all, Tim. You will have noticed that in the last few weeks we have been announcing that we have been able to do maintenance and we have been able to maintenance without loadshedding. That is continuing, so our work is continuing. We are catching up with maintenance. As we said, a couple of weeks ago that the amount of maintenance that we did this winter is unprecedented, at 5.500 megawatts and three times the maintenance that we normally do (in winter). We have been able to do it with minimal loadshedding.

We have had some loadshedding over the last three weeks but it has been really, minimal – stage-one, exceeding maybe once or twice we had stage-two loadshedding but most days, in the last three weeks, we have not had loadshedding.

When you go back to them, we thought there was a connection between the tariff hikes that you were asking for, and the maintenance work that has to be done, but the fact that you are not being granted the increase that you asked. Does this put you, as Eskom, in trouble at all?

The tariff hike was to ask for money, to spend money on diesel or money for diesel, and actually PPP, which is the short-term agreement, so we are continuing with that. We are continuing with spending money on diesel. We do use diesel to avert loadshedding because not using diesel is much more expensive, than allowing loadshedding to happen. We are spending money on diesel.

The tariff application was not about establishing the principle of whether our spending on diesel can be passed onto the regulator and the consumer, and principle is established. What the decision simply said was that ‘go and spend the money, and when you have spent the money, you can claw it back’. We wanted the money upfront but the regulator said we can claw it back late, which means that the program has just been postponed and not completely done away with.

Yes, we are spending the money on diesel. The question is where do we get the money from, for diesel? We are going to have to borrow and pay back the money, when we claw back.

All right, so Government said that it is going to make some money available to yourselves, right. That it is going to be converted into equity in Eskom.

Yes.

What does that mean? It creates the impression that you were trying to benefit from two sources at the same time – a tariff hike, on one hand, and money from the Government, on the other hand. That you should have had one or the other, it could not be both at the same time.

No, we actually needed both, Tim, because of the nature of the problems that we have. We need to spend money on diesel to avoid loadshedding but we also need money for the [inaudible: 04:21] Program, for Medupi and Kusile. The R22bn or R23bn is largely, going to be used for Capex, and the loan that the Government had given to us some time ago, is going to be converted into equity. That will improve our balance sheet as well.

You mention something about ‘claw back’. What do you mean by that, when you say ‘you are spending money at this time but you are going to claw it back at some future time?’

Yes, for example in this case it is diesel spending or spending money on diesel, so the regulator agrees that you are entitled to recover the costs of diesel, to the extent that they are prudent. What we were trying to do was to estimate what those costs are going to be and to ask for an increase to cover those costs. What the regulator says is spend the money and when you’ve spent the money then come back to us with the invoices. Then you can claw it back or you can get it back.

In fact, so the regulatory claw back is precisely that that we can go back to the regulator with the invoices and the reasons of why we were spending the money on diesel. Then we can get it back, if the regulator rules it to be prudent.

You also have the matter with the Municipalities that were not paying you on time or owed you substantial amounts of money. Have you made progress in collecting from the Municipalities?

Yes. That is working out well. There was, originally, 20 Municipalities. They have all made arrangements to pay us back and none of them have dishonoured the arrangements that they have made. That seems to be working out well.

They are all honouring those arrangements, so I just wanted to understand.

They are honouring the new arrangement, yes. None of them is in default, in terms of the new arrangement.

Are you able to give a sense of how they are honouring the arrangements?

What happened is that we have restructured their debt, and agreed on payment terms. It is those payment terms, the new payment terms that they are paying us in line with, and they have been able to pay – in line with the new payment terms.

Going back the diesel story and the tariff hikes. The cash that you have, (in the business) is it able to sustain the use of diesel for some reasonable time or are you going to need more capital very soon?

We will need to borrow some of the money to sustain ourselves and we will need to borrow more, so we will go into the market and borrow. We are currently negotiating with several facilities and we’ll announce that very soon. The possibility of the BRICS Development Bank is also a potential new source of capital. We are quite confident that we will be able to borrow, to cover the costs.

You will be borrowing from where, the local markets or international, and how much?

We will be borrowing from the domestic market. We will also conclude some international loans. I think it is known that we have been negotiating for some time with the Chinese, as well as with the World Bank.

Are you able to give a sense of how much you are likely to borrow?

I think it is better not to do so now, because the negotiations are currently at a very sensitive stage.

Following you being conferred with a doctorate, recently. You then went to the BRICS Summit that was held in Russia. There you were appointed the Chairperson of the BRICS Business Council. What are the additional responsibilities for you now, as the Chairperson of the BRICS Business Council, given that you have a lot of work on your hands as the Eskom CEO?

To coordinate South Africa’s business position on taking advantage of the BRICS arrangement, so we go and negotiate with the other BRICS countries on the investment climate (in BRICS countries). To give advice on the New Development Bank, because that is the role that the BRICS Business Council wants to take, and yes, generally to liaise with the Heads of State, the BRICS Heads of State – for businesses position on the different matters that are being discussed at BRICS.

Now, for the business community, here in South Africa what is the relevance of the BRICS Business Council? What does this mean to them?

To the extent that we are looking for partners and we are also looking for doing business in the BRICS countries, and exploring opportunities to do business in BRICS countries, and invite other businesspeople from BRICS countries to come and do business in South Africa. That is the importance of the BRICS Business Council, to the businesspeople in South Africa.

The Presidents of the three big business bodies in South Africa – The President of the Black Business Council, Business Unit of South Africa, and the NSA – are also invited to our meetings, at the Business Council, so that they can appraise their members of the opportunities that are there, at BRICS. We will also be conducting a road show with the business organisations, to tell them more about what opportunities that are available at BRICS.

Are we straight between the BRICS members so far, at least from the South African point of view? Is it growing? What is your view, going forward?

It is improving. The single, biggest transaction in the last year, for example, was the Transnet locomotives transaction, but Bell, which is a manufacturer of heavy-duty vehicles, was also displayed, during the BRICS meetings, their vehicles in Ufa, Russia. They will be doing business in Russia.

There have been businesses out of Brazil, for example, Marco Polo, which is a bus company that has set up manufacturing activities in South Africa, for the manufacturing of buses for South Africa and for Southern Africa. There are quite a number of initiatives, which are coming out of BRICS countries, where South Africa is trading with the other BRICS countries, establishing operations in the other BRICS countries, and businesspeople from the BRICS countries are establishing operations in South Africa. We believe that the BRICS Bank, because it will provide infrastructure as well as facilitate trade, between the countries, is quite critical, in making sure that this becomes a reality.

Dr Brian Molefe, thank you very much for talking to us.

Thank you, Tim.

That’s the acting CEO of Eskom, talking to us here on the Transformation section of BizNews. Thank you.

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