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Cape Town - Acting Eskom CEO Brian Molefe will be keenly watched as he tries to strengthen internal controls relating to procurement and auditing contracts at the power utility.
This is according to a research report by Nomura's emerging markets economist Peter Attard Montalto.
Public Enterprises Minister Lynne Brown seconded Molefe, who had been CEO at Transnet since 2011, to take charge of the power utility. This followed the suspension of Tshediso Matona in March after Eskom announced it would start an independent inquiry into the power utility.
Read: Transnet CEO Brian Molefe now acting CEO of Eskom
Nomura said after having discussions with the public and private sector, it believes Eskom will get an equity injection in June, adding that lower tariff awards are now likely.
The group is of the view that the level of rent extraction present at Eskom is much higher than previously assumed and weak internal controls, where the chief financial officer and treasury departments have no control over procurement and auditing of contracts.
"However, the added issue of the direct involvement of the board (including the previous chairperson) in the procurement process has further exacerbated the problem – and led to the suspension of the previous CEO and other executives when they tried to put in place more internal controls.
Watch: Exclusive interview with Eskom's acting CEO
"This will be the crucial test for new CEO Brian Molefe as he tries to do a similar thing," stated Montalto.
He said the group also more firmly believes that the old executives, Tsholofelo Molefe (finance director), Dan Marokane (group capital) and Matshela Koko (commercial and technology), will not return.
Regarding the bailout, Montalto said there is mixed news. "We now believe the first R10bn instalment of the equity injection will be paid in June. However, the National Treasury still does not have political agreement for true sales of non-core assets (ie, Vodacom) into the market."
Read: SA to sell assets to raise R10bn for Eskom
He said the workaround will be that the Treasury will sell assets including it's 13.9% stake in Vodacom to the Public Investment Corporation (PIC), which indicated that it is considering increasing its shares in the wireless operator.
"We see this as simply recycling money around the public sector, but it should ensure an equity injection can be made."
Nomura noted that while the new equity stake will allow more debt issuance, it will only stabilise the balance sheet and not improve it.
"We are concerned that Mr Molefe will try to do (for want of a better word) an “ego” issuance in the international market at (broadly speaking) any price. Such an issuance would be designed to show Eskom’s access to market and a turnaround strategy in place."
Montalto said the group now believes a 25% tariff increase will not be applied this year.
Read: Tariff hike unlikely to save Eskom - chamber
"Something has happened in the background that has put this on the back burner. It is possible that political backing from the National Treasury has dissipated."
However, what is set to happen, said Montalto is a second regulatory clearing account award (RCA), which may take the total electricity price increase this year to around 19% from 12.69% with the first RCA award.
"This will be welcome as it will clearly help get more cash into Eskom, where liquidity levels are lower than they would like, but is not as much as is needed."
The group also pointed out that it thinks the markets should be aware of but not overplay the coming seasonality of load shedding.
"There will be much less of it through winter from June to October. We think this will only in small part be driven by the changes Mr Molefe is making and much more by those seasonal factors, and may give a false impression of lower risk to the economy, which then gives way to more severe load shedding from November to May next year," concluded Montalto.
Also read:
Market has overlooked Eskom for too long - economist
