Eskom: Caught between a bailout and a tariff hike

Eskom’s liquidity and financial woes were key themes in the state utility’s plea, stating that the tariff hike would be a lifeline to save it from ruin. Executives implied that too low a tariff hike  would ultimately result in a bailout by Treasury.

Fin24 and EE Publishers on Monday reported that the power utility’s poor governance had left it teetering on the edge of insolvency, with only R1.2bn of liquidity reserves expected to be in hand at the end of the month.

The regulator has held hearings around the country over the past month and received more than 43 000 submissions at a time when Eskom is never far from the headlines.  

On Thursday the panel questioned the executive members on how they have cut expenses and on the steps they have taken to be more cost effective. Eskom CEO Sean Maritz was ordered by the chief executive of Nersa, Chris Forlee, to prepare a written presentation on Eskom’s struggles over the weekend.

This will be presented on Monday, which is expected to be last day of the hearings.

Acting finance chief Calib Cassim told the hearing that Eskom has costs and that these costs need to be paid, explaining that if Eskom could not plug the gap between its revenue and debt servicing costs, it would have to secure a bailout from Treasury.

The bailout will ultimately mean the South African taxpayers would have to pay, Cassim said. “Either the consumer or the taxpayer will have to pay this.”

Cassim said it was critical to recover revenues owed to Eskom as well.  “Municipalities' debt affects our liquidity.”

Also power stations could not simply be closed to see if savings could be generated there, he said.

He also cited a World Bank report that found South Africa’s electricity price was at the lower end of a study that compared different countries’ electricity prices.

But the panel hit back saying Eskom’s prices might be competitive on the world stage, but was it affordable to ordinary South Africans.

• READ: Why Eskom is asking for a 19.9% tariff hike

Maritz said jobs could be cut trying to drive efficiency, but that it had to be explored. He also promised Eskom was implementing a number of steps to improve governance.

The Eskom boss said that the company’s Executive Committee has resolved to take bold action in order to shift the organisation’s reputation towards positive change.

“In so doing, we have adopted a five-path plan to rebuild a robust governance process and preserve our core value of integrity,” he said.

“This includes strengthening our general internal ethics and fraud framework where we have reviewed and approved our ethics and fraud management policy. This includes providing safe avenues for staff to blow the whistle on governance irregularities and crime.”

He said there were more costs to the country if it did not deliver electricity.

• READ:Eskom should put house in order before a tariff hike - manufacturers

The South African Local Government Association (Salga) said the 20% tariff hike amountd to 27% to 29% for municipalities.

“We can’t afford that,” said Nhlahla Ngidi, responsible for energy and electricity matters at Salga.

“Eskom is just bargaining with the country. It knows exactly what it wants,” it said,”

The hearings continue.

 
• ALSO READ: Eskom acknowledges liquidity squeeze