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Eskom CEO says debt swap the best option to rescue utility

Feb 08 2019 14:01
Sam Mkokeli and Paul Burkhardt, Bloomberg

The easiest way to rescue South Africa’s beleaguered state-owned power utility would be for the government to assume part of its R419bn debt, said Chief Executive Officer Phakamani Hadebe.

"The debt swap is easy for the government,” Hadebe said in an interview in Cape Town on Thursday, shortly after President Cyril Ramaphosa announced plans to split Eskom into three units and provide it with financial assistance. "If the government has to first go borrow money and give it to us, that takes time."

Eskom’s debt mounted as its aging and poorly maintained plants battled to produce enough power to meet demand and customers increasingly elected to go off-grid as electricity prices rose. The utility has told bond investors it wants the government to assume about R100bn debt, an option Ramaphosa and Finance Minister Tito Mboweni have said they don’t favour.

In December, Mboweni tweeted a picture of a sieve just days after saying the government couldn’t continue pouring money into state companies that weren’t productive.

Rating companies have identified the parlous state of Eskom’s finances as a key risk for the economy.

If the government assumed R100bn of Eskom’s debt, it would be “close to credit neutral,” because it would only raise the country’s debt-to-gross domestic product ratio by one or two percentage points, according to Hadebe. Alternatively, the government could give cash to settle some of its debts, he said.

Ramaphosa announced in his annual state-of-the-nation address Thursday that Eskom will be split into generation, distribution and transmission businesses under a state holding company, enabling each unit to manage its costs more effectively and making it easier for them to raise funding.

He didn’t specify how much financial assistance the government will give the utility or what form it would take, saying details will be provided in the budget later this month.

Volatile issue

The plans didn’t mention possible job cuts, an issue that could prove to be the most controversial. Earlier this week workers protested at Eskom’s headquarters in Megawatt Park on the northern outskirts of Johannesburg, demanding answers about the anticipated plans.

Any plan to reduce staff should follow a procedure that keeps labor properly informed, Phillip Vilakazi, the deputy president of the National Union of Mineworkers, which has the biggest membership at Eskom, said after the speech. “They have been reckless and useless,” he said. “Changing from CEO to CEO, from COO to COO - never any delivery.’’

The National Union of Metalworkers of South Africa union reiterated a call to fight job losses. Ramaphosa’s address “confirmed our worst fears, which is that the ANC government has decided to privatise,’’ it said in a statement.

No disruptions were reported at the utility’s facilities on Friday, spokesperson Khulu Phasiwe said.


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