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Investors upbeat about Eskom, despite financial woes - Gordhan

Aug 16 2018 08:55
Lameez Omarjee

Despite financial difficulties at Eskom, investors are optimistic about the power utility, Public Enterprises Minister Pravin Gordhan has said.

On Wednesday Gordhan briefed the portfolio committee on public enterprises on the progress made in addressing governance challenges at state owned enterprises (SOEs) in his portfolio - these include Eskom, Denel, SA Express, Alexkor, Safcol and Transnet.

Discussing Eskom, Gordhan that in a period of 10 years (between 2007 and 2017) Eskom’s costs and borrowings increased substantially.

Employee numbers have also risen, from just over 32 600 to over 47 600, and as a result, associated costs have risen from R9.4m to over R33m. Employee costs are the second biggest after coal costs.

Gordhan also noted that even though profit from operations improved, the power utility still reported a net loss for the 2017 financial year. 

But Gordhan said that the funds raised this year would go a long way to placing Eskom in a better liquidity position. "There is a higher level of optimism among the investor community," Gordhan said.

Just last week Eskom issued a statement indicating that the 10-year global bond of $1.5bn (about R22bn) was oversubscribed. This followed a roadshow in the UK and US by National Treasury, the Department of Public Enterprises and Eskom. 

Some of the issues investors raised regarding the utility include its future, whether it would have continued government support, how it planned to collect municipal debt, as well as the unsustainable cost structure, said Gordhan.

Eskom’s board will submit a new strategy for the next five years at the end of September.

Gordhan also commented on the cleanup at the entity. So far 10 implicated executives have exited, and the finalisation of disciplinary hearings for senior executives is being addressed.

Eleven criminal cases have been opened, involving nine senior executives. There are a total of 1 049 outstanding disciplinary cases since April, of which 628 have been finalised. Remedial action has been taken against 25 staff doing business with Eskom and seven have exited as a result.

A total of 239 whistleblower cases are being investigated, of which 122 have been concluded. Lifestyle audits are still in progress, and irregular expenditure contracts are being investigated. 

Gordhan also spoke on developments at Transnet. He pointed out that, similarly to Eskom, there has been interference by the board when it came to procurement, but this is now being dealt with. More details of what needs to be done to make improvements at Transnet will be confirmed once it has had its AGM, Gordhan said.

"Transnet is as a crucial entity as Eskom is for the economy," said Gordhan.

On Wednesday, Business Day reported that three Transnet executives - among them CEO Siyabonga Gama - had been served suspension notices.

As for Denel, Gordhan noted that the business is still in a liquidity crunch, struggling to pay its suppliers. Treasury had provided Denel a R580m reprieve in the third quarter.

Gordhan said that Denel would realise a lower revenue than planned for the financial year. "Projections show the entity is likely to post a record loss," Gordhan said.

The minister had also explained that the previous board did not have the required skills to manage the entity, as weak management had lost the confidence of the workforce. So far, disciplinary hearings were held for 144 cases. The CFO was placed on special leave pending the outcome of a disciplinary process. 

The new board is working on a 2018/19 corporate plan due in September, focusing on improving governance processes and structures to turn around the entity.

"There are huge possibilities for Denel to do better," Gordhan said. "I am confident, given a bit of time we can actually do that… This is a very important national asset which we have to manage in a very careful way."

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