PIC gives Eskom R5-billion lifeline

Eskom received a lifeline on Monday when the Public Investment Corporation (PIC) agreed to grant it a short term loan of R5-billion, to keep the struggling enterprise afloat.

The PIC, on behalf of the Government Employees Pension Fund (GEPF), advanced the R5-billion bridging facility to Eskom for one month. The loan will fund the company’s operations during the month of February 2018. But three other South African banks will also have to help Eskom out, the PIC stated.

Eskom approached the PIC, indicating that it was experiencing enormous liquidity constraints, which were threatening the company’s going concern status.

Fin24 reported in November that the power utility’s poor governance had left it teetering on the edge of insolvency. New Eskom boss Phakamani Hadebe confirmed at the announcement that all the reports were correct and that the company need R10bn now and another R10-billion by the end of February to fund Eskom’s operations.

Following Eskom request, the PIC said it conducted its own due diligence and obtained approval in line with its mandate and corporate governance requirements.

The GEPF and PIC Board take comfort from the fact that the bridging facility is fully backed by a government guarantee and that the pricing for this transaction is favourable to GEPF, it said.

Also the new management at Eskom reassured the PIC and the GEPF, adding that they were encouraged by the recent changes in the governance.

“The GEPF and the PIC are encouraged that the new Eskom Board and the new management team have moved with the necessary speed to restore good corporate governance at Eskom. The utility announced their interim financial statements last week, which had previously been delayed, in a frank and transparent manner,” Daniel Matjila, CEO for the PIC, said.

READ MORE: State worker unions put PIC on notice

In addition to the bridging facility, Eskom has approached other lenders as well, because it needed R20-billion in total, the PIC stated. It said three commercial banks have indicated that they are willing to further extend credit facilities to Eskom subject to the outcome of their respective due diligence processes, which are currently under way.

To date Eskom has demonstrated that it has secured financial commitments to meet its borrowing requirements over the short term, the PIC said, adding that it and the GEPF would continue to closely monitor developments at Eskom.

Last week, Eskom’s latest interim financial results showed that Eskom indeed needed R20-billion to keep going, but hope sprung after the new management at the utility showed vigour to fix the state enterprise.

The new Eskom board was appointed two weeks ago in a weekend shakeup. Hadebe was then also appointed as the new interim CEO at the institution.

Eskom’s interim results showed that electricity sales were down 1.9%, and that municipal arrear debt to Eskom was R12.2-billion, up from R9.2-billion year-on-year. Total overdue debt to Eskom was R19.4-billion (including municipalities), up from R16-billion, with Soweto arrears increasing by more than R400-million.

READ MORE: Flailing giant Eskom a threat to SA

Net profit after tax dropped to R6-billion from R10-billion. Eskom’s debt is now R367-billion, a R34-billion increase from a year ago. Gearing was at 70% and this was not sustainable. 

On Tuesday, Hadebe said what has broken the back of the camel “which is Eskom” was firstly last year’s qualified audit report, which was primarily due to irregular expenditure, and poor leadership. Eskom will now have to convince auditors at the end of the year that it is a going concern, he said. – Fin24

Yolandi Groenewald
Yolandi Groenewald
Yolandi Groenewald is a South African environmental reporter, particularly experienced in the investigative field. After 10 years at the Mail & Guardian, she signed on with City Press in 2011. Her investigative environmental features have been recognised with numerous national journalism awards. Her coverage revolves around climate change politics, land reform, polluting mines, and environmental health. The world’s journey to find a deal to address climate change has shaped her career to a great degree. Yolandi attended her first climate change conference in Montreal in 2005. In the last decade, she has been present at seven of the COP’s, including the all-important COP15 in Copenhagen in 2009. South Africa’s own addiction to coal in the midst of these talks has featured prominently in her reports.
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