/ 5 April 2019

Eskom: Is there life after debt?

Eskom Is there life after debt
Eskom (Dean Hutton/Bloomberg/Getty Images)

Eskom must roughly halve its debt — reducing it by R250-billion — if it is to get back to an even financial footing based on current revenues, according to chairperson Jabu Mabuza.

“Where we are … we need to have the ability [to], from our revenues, less our costs, we have an ability to service R250-billion less [in debt] than what we have,” Mabuza told journalists on Wednesday, after a briefing on the state of the power system.

The utility outlined its plans to get the country through winter without load-shedding, or at the very least, with a maximum of 26 days of stage one load-shedding. This is provided that unplanned outages do not remove more than 9 500 megawatts from the grid.

Although some stability has returned to the grid, Eskom’s financial woes continue.

But Public Enterprises Minister Pravin Gordhan said the government would announce the package to address Eskom’s debt problems, either before elections or “soon thereafter”.

According to its latest financials, Eskom’s debt is about R420-billion, but Mabuza indicated that it has since risen. Eskom had previously told investors that it was seeking a debt-rescue package of about R100-billion to help it become financially sustainable.

But recent tariff hikes granted by the energy regulator, tariff clawbacks and equity from the state have all come in at levels lower than what Eskom had requested, he said.

Anton Eberhard, chair of the presidential task team appointed last year to look at the sustainability of Eskom, said there was no silver bullet to address the power utility’s financial position. In terms of Eskom’s debt “something had to give”.

The task team’s financial modelling had found that the R23-billion assistance provided by the treasury over the coming years, along with the current tariff levels granted, will not be sufficient to get Eskom’s finances on track and enable it to deal with its debt.

There were discussions to introduce a series of financial restructuring mechanisms to provide some debt relief and announcements in this regard would hopefully be made soon, said Eberhard.

He said Eskom also had to address its cost of debt, which is currently “very, very expensive”. As the utility repays or retires debt, it is “retiring its cheapest debt” — or debt raised at a time when it still had a credit rating 10 notches above what it is now.

A new, innovative financing facility is something that the team is looking at, Eberhard said, describing it as “a blended finance facility” that could include a concessionary component, possibly linked to climate finance and other sources.

Gordhan said that a variety of options were before the highest levels of government and “serious consideration is being given to all of them”.

“Once we are ready and have finessed the package, we will let you know either before the elections or soon thereafter, depending on how quickly we can resolve some of these problems,” he said.