Eskom gets a chief restructuring office amid devastating financial results

The interest costs on Eskom’s debt amounted to R35.8-billion, while it generated cash from operations of just under R33-billion. (Dean Hutton/Bloomberg/Getty)

The interest costs on Eskom’s debt amounted to R35.8-billion, while it generated cash from operations of just under R33-billion. (Dean Hutton/Bloomberg/Getty)

Following a blisteringly painful set of results — revealing Eskom’s losses had reached almost R21-billion — Public Enterprises Minister Pravin Gordhan announced the creation of an office of the chief restructuring officer (CRO) within the utility, in a bid to haul it back from the brink.

Freeman Nomvalo, the chief executive of the South African Institute of Chartered Accountants (Saica), has been seconded to head up and establish what Gordhan said will become an entity comprising a number of individuals, given the scale of the job and the skills needed.

Gordhan delivered the news on Tuesday, following the presentation of Eskom’s integrated results for the year ending 31 March 2019.

Nomvalo has previously served as the accountant general in the national treasury between 2004 and 2013, as well as a stint as the chief executive of the State Information Technology Agency. 

The naming of a CRO was first mooted in February’s budget, as a condition of additional state support for Eskom announced at the time.

The CRO office will have, amongst others, the task of interrogating and dealing with Eskom’s debt levels Gordhan said. Eskom’s total debt as of July has reached R447-billion.

According to a statement from the accounting body, Nomvalo will be accompanied by a team of professionals from Saica in the work of reorganising its operational and funding structures.

The entity will report to both Finance Minister Tito Mboweni, Gordhan, and the Eskom board in order to “build the right kind of relationship” with Eskom itself, Gordhan said.

Alongside the announcement of the entity, Gordhan also said that a roadmap for the restructuring of Eskom — first communicated by President Cyril Ramaphosa at the beginning of the year — had begun to take shape. In his first state of the nation address in February, Ramaphosa stated that Eskom would be unbundled into three separate business unit — generation, distribution and transmission.

Government intended to publish a white paper into Eskom’s restructuring by the end of August, or mid-September at the latest, Gordhan said and gave his assurances that the necessary consolations with unions would take place, and that the paper will be made public.

These incremental steps towards progress were however a small glimmer of hope in what was otherwise a serious bout of bad news.

Outgoing chief executive Phakamani Hadebe, whose last day at Eskom is on Wednesday, stated unequivocally that Eskom was in the grip of a “death spiral” as more of Eskom’s clients moved off the electricity grid to use alternative sources of power.

Total sales of electricity had declined 1.8% on the previous year — driven largely by declines in the mining and residential sectors.

The losses were underscored by a qualified audit opinion, and continued increases in irregular expenditure, which rose to R25.7-billion. Eskom’s external auditors SizweNtsalubaGobodo Grant Thornton highlighted the risks to the parastatal’s status as a going concern, due to amongst other issues,  its losses, the deterioration of most of the group’s financial indicators, and the impact of the reduced performance of its generation fleet.

The interest costs on Eskom’s debt amounted to R35.8-billion, while it generated cash from operations of just under R33-billion. When capital repayments are factored in Eskom’s debt commitments for the year totalled R69-billion.

But according to Eskom chief financial officer Calib Cassim these debt commitments — both capital repayments and interest — will rise to around R84-billiion in the coming year

The losses incurred this year — at R21-billion — were likely to remain at similar levels as well, added Cassim.

This has underlined the necessity of the additional government support announced for Eskom last week through a special appropriations bill, which will see a further R59-billion allocated to the utility in this financial year and the next.

Alongside increased costs due to operational performance problems — which saw Eskom institute rotational power cuts earlier this year — money owed to the utility by municipalities has reached R20-billion Cassim revealed.

On the operational side, while there had been some improvements in performance, Eskom’s chief operations officer Jan Oberholzer said the company was by no means out of the woods.

Although Eskom had been doing maintenance on its plant, it had not been doing sufficient maintenance, because the utility did not “have the luxury” of taking units out of service for the proper length of time, as it needed to supply the country’s electricity demand.

“The risk of load shedding remains,” he said.

But Eskom teams were “doing whatever they can” to avoid load shedding, and to reduce the use of diesel fired power stations, he said.

Nevertheless the system would remain unpredictable and unreliable, for the next 18 months Oberholzer said, until such time as Eskom had managed to do the necessary work on all its plant.

Board chairperson, Jabu Mabuza who will take over as interim chief executive, after Hadebe exits again underscored the need for difficult choices to be made.

“The board of eskom is mindful that our challenges be solved in isolation, neither can they be solved overnight. These require a partnership approach among all stakeholders where difficult choices need to be made with the aim of achieving sustained success,” he said. 

*Update: This story has been updated to reflect a more up to date figure for Eskom’s debt.