/ 28 February 2020

PIC will only act for clients

Reuel Khoza
Reuel Khoza. (James Oatway/ Gallo Images / Sunday Times)

The Public Investment Corporation (PIC) will only invest in ailing state- owned power utility, Eskom if it falls within the fund manager’s fiduciary duty.

This is according to the PIC chairperson, Reuel Khoza, who spoke to the Mail & Guardian on the sidelines of the 2020 budget speech earlier this week.

Finance Minister Tito Mboweni did not announce any plans to swap the power utility’s R450-billion debt for equity for the PIC. Instead, Mboweni announced that R230-billion will be allocated from the national budget towards “restructuring the energy sector”.

The PIC manages R2.2-trillion in assets, including government pensions.

In the lead up to Wednesday’s budget, trade union federation Cosatu had proposed a plan that would see the PIC and other development finance institutions take a debt package to reduce Eskom’s debt from R450-billion to R200-billion.

Cosatu said that this deal would not be a blank cheque but would rather be tied to several conditions, including an audit of all of Eskom’s contracts and the dismissal — and personal liability — of all those involved in mismanagement at the utility.

In a closed media briefing on Wednesday before tabling the budget, Mboweni said the proposal was not a bad idea and that it added to the conversation about bringing private partners to rescue Eskom.

“We must be careful that we are not suggesting that public services workers’ pensions must be used to solve Eskom’s problems. It must be all of us, and the trade union movement must be very careful,” Mboweni said.

While admitting to the M&G that Cosatu’s proposal is being considered, Khoza said: “We are not going to do anything that would be inimical to those that have actually been put there. We will do so within the broader context of what is in the national interest and our own  guidelines.”

The 2019 budget review outlined a set of urgent reforms for Eskom, acknowledging that it was the largest state-owned company and in need of significant restructuring.

Of the R162-billion that the government has allocated to bail out struggling state owned enterprises over the past 12 years, Eskom accounts for 82%. In 2019-2020, the government allocated R49-billion to Eskom and committed R112-billion in medium-term funding.

Besides its financial woes, the utility’s inability to supply power has left the economy in the doldrums.

“The utility reported a net profit of R1.3-billion at September 30 2019, but it is not generating enough cash to cover debt and finance costs. This is partly a result of non-payment by municipalities and other consumers,” budget documents read.

Although plans have been put in place by the government to separate the entity into three separate units — transmission, power generation and distribution — it currently relies on the financial support of the government to operate.

Khoza said that despite the continuous financial support from the government, Eskom has been unable to hone in on its challenges. He said that in order for Eskom to reduce its debt, it would have to undergo major restructuring.

“The challenges at Eskom are multidimensional. It’s not a money problem; it’s a management, operational and planning problem,” he said. 

Khoza said most of the power utility’s debt can be ascribed to mismanagement and corruption, particularly in regards to the building of the new power stations, Kusile and Medupi.

“A great deal [of Eskom’s debt] can be ascribed to wasteful expenditure, reckless embezzlement. Eskom bled a lot due to those construction delays,” he said.

The national treasury has allocated R230-billion over the next 10 years in order for it to achieve the restructuring of the electricity sector. 

Additionally, to facilitate large-scale additional power production, treasury, along with the department of mineral resources and energy, is assessing information to procure 2000 to 3000 megawatts of power from alternative sources through its risk mitigation programme.

After there is approval, the power will be connected to the national grid within three to 12 months.

Additionally, the government is planning to source additional electricity from existing independent power producers (IPPs).

Government has committed to opening the bid window and making it possible for municipalities in good financial standing to buy electricity from IPPs. 

This move will make the Democratic Alliance happy as the party has been canvassing to source its own electricity from IPPs for the municipalities it runs.

The City of Cape Town is currently involved in a court case to allow it to procure its own power.

These IPP efforts will be supported by operational changes announced by the new Eskom CEO, which include separating the utility into the three divisions, resuming scheduled maintenance practices, fixing defects at Medupi and Kusile and buying energy from other entities with excess supply.

Eskom will also reinstate its demand management strategy, with a clear schedule that allows users to mitigate the most disruptive effects of unplanned outages.

Awareness campaigns will help to reduce pressure on the national grid.

Soweto residents are among those who owe Eskom, with the suburb’s debt the highest at R18-billion.

Khoza said that neither the government nor Cosatu has approached them regarding the plan but that they are not opposed to the debt-for-equity swap as long as it benefits “pensioners, widows, widowers and orphans” who are the majority of the clients of the PIC. 

“If they approach us we will do that which is in our fiduciary responsibilities of pensioners, widowers, widows, orphans who are the PIC’s client’s,” he said.

Thando Maeko and Tshegofatso Mathe are Adamela Trust Business Fellows at the Mail & Guardian