As the country waits for President Cyril Ramaphosa to release the report into alleged impropriety at the Public Investment Corporation (PIC), the fund manager’s former chief executive Dan Matjila has thrown his weight behind a proposal for the PIC to rescue Eskom.
The PIC, which manages R2,2-trillion in assets including government pensions, currently holds around 20% or R90-billion of the troubled power utility’s outstanding bonds. Matjila told the Mail & Guardian in the lead up to finance minister Tito Mboweni’s 2020 budget speech that a debt-for-equity swop from the PIC would ensure that pensioners’ savings are not threatened and ensure a “sound return on investments” for the state owned asset manager.
As Eskom’s woes continue to drain the country’s economy, and despite the government’s plans to unbundle it into three separate entities, Matjila said the government would still need to dole out huge support from state coffers in order to support this plan.
Matjila’s proposal comes after Cosatu’s proposal to use state pensions to help reduce Eskom’s spiralling R450-billion debt. The PIC has previously said that it has not been consulted on the proposal to fund Eskom.
The fund manager has however said that such an investment should be in line with “the prudent management of [its] client’s interests”.
The former PIC chief executive told the Mpati commission (looking at corruption allegations at the PIC) last year that the the rescue plan had been on the cards for the fund manager in early 2018. He told the M&G however that at the time, the PIC came “under attack” for its proposal.
“We were challenged by the unions even though we gave them the process that would be followed. They never listened and now the problems are laid bare and they want to take the [PIC] money to bail out Eskom,” he said.
The former PIC chief executive, who says he is currently waiting for the Mpati commission’s findings to be released, admits that the ailing state owned power utility is currently not a good investment.
70% of Eskom’s R450-billion debt is guaranteed by the government. The power utility has been unable to sell enough power to cover its costs. This is exacerbated by rolling blackouts, which have been driven by an inability to maintain aging power stations.
Matjila said: “Eskom is not a good investment right now and no investor will put money into it until they fix it. There have been investments with its bonds that are guaranteed by the government.”
But now, he said, “the government doesn’t have money itself” and as a result “private investors have seen this and would rather not invest”.
His solution is therefore that: “Instead of more loans, convert the PIC loans to equity in Eskom to free up government guarantees and provide dividends for [the] PIC and ultimately growth for pensioners funds.”
Public enterprises minister Pravin Gordhan has called for the utility to be split into three units— power transmission, generation and distribution.
If the debt-for-equity proposal is accepted by the government then the PIC would either receive equity in one of the units, or spread across all three of the units. This deal however might not sit well with Eskom’s other bondholders. Matjila said the remedy to this might be to place the power utility under business rescue, similar to the ongoing process with South African Airways.
This will give the company the space to clean up its balance sheet and invite private investors, Matjila said.
The deal could also face some legal challenges because the assets that are held by PIC do not belong to the government, but are rather owned by government workers. The proposal to use state pensions to prop up the struggling power utility might also face legal challenges as it might be a violation of the PIC’s mandate.
“There are quite a number of conditions that still need to take place in order for the deal to go through, including the fund’s mandate. The mandate currently guides how much the PIC can invest in one asset. The conversion for debt-for-equity has to be thought through properly,” he said.
Matjila also proposes that Eskom sells six of its aging coal power stations to the private sector in order to raise R60-billion in cash. This can extend their useful life and complement the policy moves towards independent power producers, he said.
“It [Eskom] should not sell off Medupi or Kusile but rather old power stations. There is still some value in them according to the books. Eskom should invite investors that can operate the stations and to modernise the power stations,” he said.
South Africa remains highly dependent on coal for its energy needs. Over 90% of the power produced by Eskom is generated from the mineral. This has made the country one of the highest emitters of carbon globally. The window of opportunity opened for a mix of energy resources, as envisioned by the Integrated Resource Plan (IRP), would see the country less dependent on coal.
Matjila however said that while plans are in place for the country to move away from its coal dependency, the mineral “still has a role to play.”
“In South Africa we can’t move away from coal for now. Slowly we can chip towards cleaner energy but investors that have a time horizon of 15 to 20 years will be prepared to invest because they know that they will get their return on investments over that period.” Closing power stations early, he said, would mean that the investors don’t get their money.