If there is something the ANC Top Six officials talk about in their regular Monday meetings, it’s getting the economy going, according to ANC Treasurer-General Paul Mashatile:

“It’s top of the agenda at Luthuli House… We have to get the economy right and be able to create the necessary employment, particularly for young people”.

But exactly how to do so, is the question. Government is cash-strapped, in no small way by the under-collection of approximate R50-billion in tax revenue by the South African Revenue Service (Sars). And so the governing ANC, in government offices and Luthuli House, is getting innovative – with equity stakes looming large.

“If you look at Eskom the debt is seriously high. So we need to look at other approaches, including possibility of changing some of the loans in Eskom in to equity particularly by the PIC (Public Investment Corporation). Those are the discussions happening,” Mashatile told the Cape Town Press Club.

“We don’t think (Eskom debt) can be resolved through increased tariffs. The price of electricity is already very high… Our view is that if you change (PIC exposure) into equity then it will make better the balance sheet of Eskom to raise more money… Many corporates in South Africa listed on the stock exchange in fact have PIC money. So why not Eskom?”

Mashatile responded to questions, adding that breaking up Eskom into production, transmission and distribution entities would make what currently was “an elephant that is too big to walk”, more manageable.

“Some people might resist this, but it’s certainly the view from Luthuli House. If we are the strategic centre of power, you must listen to us. That’s is the direction.”

Effectively, by converting repayable debt into equity, the power utility’s battered balance sheet would improve, and this would allow it a better chance to raise loans and financing in the markets. Commercial loans, rather than government under-written debt, would ease the pressure on South Africa’s national purse. In February’s Budget, Eskom was described as one of the biggest risks to the economy.

Eskom spokesperson Khulu Phasiwe on Tuesday referred inquiries regarding any PIC equity stake to Public Enterprises as “they are the ones who will make any decision on equity partners”. The department told Daily Maverick “such a proposal has not yet reached government”. PIC Corporate Affairs Head Deon Botha responded similarly in writing:

“No decision has been taken to convert this bond exposure into equity. Such decision, including any request for additional funding, will made in line with the investment mandates”.

The PIC manages some R2-trillion of assets from government pensions and savings and cannot change its investment mandates without the consent of its clients, like the Government Employees Pension Fund (GEEPF) that accounts for some 88 per cent of PIC assets.

And the PIC may well be a bit gun-shy – its R5-billion short term loan to Eskom in February 2018 was sharply criticised, even if Eskom repaid in time, and according to Fin24, with some R30-million interest. The corporation has come under renewed scrutiny for how it has dealt with the allegations of impropriety against its CEO Dan Matjila, dismissed as smear campaigns, and its investment decisions in companies like Steinhoff, that crashed last year amid accounting irregularities, and VBS Mutual Bank, now under curatorship.

Finance Minister Nhlanhla Nene in a statement on Monday said he’d received the documents and reports related to governance matters, and others, and would meet the board before announcing “decisive steps” by end of week to address governance issues and allegations against Matjila. “I believe that the measures I will announce this week will ultimately strengthen the PIC’s governance and restore public trust in this important public institution.”

The ANC senior leader’s touting of the PIC on Tuesday to help the Eskom balance sheet by turning loans into equity – and suggesting the power utility should be broken up into production, transmission and distribution entities – is curiously timed.

But none of that means the governing ANC is not getting an increased appetite for private equity stakes as a way to generate monies for State-owned Entities (SOEs), particularly Eskom and SAA, in what remains South Africa’s tight financial and still limited economic growth environment. Economic growth, and investment, is what President Cyril Ramaphosa has put centre-stage in his administration. But investments are difficult to raise, although not impossible, as the US$20-billion pledges following his recent visits to United Arab Emirates (UAE) and Saudi Arabia demonstrate.

And as the ANC Treasurer-General told the Cape Town Press Club, while privatisation is not on the cards, engagement with the private sector regarding equity investment definitely is.

“We are fairly open to equity investment in our SOEs,” said Mashatile. “We’ve steered away from privatisation. Equity investment will be minority stakes rather than complete outsourcing, except when a particular government agency has no chance of being revived.”

It’s unclear whether any such government agency has been identified. But clearly, even the cash-strapped national airliner; SAA, according to Mashatile, may be one of those to receive a capital injection to make it attractive to equity investment.

After more than a year of just talk, the search for a strategic equity partner now is finally on for SAA, which was kept afloat last year with a series of bailouts of billions of rand. Eskom is also in a tough position. It has drawn down most of its R350-billion government guarantees, and its financial statements released on Monday show R2.3-billion net loss for the 2017/18 financial year – and R19.6-billion of irregular expenditure dating back to 2012.

“This was a result of us shaking the cupboard so hard that so many skeletons came tumbling down,” said Eskom board chairperson Jabu Mabuza on Monday in the financials announcement broadcast by eNCA.

It turned out at this financials announcement that Eskom has had a curious interpretation of determining the value of deviations, or changes to contracts, that meant these were under-reported to National Treasury. The power utility has been central to State Capture, as emerged in #GuptaLeaks, and subsequent parliamentary Eskom State Capture inquiry.

But SOEs remain central to boosting economic growth and creating jobs. And with some R2-trillion in assets, the PIC may seem like low hanging fruit to provide for that which the national coffers can’t, particularly in the months ahead of an election. In many ways the pressure is on. DM