There are a few hard truths, and numbers. Eskom’s debt is at more than R440-billion and rising, according to the power utility’s own financials. National Treasury says debt repayments now stand at R80-billion a year.
Eskom has enough money until the end of October, according to Public Enterprise Minister Pravin Gordhan. That’s largely been made possible by the emergency release of R17.652-billion through Section 16 of the Public Finance Management Act (PFMA) in late March 2019 after Eskom could not meet its obligations and for 72 hours pushed South Africa to the brink of economic collapse.
If Eskom had failed to meet its liabilities it would have led to a demand for immediate repayment of all debt — government has guaranteed some R300-billion of Eskom’s debt — which would have triggered a complex cross-call-in of tens of billions of government-guaranteed debt at other state-owned entities (SOEs) such as SAA, Denel and the South African National Roads Agency Limited (Sanral).
It’s this scenario Finance Minister Tito Mboweni must have had in mind when he talked on 23 July of the “risk of systemic failure should Eskom collapse” when he introduced in Parliament a special appropriation for Eskom of R59-billion over two years.
That Eskom Special Appropriation Bill remains before Parliament in the legislative pipeline as the clock ticks to month-end. The law is needed to release at least the first tranche or the R26-billion for the 2019/20 financial year.
But Wednesday’s joint meeting of the National Assembly and National Council of Provinces appropriations committees ended without a clear decision exactly where these conditions for the special Eskom appropriation must go — into the bill, into regulations or by ministerial condition, effectively a letter. Instead, the meeting ended with Standing Committee on Appropriation chairperson Sifiso Buthelezi saying MPs preferred a mix of conditions being set out in the bill and elsewhere.
It’s not that National Treasury didn’t make its case.
The 29 conditions range from Eskom only using the billions to repay debt, daily liquidity reports, disposing of the Eskom finance and insurance companies by March 2020 to monthly management reports signed off by the group chief executive officer, with separate financials for generation, transmission and distribution.
“We are in a very, very difficult situation,” acting Asset and Liability Management head Tshepiso Moahloli told MPs. “What we have done already in July, we have adjusted national government funding… It does not paint a good picture.”
National Treasury chief director for sectoral oversight Ravesh Rajlal put it more bluntly:
“The problem is so dire at Eskom that we really have to take over at the Eskom treasury to understand what’s happening. There’s no sense of urgency. There’s no sense of a crisis (at Eskom). It’s just business as usual.”
And some of that disquiet seems to have filtered into the conditions, one of which is on National Treasury having “the right at any time to appoint advisers to review the information provided by Eskom”, according to the presentation to MPs.
Coincidentally, the condition of a deadline by when Kusile and Medupi power stations must be completed — both are years overdue and tens of billions of rand over budget — echoes the recommendations by Scopa, the Standing Committee on Public Accounts.
“Project management from inception was poor… What needs to happen now is to tighten up the controls to complete on time and on budget,” Scopa chairperson, IFP MP Mkuleko Hlengwa, told Daily Maverick.
On Wednesday the Scopa draft report on an oversight visit to the two power stations in late August also raised serious concerns over coal quality and supplies, while highlighting lack of documentation systems for procurement and contracts.
National Treasury prefers the ministerial conditions for the special Eskom appropriation. During Wednesday’s committee meeting officials repeatedly stressed the urgency to release the monies.
As the public enterprise minister said in September — Eskom has enough money until the end of October, which coincides with Mboweni’s Medium-Term Budget Policy Statement (MTBPS) on 30 October.
It was a different atmosphere down a parliamentary corridor and around the corner from where Eskom briefed Parliament’s public enterprise committee.
In a briefing on the Eskom financials, the power utility’s turnaround plan was emphasised — and successes such as keeping the lights on without any load shedding in the winter months, even if the diesel spend rose to R6.5-billion for the year.
But Eskom remained stuck on its view that its electricity prices are too low. And MPs witnessed a replay of the longstanding grievance with the National Energy Regulator of South Africa (Nersa), which the power utility has blamed for putting a spoke in its revenue generation capacity. Tariffs must increase — the briefing document included a graph showing South Africa’s power prices to be among the lowest — was the message to MPs.
But this is Eskom’s blind spot — the demand tipping point.
Simply calling for higher tariffs is a fallacy. While on paper the calculations may look right — raising tariffs would generate more money to ultimately balance the books — the reality is that higher prices mean consumers looking for alternatives. Anecdotal evidence is readily available to show the wealthy are going off-grid with gas and solar while the poor return to paraffin and candles.
The irony is that Eskom’s argument for higher prices cannot be sustained on its own figures. Eskom’s statistics presented to MPs as far back as February 2019 show flatlining sales, as did the numbers on Wednesday.
Sales dropped from 212 terawatt-hours (TWh) in the year to March 2018 to 208 TWh by March 2019, according to the Eskom briefing document, which states “reduction in sales mainly in mining and residential categories”.
And Eskom board chairperson Jabu Mabuza, who’s temporarily doubling up as CEO, in a way acknowledged this to MPs, saying “if we are producing (electricity), we are not selling it; if we are selling it, we are not getting paid…”
But that demand tipping point holds risk for Eskom and its revenue calculations, which already are at risk by potentially worsening borrowing conditions. As part of its number-crunching, Eskom had included raising R46-billion on the markets.
National Treasury on Wednesday raised concerns there may be a R20-billion shortfall in Eskom finances before the end of the financial year in March 2020.
Eskom CFO Calib Cassim didn’t dismiss the possibility of such shortfall, but emphasised Eskom was making savings. “We are taking our costs down R77-billion over five years,” he told Daily Maverick.
Eskom cast a pall over February’s Budget, which announced R23-billion a year for the next decade, or R150-billion amortised over that period, which was allocated to Eskom in February’s Budget. The power utility may well again cast a shadow over the MTBPS.
But in a not unimportant side power play, the politicking over the special Eskom paper seems to be drawing to a conclusion.
It was initially expected in July, then in September while instead, Mboweni’s economic discussion paper came in late August. And the Eskom special paper seems to have been shifted from being the responsibility of public enterprises to the presidency. That’s depending on who you talk to.
The clearest signal yet that there is some progress came from President Cyril Ramaphosa in his remarks after Wednesday’s meeting of his economic advisory council:
“The paper detailing our approach towards Eskom will be tabled at Cabinet shortly.”
Perhaps this is the best indication that Eskom could emerge from the rabbit hole. Or not. DM
"We must have a pie. Stress cannot exist in the presence of a pie." ~ David Mamet