As Eskom’s operational crisis deepened on Thursday, 5 December with the resumption of load shedding during summer, Africa’s largest pension fund has taken a hard-line stance on any use of funds belonging to public servants to bail out the debt-laden power utility.
The Government Employees Pension Fund (GEPF), which manages R1.8-trillion in pension savings belonging to 1.7 million current and retired public servants, said it would only consider recapitalising Eskom if the government puts in place strict repayment terms and conditions.
Abel Sithole, the GEPF’s principal executive officer, said the pension fund has not been asked by the government to bail out Eskom but it would consider a request to recapitalise the power utility, which supplies more than 90% of SA’s electricity.
“But if we were to be approached to consider recapitalising Eskom, we would only consider it if the government offers us good terms and conditions,” Sithole told Business Maverick after the release of the GEPF’s annual report on Thursday.
Asked what would constitute“good terms and conditions”, Sithole said it would consider the “return on investment” offered by the government and whether the money extended by the GEPF to Eskom would be backed by a government guarantee.
Eskom is in a dire financial position with insufficient revenue from electricity sales to service its R460-billion debt load and tariffs that do not allow it to recover all costs. The power utility announced on Thursday afternoon that it was implementing stage two load shedding – cutting up to 2,000 megawatts of power from the national grid – “due to a shortage of capacity”.
SA’s economy, which is estimated to lose between R1-billion to R5-billion a day in productivity when there is load shedding, can ill afford power cuts as there are increasing fears that the economy might be in a recession in 2019.
Finance Minister Tito Mboweni and Public Enterprises Minister Pravin Gordhan have not announced decisive measures on how to deal with Eskom’s debt despite repeated promises to do so. Eskom, which is a drain on public finances because ongoing bailouts are threatening to push SA’s debt-to-GDP ratio to 80.9% by 2027/2028, said it needs to be relieved of R250-billion in debt to be sustainable.
PIC weighs in on Eskom bailout
Some market watchers and government policy gurus have proposed the use of pension fund savings belonging to public servants to relieve Eskom of a large portion of its debt. The rationale for this proposal is that the R1.8-trillion pension fund savings of current and retired public servants – through the GEPF – are already guaranteed by the state or taxpayers.
These funds are invested by state asset manager the Public Investment Corporation (PIC), whose mandate is to invest the funds to generate sufficient returns to pay out money once public servants retire. The guarantee of GEPF funds by the state means that if the PIC cannot pay out the pension money potentially invested in Eskom, the government would step in and pay any shortfall from the fiscus.
However, PIC board chair Dr Reuel Khoza is cautious about raiding GEPF funds to rescue Eskom.
“Throwing money to the Eskom problem without addressing the key challenges and understanding whence its problems come from would not be good. Certain things keep being done wrong at Eskom. Public servants would be very cautious and ask many questions if we throw good money after bad into Eskom,” Khoza said in a recent interview with Business Maverick.
Considering the deteriorating state of SA’s public finances, Khoza believes it wouldn’t be prudent to bail out Eskom using the GEPF even if its pension savings are guaranteed by the state.
“The fiscus is not growing and because of this, it behoves those that have been given the custodianship of those funds to be hyper-cautious before funds are deployed into Eskom.”
The GEPF’s dominant exposure to SA’s moribund economy is having an impact on the growth of its investment portfolio. The performance of the GEPF’s investment portfolio – which is about 94% exposed to SA’s investment market through JSE-listed shares, cash and bonds, with the balance being foreign asset classes such as international shares and bonds – mirrors South Africa’s worrying state of the economy.
According to the GEPF’s annual report for the year ending March 2019, the pension fund’s investment portfolio grew by only 0.88% to R1.818-trillion from R1.802-trillion in 2018 due to poor returns from the JSE. At an asset return level, the GEPF pencilled in an annual gross return of 4% in 2019, which is down from a return of 9.4% in 2018.
Sithole said the GEPF needs to find other sources of income and return, but this doesn’t mean it would expand its exposure to foreign asset classes, which would require approval by the National Treasury. Instead, the GEPF is still committed to investing a large portion of public servants’ pension savings in the domestic economy. But it might readjust or increase its allocations into domestic shares, bonds, property, and cash. BM
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