Thalia Holmes
“In recent months it has become clear that Eskom requires urgent financial support and operational reforms,” says the National Treasury in the 2019 budget detail.
Market commentators might describe this as the euphemism of the year, or argue why this only became apparent in “recent months”. The ailing state utility operator is labouring under R416-billion in debt, has introduced several waves of shock loading-shedding stints, and recently requested a R100-billion bailout from the government. Its tariff increases have steeply exceeded that of inflation since 2008, caused in part by a need to service high operational costs (in 2017/18 those amounted to R132-billion), and its heavy debt burden.
Its massive flagship projects, Medupi and Kusile, have been in the limelight almost since inception, for all the wrong reasons. Now, footing a combined bill of over R300-billion, these power stations are grossly over budget and over schedule; and it has become apparent that the portions of them that are online do not work properly.
The most anticipated question on everyone’s mind leading up to Wednesday’s budget speech was exactly how the government would react to the Eskom crisis, and whether it would pander to its bailout requests, given the extremely tight fiscal line the Finance Minister currently treads.
Iraj Abedian, chief executive at Pan African Investment and Research services, explained on SAFM on Wednesday morning why our national preoccupation with the state utility operator makes sense: “Eskom is important for two reasons: one, if you don’t get the financing right, you can throw the economy into a recession for a few years; secondly if you don’t get it right you can undermine the economy because of a lack of reliable and credible energy source.”
The government has rejected the bailout request and instead adopted the proposal to restructure the monolithic organisation. South African taxpayers will support Eskom with R23-billion a year as the state-owned company reconfigures itself.
Following the plan outlined by President Cyril Ramaphosa in the State of the Nation Address, Eskom will be subdivided into three independent components: one for electricity generation, another for electricity transmission and a third for distribution.
The Finance Minister argues that “this will set the electricity market on a new trajectory, and allow for more competition, transparency and a focused funding model.”
The restructuring needs to take place in order to justify allocating any more of the government’s funds into the organisation, says Mboweni. “Pouring money directly into Eskom in its current form is like pouring water into a sieve.”
However, the minister said he wished to “to make it clear: the national government is not taking on Eskom’s debt.
“Eskom took on the debt. It must ultimately repay it,” he said.
He also emphasised that the money, which amounts to R69-billion over three years, will not be used to pay salaries.
This calls for some budget juggling, and the overall expenditure ceiling has been increased by R16-billion over the next three years in order to make this happen. Essentially, the government will reduce wages to public servants in order to generate the necessary funds.
“Relative to the 2018 Medium Term Budget Policy Statement, departments’ budget baselines have been reduced by R50.3 billion, with roughly half of this amount relating to compensation,” says the budget. “These reductions will offset by provisional allocations of R75.3 billion over the next three years, mainly for Eskom’s reconfiguration.”
The South African Federation of Trade Unions (SAFTU) has reacted with anger to the announcement, saying it is part of a veiled effort to further plans of privatisation of the SOE.
“The promised R23-billion a year to financially support Eskom during its reconfiguration will be insufficient to keep it going, which can be the excuse to sell it off,” the federation said in a statement.
SAFTU further complained that Mboweni “said nothing about recovering the money corruptly stolen from Eskom by its executives. SAFTU backs the call … for the immediate suspension of [Eskom’s] top executives,” it said.
Abedian argues that discussions around the power provider are moot, because it is insoluble. “Eskom has literally technically lived its economic life,” he said.
“The Eskom-centred mode of energy production which served the country for nearly a century is no longer viable in South Africa or anywhere else.”
Abedian says the focus on Eskom should be broadened to a national discussion about electricity generation.
“The question is not how to rescue Eskom, the question has to be how to put a credible, sustainable commercially viable energy [plan in place] for the South African economy for the next century,” he said.
“If you change the question from Eskom to a national energy question, then it’s not so insoluble as you think.”
