Why we can’t retrench: Eskom executive

Eskom chief operating officer Jan Oberholzer says that retrenchments are currently not an option for the embattled power utility because of the high additional costs involved and potential harm to the economy.

In an interview with Beeld, Oberholzer said that job cuts would save Eskom approximately R7 billion a year.

However, he said there are additional costs that need to be paid out to retrenched workers – such as severance packages – which Eskom cannot afford.

Oberholzer said that job cuts of between 10,000 – 15,000 would also cause significant damage to the lagging economy. Bloomberg first reported a figure of 15,000 potential lay-offs at the state company in July 2018.

Despite these potential problems, he acknowledged that Eskom’s output was below par considering the size of its workforce.

“When I resigned from Eskom 11 years ago, the power giant had slightly more than 30,000 people in service and our productivity was better than it is now,” he said.

“Today we work with close to 44,000 employees and also pay for contractors. So something is not right.”

Eskom is currently surviving on government bailouts and sits with debt exceeding R450 billion, which puts the country’s entire economy at risk.

Its financial challenges are mainly due to unsustainable operating costs caused by expensive coal contracts, a high headcount, overall operating inefficiencies, high debt service costs, corruption in procurement and the excessive costs to build Medupi and Kusile power stations.

Bloomberg reported that billions in bailouts for South Africa’s power utility will probably widen the budget deficit to the biggest since the financial crisis, threatening the nation’s remaining investment-grade credit rating.

With the National Treasury’s medium-term budget due for release toward the end of the month, economists in a Bloomberg survey expect a fiscal gap of 6.1% of gross domestic product for this year as money for Eskom, the public broadcaster and national airline sap resources.

That’s compared with the Treasury’s 4.5% February estimate and would be the biggest gap since 2010.

South Africa’s R128 billion three-year package for Eskom will add to state liabilities and widen the deficit, Moody’s Investors Service said last month. It’s the only major ratings company that still assesses the country’s debt at investment grade, Bloomberg said.

Analysts are speculating that Moody’s may cut the stable outlook on the Baa3 rating to negative because of rising debt and lower economic-growth projections, putting the country on the verge of another junk rating.

A downgrade would leave South Africa without an investment-grade ranking for the first time in 25 years.

Read: New ‘cheaper electricity’ bill proposes an alternative plan for Eskom