Eskom can’t go on like this any longer

Eskom is currently sitting with around R450 billion debt, exacerbated by low productivity, poor flexibility, no competition, and systemic corruption which is milking the company’s coffers dry.

These were some of the biggest points of contention pushing government towards its big plan to restructure the ailing power utility, which was presented by Public Enterprises minister Pravin Gordhan in Hatfield, Pretoria on Wednesday (29 October).

While the government has allocated the utility R128 billion in bailouts over the next three years, that won’t be enough to stabilise its finances because it isn’t generating enough income to cover its interest payments and operating costs, Gordhan said.

According to the minister, while state capture had a significant role to play in the destruction of Eskom as a power utility, it isn’t the only thing working against the company.

“The damage done by state capture at Eskom has been huge,” he said. “But it wasn’t just someone at the top stealing a few billions – the corruption is systemic,” Gordhan said, adding that stakeholders at all levels have been trying to extract as much money from Eskom as possible.

Gordhan said that seven entities have been identified that are making 100% profit from contracts with Eskom, stressing that the power utility needs to move towards more cost effective practices, with more reasonable margins.

He said that the group has been facing the overpricing of services and parts across the business.

But on top of state capture and corruption, the group’s woes have been exacerbated by a loss of technical skills at the company, as well as poor planning on the part of new builds like Kusile and Medupi.

The company is too large to manage – and deemed too important, which incentivises management not to change. So despite massive bailouts in 2007, 2015 and 2019, very little has actually changed fundamentally at the company, with little consequence or accountability.

Eskom provides 95% of South Africa’s power – with little to no competition. In this context, South Africa’s eggs are in one basket, Gordhan said, but it lacks the productivity to handle the demand.

The group’s power stations are at 69%-71% productivity, targeting 80%, Gordhan said – but Eskom doesn’t have a buffer, so the room for error is minuscule.

Now, with debt at R450 billion, and no way to pay it off, the company is the single biggest threat to the national fiscus.

“Debt cannot be dealt with in its own right,” Gordhan said, adding that to address the huge problems at the power utility will take time.

“What the market wants to see for now is that we have a plan for Eskom in terms of its business model, and that there is financial restructuring, and cost cutting,” he said.

With the business model, Gordhan went into more detail around government’s plant to split Eskom into different units – reversing on the initial plan for three subsidiaries (Generation, Transmission and Distribution), with a new move to split it into two (Generation and Transmission).

Cost cutting will be addressed through working with the recently tabled Integrated Resource Plan, and building a more cost effective business model in line with the country’s needs, as well as addressing the aforementioned contract issues with companies.

In terms of the financial restructuring, finance minister Tito Mboweni will provide further guidance on the details of Eskom’s finances during his mid-term budget speech on Wednesday, Gordhan said.


Read: Government’s new plan for Eskom in a nutshell

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Eskom can’t go on like this any longer