Eskom Holdings SOC Ltd should consider selling two coal-fired plants that rank among the world\u2019s biggest to repair the state-owned utility\u2019s finances, according to the head of South Africa\u2019s biggest bank by market value.<\/p>\n
The supplier of almost all of South Africa\u2019s power is being battered by declining sales, high fixed costs, surging debt and unplanned outages that are holding back economic growth. Its two new power plants, Medupi and Kusile, are still unfinished after a decade of construction. Combined, Eskom estimates they\u2019ve cost R292.5 billion ($20.6 billion) to build.<\/p>\n
The plants are \u201cshiny new\u201d assets that \u201cyou would find private-investor capital for, whether that\u2019s local capital or offshore capital,\u201d said FirstRand Ltd chief executive officer Alan Pullinger in an interview at Bloomberg\u2019s office in Johannesburg.<\/p>\n
\u201cThere are big energy investors that would probably look to invest in those assets.\u201d<\/p>\n
Selling the plants would be made difficult if a list of conditions were imposed by the government, such as blocking job cuts, added the CEO, who once headed FirstRand\u2019s investment-banking unit Rand Merchant Bank.<\/p>\n
It may also want to contemplate separating the generation of electricity from transmission to invite independent producers to feed into its grid, he said. The utility would have to fix its capital structure and address its cost base through a restructuring exercise, Pullinger said.<\/p>\n
Must Be Fixed<\/strong><\/p>\n Eskom chairman Jabu Mabuza has said that asset sales aren\u2019t an option for the utility, because the \u201conly assets we can sell, no one will buy.\u201d The government hasn\u2019t made any decision to privatize the company, Public Enterprises Minister Pravin Gordhan said on Thursday.<\/p>\n Most of Eskom\u2019s other plants are old and costly to run.<\/p>\n Eskom has racked up R419 billion in debt – a quarter of the government\u2019s forecast total expenditure for fiscal 2019 – that it\u2019s battling to repay.<\/p>\n The utility is engaging several stakeholders, including the state, on various proposals, one of which includes getting the state to take over R100 billion of its borrowings. Labor unions have rejected previous proposals to reduce its 47,000-strong workforce.<\/p>\n \u201cThere is no way for Eskom to grow into its debt,\u201d Pullinger said. \u201cIt\u2019s got to be fixed,\u201d because Eskom\u2019s woes and the lack of reliable energy supply are \u201ca massive constraint to growth.\u201d<\/p>\n \u2018Fiscal Crisis\u2019<\/strong><\/p>\n The Johannesburg-based company poses the biggest credit risk to Africa\u2019s most industrialized nation, according to S&P Global Ratings.<\/p>\n Eskom has begun implementing rolling power cuts to manage demand as it battles to pay for maintenance at some of its plants. In recent years, it has suffered a decline in sales that has pushed demand to a decade-low as consumers turn to alternative power sources amid blackouts, and the emergence of new technologies such as solar panels. Medupi and Kusile were supposed to be fully operational in 2015 to address shortages.<\/p>\n Any asset sales by Eskom would likely be opposed by labor unions, who have publicly stated their opposition to privatization.<\/p>\n \u201cThe only workable solution is to break up Eskom and to sell-off certain assets, such as the new mega power plants,\u201d said Darias Jonker, director for Africa at Eurasia Group. \u201cThis latter option is particularly politically sensitive, and is thus unlikely to happen.\u201d<\/p>\n Eskom\u2019s proposal to transfer debt to the government may also trigger further ratings agency downgrades, he said.<\/p>\n \u201cEskom is pushing the government towards a fiscal crisis either way, and this is likely to happen sometime between 2022 and 2026, and thus could coincide with the 2024 election,\u201d Jonker said.<\/p>\n
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