A plan proposed by South Africa\u2019s biggest labour group to get pension funds and state lenders to refinance part of the state power utility\u2019s gargantuan debt faces hurdles that may be impossible to overcome.<\/p>\n
Under the Congress of South African Trade Unions\u2019 so-called social compact, Eskom’s R454 billion ($29 billion) of debt will be cut to R200 billion, with the balance transferred to a specially created entity.<\/p>\n
That will be funded by the Public Investment Corp which manages civil servants\u2019 pensions, private retirement funds, the Development Bank of Southern Africa, the Industrial Development Corp. and other investors.<\/p>\n
While the government and lobby group Business Unity South Africa have welcomed Cosatu\u2019s plan, the main opposition Democratic Alliance and trade union Solidarity have threatened court action because they say it\u2019ll put workers\u2019 savings at risk.<\/p>\n
The Public Servants Association, which represents more than 237,000 state employees, has also voiced opposition to the proposals. The standoffs could take years to resolve.<\/p>\n
Cosatu, which is part of the nation\u2019s ruling alliance and represents 1.8 million workers, has also said the rescue plans hinges on Eskom and the government agreeing to a range of preconditions that will be legally problematic to meet.<\/p>\n
Here are some of the potential sticking points:<\/p>\n
Investment Mandate<\/strong><\/p>\n The Government Employees Pension Fund has said any funding it gives Eskom has to comply with its investment mandate, provide adequate returns and be repaid, and it will only be able to assess if those criteria can be met once the Cosatu plan is finalized.<\/p>\n The GEPF has already invested R84 billion, or 18% of its assets, in the utility\u2019s bonds, and it wouldn\u2019t be ideal from a prudential perspective to have an excessive holding of a single asset, Abel Sithole, its principal executive officer, told lawmakers. The PIC manages the GEPF\u2019s assets.<\/p>\n State Guarantees<\/strong><\/p>\n Cosatu wants the government to guarantee any investment workers make in Eskom, a commitment that has the potential to place further strain on state finances and undermine the case for South Africa to retain its sole investment-grade credit rating from Moody\u2019s Investors Service.<\/p>\n The state currently guarantees more than 60% of Eskom\u2019s debt.<\/p>\n Investor Opposition<\/strong><\/p>\n Private investors in Eskom\u2019s bonds including Futuregrowth Asset Management, South Africa\u2019s biggest specialist fixed-income money manager, are vociferously opposed to any attempt to prescribe to them how to invest their clients\u2019 money.<\/p>\n A lengthy legal battle is likely to ensue should the government try and force them to help fund Eskom.<\/p>\n Job Security<\/strong><\/p>\n The unions say their investment in Eskom is contingent on the utility not firing workers.<\/p>\n But Eskom has more than 46,000 staff, or about a third more than it says it needs, and their numbers ideally need to be reduced for it to reverse losses currently running at more than R20 billion a year.<\/p>\n The unions also want Eskom to reduce its tariffs and increase the amount of free electricity it supplies to indigent households, a move that would compound its financial woes.<\/p>\n Contract Renegotiation<\/strong><\/p>\n Cosatu is calling for contracts signed with independent renewable-energy producers to supply the national grid to be renegotiated because it says prices are excessive.<\/p>\n It\u2019s also calling for Eskom\u2019s coal-supply deals to be revisited with a view to cutting costs. More legal tussles would be in store if the utility were to renege on those agreements.<\/p>\n Plant Overhauls<\/strong><\/p>\n The unions want Eskom\u2019s coal-fired power stations that are reaching the end of their lifespans to be refurbished so they can use gas and other forms of fuel, so as to preserve jobs.<\/p>\n The utility has said that option isn\u2019t financially viable.<\/p>\n Municipal financing<\/strong><\/p>\n Eskom supplies part of its output to municipalities, which sell it on to consumers and businesses at a mark-up, but all too often don\u2019t pay their bills.<\/p>\n Cosatu wants all customers to pay Eskom directly, a change that would require South Africa\u2019s entire municipal-funding model to be overhauled.<\/p>\n
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