Andre de Ruyter, the chief executive officer of South Africa\u2019s debt-stricken state power utility, is navigating a political minefield as he collects overdue debt, reduces electricity theft and bolsters revenue.<\/p>\n
Eskom Holdings this month seized the bank accounts of its biggest defaulter \u2014 the Maluti-a-Phofung municipality that owes it R5.3 billion($321 million) \u2014 and scaled back supplies to areas where many residents have illegal connections to the grid.<\/p>\n
It previously clashed with the country\u2019s energy regulator over tariff increases, and suspended contracts with coal and renewable-energy vendors after electricity demand plummeted amid a coronavirus lockdown.<\/p>\n
The utility supplies about 95% of the power used in Africa\u2019s most-industrialized economy and isn\u2019t generating enough cash to cover its operating expenses and interest payments on R454 billion of debt.<\/p>\n
Efforts to reorganize the loans and split the company into three units to make it more manageable have made slow progress, exacerbating the need to shore up its income.<\/p>\n
\u201cInevitably tough decisions have now to be taken to implement debt recovery and to send a message to errant municipalities that they must now get their financial house in order,\u201d said Raymond Parsons, a professor at North-West University\u2019s Business School in Potchefstroom, west of Johannesburg.<\/p>\n
\u201cThis will not be popular and there may be political fallout. We must assume that De Ruyter has the necessary backing to be doing what he is.\u201d<\/p>\n
Municipal Debts<\/strong><\/p>\n Local authorities, most of which are controlled by the ruling African National Congress and have been dogged by mismanagement and a lack of funds, owed Eskom R30.9 billion at the end of June.<\/p>\n The party hasn\u2019t commented on Eskom\u2019s seizure of the municipality\u2019s accounts, but president Cyril Ramaphosa has said payment boycotts are unacceptable.<\/p>\n Previous attempts by Eskom to cut off some township customers who didn\u2019t pay their bills have sparked violent street protests.<\/p>\n The utility demonstrated it\u2019s aware of the sensitivities of taking a hard line at the weekend, when it conceded to releasing R90 million to Maluti-a-Phofung to enable it to pay salaries and other costs. Calls to its mayor\u2019s office weren\u2019t answered.<\/p>\n Eskom seizes defaulting customers\u2019 assets as a last resort when other legal options have been exhausted, and reduces supply to areas where there are illegal connections to protect its infrastructure and avoid explosions, De Ruyter, who took up his post in January, said in an emailed response to questions.<\/p>\n Asked if the company consulted with the government or sought its permission before embarking on such action, he said: \u201cEskom is an autonomous agency of the government, whose mandate is to ensure the reliable supply of electricity.\u201d<\/p>\n Legal Victory<\/strong><\/p>\n The CEO\u2019s strategy of resorting to legal action to shore up Eskom\u2019s income paid off on Tuesday when the company won a court battle to overturn the electricity regulator\u2019s directive that R69 billion in bailouts it received from the government should be treated as revenue.<\/p>\n The ruling will enable the utility to raise an additional R23 billion annually over the next three years by increasing tariffs.<\/p>\n Public Enterprises Minister Pravin Gordhan, who oversees Eskom, and his spokesman, Sam Mkokeli, didn\u2019t immediately respond to requests for comment.<\/p>\n Fixing Eskom will be a lengthy process and will have to go beyond collecting overdue debt and disconnecting customers, according to Jones Gondo, a credit analyst at Nedbank Group Ltd.<\/p>\n He expects there will be more clarity on whether a turnaround is possible when Eskom is split into generation, distribution and transmission units that separately disclose their revenue and costs.<\/p>\n Investors appear increasingly confident that Eskom will secure sufficient state support to meet its commitments. The premium they demand to hold its 2026 rand bonds rather than government securities has narrowed 14 basis points since the beginning of January to 104 as of July 27.<\/p>\n
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