The head of South Africa\u2019s state power utility needs to substantially reduce its R402 billion ($28 billion) of debt to realize his vision of transforming the coal-addicted behemoth into a leading green-energy producer and create as many as 300,000 jobs in the process.<\/p>\n
Eskom Holdings SOC Ltd supplies more than 90% of the nation\u2019s electricity, the bulk of it from coal, and emits more than two-fifths of the nation\u2019s greenhouse gases.<\/p>\n
Andre de Ruyter, 53, its chief executive officer, wants to tap concessional loans from development finance institutions to finance renewable plants in exchange for accelerating the closure of some of its old, polluting power stations.<\/p>\n
But persuading financiers to fund Eskom will be a tall order, given that its debt is already at unsustainable levels due to cost overruns at new plants and four straight years of losses. The government has been talking about reorganizing the utility\u2019s balance sheet for years yet has failed to take a decision, and has instead stepped in with bailouts to enable it to keep operating.<\/p>\n
Eskom\u2019s transition to renewable energy \u201cwill be difficult, if not impossible,\u201d without a solution to its debt woes, according to David Masondo, the nation\u2019s deputy finance minister.<\/p>\n
He\u2019s suggested several options, including that foreign utilities take a stake in the utility; that its shares be listed; or that some of South Africa\u2019s sovereign debt be scrapped in exchange for recapitalizing Eskom and ensuring that it reduce its emissions.<\/p>\n
Debt burden<\/strong><\/p>\n Eskom is considering investing R106 billion in renewable energy projects within the next decade and is analysing various financing options. The adverse impact on the coal-mining industry and communities that rely on it could be offset by a gain in manufacturing jobs, according to De Ruyter.<\/p>\n \u201cAn integrated approach to resolving the debt challenges, while exploring new and innovative pathways to fund a just transition, is required to move us forward towards a sustainable electricity industry,\u201d Eskom said in an emailed reply to questions.<\/p>\n Sithembiso Garane, head of listed credit at Futuregrowth Asset Management, South Africa\u2019s biggest specialist fixed-income money manager, said the government has indicated its commitment to keeping Eskom afloat and he\u2019s \u201ccautiously optimistic\u201d a decisive debt solution will be found.<\/p>\n The equity injections that have been provided so far are \u201care barely scratching the surface when it comes to extinguishing Eskom\u2019s solvency risk,\u201d Garane said. \u201cThe remaining operational inefficiencies and unsustainable debt burden patently require further extra-ordinary support.\u201d<\/p>\n Weaning Eskom off coal could make a significant and expeditious contribution toward global decarbonization efforts, according to Shridaran Pillay, Africa director at risk advisory service Eurasia Group.<\/p>\n \u201cWhat remains to be seen is if there is the political will for this transition to happen,\u201d he said. \u201cThere is understandable reluctance to shift the debt on to the government\u2019s books and I think that options put forward of potentially selling a stake of the utility or listing it are something that will have to be considered sooner rather than later.\u201d<\/p>\n
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