CORPORATE GOVERNANCE
GAVIN KEETON: Three errors put Eskom on bankruptcy’s slippery slope
Bankruptcy, according to Ernest Hemingway, happens two ways: "gradually, then suddenly". Such has been Eskom’s recent experience. Only two years ago then CEO Brian Molefe boasted Eskom could itself fund SA’s ambitious nuclear programme. Yet in recent weeks Eskom has struggled to cover its monthly operating expenses. Last week it hastily secured a R5bn bridging loan from the Public Investment Corporation. Eskom’s board and management were restructured to help it refinance major debt. The power utility reached this sorry state because, like many individuals and companies before it, it tried to live beyond its means. Initially, when expenditure exceeds income, borrowing the shortfall seems an attractive solution. But it is so often merely the start of a very slippery slope, as additional borrowings are now required to pay the interest on previous borrowings. In this "gradual" slide to bankruptcy, the burden of debt and related interest grow rapidly. The "sudden" collapse into bankruptc...
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