Picture: REUTERS
Picture: REUTERS

A three-year wage agreement signed between Eskom and recognised unions will cost the cash-strapped utility R3.9bn in total, Eskom has said, but there is no clear indication of how it will pay for the increases.

The state-owned company cannot keep up with its debt repayments, let alone carry unexpected costs. Its precarious financial position poses a significant risk to the SA economy, given that the government has backed R350bn of its debt.

Eskom announced on Thursday morning that it has reached a three-year wage agreement with three trade unions, and will adjust employee salaries 7.5% upwards in the current financial year and 7% upwards in each of the following two years.

Housing allowances would also rise in line with inflation and a one-off cash payment of R10,000, after tax, would be distributed to employees.

Eskom’s wage bill for the previous financial year was R29.5bn. Asked how it will pay for the increase, Eskom said: "We will have to tighten our belts even further as we will have to finance the increase through cost savings and borrowings."

However, one should not fund salaries from long-term debt, but rather from operations, said energy expert Chris Yelland. "The problem with that is Eskom’s earnings from operations are not adequate to pay the interest bill on its existing long-term debt," he said.

Eskom’s results for the year to end-March showed net finance costs of R23bn, with an after-tax loss of R2.3bn reported. The utility is borrowing to service its debt, technically known as a debt spiral.

Its total debt has ballooned from R40bn in 2007 to R388bn at the end of March, and is expected to grow to R600bn in four years. Credit ratings agencies have downgraded the utility several times in 2018 amid uncertainty over the way it will stabilise its finances.

Unions initially refused to sign the wage agreement unless the utility agreed not to pursue disciplinary processes against union members, following alleged acts of sabotage at Eskom power stations during industrial action in July.

However, the issue of disciplinary processes is not part of the signed wage agreement, and the utility will follow due process in line with Eskom’s disciplinary policy, it said.

But National Union of Metalworkers of SA spokesman Phakamile Hlubi-Majola said it and the National Union of Mineworkers were still negotiating with Eskom on the matter.

"But the long and the short of it is that Eskom will be able to proceed with a disciplinary process, where there is evidence of misconduct," she said. There would be no dismissals, though.

Eskom has previously denied plans to retrench workers, but has said it expects to lose more than 7,000 of its 48,600 employees to attrition over the next five years.