GHALEB CACHALIA: Eskom needs a Red Adair to ride to the rescue — and radical restructuring
On his hasty return from Egypt President Cyril Ramaphosa has added to the list of excuses offered for Eskom’s appalling performance and the escalation to level six load-shedding. We are now told sabotage contributed to the list of reasons, along with wet coal and technical glitches.
But the plain fact of the matter is that Eskom is insolvent. It is beset by political interference, managerial dysfunction and unbridled corruption, hidden behind a shroud of obfuscation and an absence of transparency.
At one level there is dire need for an independent forensic audit, but those complicit in the venality and in the system of patronage, graft and political paybacks — historical and in the future — would be compromised.
Unfortunately, the information provided by managerial accounts is unreliable, and this calls for the appointment of a new and independent auditor. Without a clear statement of accounts answerability is nigh impossible.
The money has run out. There is no further borrowing capacity unless new stakeholders come to the party. Existing stakeholders will require renegotiation to deal with Eskom’s stranded cost and full future restructuring. In the absence of this, the entity will not survive, and concomitant repercussions will be visited on the economy and citizens’ expectations of receiving reliable public goods at a reasonable price.
The nightmare at Megawatt Park paints a scary picture of Eskom’s balance sheet debt and off-balance sheet debt amounting to 76% of SA’s national debt. The full restructuring cost of Eskom stands at R1.7-trillion. The combined aggregate debt and future liabilities of the state-owned enterprises (SOEs) range from 2.3 times total book assets to 4.5 times book assets, if you include adjustments.
Moreover, the Treasury is unable to fund these, and a further Moody’s ratings downgrade is in the offing. So, the path to IMF intervention is being charted.
This represents a crisis of potentially catastrophic proportions, and an immediate solution needs to be presented. Longer term issues of unbundling and the integration of renewables will not necessarily ameliorate, nor stabilise, the current debacle.
Wind and solar solutions have a place, but they do not speak to immediate baseload support and stabilisation of the grid. The grid must be stabilised without delay. That said, wind and solar solutions can and should be used in the outlying areas as distributed generation supply for municipalities.
There will be pain in terms of the required restructuring, new credit agreements, and new investor conditionalities. Given the magnitude of the exposure, this would also require a refloating of the Treasury.
The flipside of the coin is a cessation of further foreign direct investment, a retreat from global capital markets, and a trajectory that leads us into the arms of the IMF.
What needs to be done now is to address thermal generation peaking requirements as an emergency plan. This involves the burning of diesel in the interim, and associated contracts and funding need to be properly addressed. There must also be a firm plan to convert to natural gas in future.
We need to be told how much diesel fuel has been burnt by Eskom in the past week, what the pricing was, and who the suppliers were. In the absence of supply pipelines, which should have been built by now, and in the face of minimal to zero logistics to assist, trucking and middle broker skimming is the order of the day. A fully and transparently costed solution is needed.
Additionally, we do not have the luxury to entertain a 24-month build for wind with all the intermittent supply complexities it entails, and battery storage initiatives will entail a further waste of money and credit capacity.
With regard to coal, the bald fact is that the supply side has been an unmitigated disaster. To fix this a total restructuring of contracts is called for.
Looters at all levels in the industry, with the government’s acquiescence at best and complicity at worst, have placed us in this parlous place. We will have to dig ourselves out of this hole and it will be a costly exercise, no matter what shovel is used.
The president needs to intervene decisively. He needs to bring the key ministries — public enterprises, minerals & energy and finance — to the table. Time and money have run out, and a concerted effort to find workable solutions to the crisis — operational, strategic, and financial — must be explored. Existing and potential new stakeholders are key to achieving buy-in to this, as well as any future sustainability.
One pressing question is: who is the Red Adair, the saviour, of the energy crisis industry? This person must be identified globally, properly resourced, brought in without delay, and allowed significant degrees of business freedom to fix the crisis.
In parallel, and once this has been achieved, attention must be paid to financial and stakeholder restructuring, and the viability of a sustainable model to secure the future of this essential entity.
The consequences of the current trajectory are too ghastly to contemplate.
• Cachalia is DA shadow public enterprises minister