Picture: REUTERS
Picture: REUTERS

When Eskom releases its annual financial statements on Wednesday, the indications are that it won’t be a pretty picture. But at least there might be a little more honesty now.

A month or two ago, Public Enterprises Minister Lynne Brown again repeated her claim that former CE Brian Molefe had turned the company around and put it on a sustainable footing. But last week, we heard from Finance Minister Malusi Gigaba that there is deep concern about the weakness of Eskom’s balance sheet and the company will need some "soft support" from government.

What "soft support" means we shall have to wait to see. Eskom should still have plenty of loan guarantees on which it can draw and by February, it had used R218bn of the R350bn available to it. Since then, this would have increased to some degree with new borrowing. The credit-rating downgrade in April could also have caused the repricing of some loans.

Eskom still has a lot more borrowing to do to complete its capital-build programme. Medupi and Kusile will require at least another R68bn every year for the next four to five years to reach completion.

Another untruth told to us by Brown was that Eskom was managing just fine on its 2.2% tariff increase, which came into effect on April 1. Gigaba now says that the utility will apply to the National Energy Regulator of SA for relief from "hardship" caused by the low tariff increase. This remedy has been an obvious option all along and, in fact, was suggested by the regulator when it announced the 2.2% in March. Brown and chief financial officer Anoj Singh apparently could not see the point in making use of the opportunity and opted instead to hold on for now and ask for a whopping 20% tariff increase in 2018. This kind of dissembling deepens the doubts over Eskom’s real financial position. A copy of its annual financial statements leaked to the Sunday Times at the weekend shows a severely weakened cash position and a large drop in profit.

Apart from the numbers, the man who will present the results — Singh — has a large cloud over his head and appears to be one of the most effective members of the Gupta clique, which is single-mindedly looting state-owned companies.

Brown likes to call the numerous claims swirling around Singh "just allegations" and refuses to see the obvious, which is that as long as he remains in his post without any investigation by the board or herself, Eskom’s financial credibility will remain in doubt.

There is a second potentially positive development that could come from Gigaba’s interest in Eskom.

Eskom has been in deep denial over its business model, which Gigaba has quickly realised is unsustainable.

Trapped in an expensive and huge build of two coal-fired power stations, while renewable energy sources get cheaper and more popular with consumers by the day, Eskom may already be in the throes of a death spiral. The Molefe-Brown solution has been to try to kill the independent power producers of renewable energy by refusing to sign power purchase agreements. We can hope that Gigaba will be bolder and rather than attack the symptom of the problem, will look into its cause.

SA’s electricity industry must be restructured if the sector is to thrive. This would mean splitting up Eskom’s generation and transmission businesses into two distinct state-owned companies. The generation company would compete with independent power producers, introducing real competition and loosening Eskom’s monopoly grip. This is not privatisation but would open the sector to private participation. A competitive market could go grow up around it.

If Gigaba wants to help, this is where he needs to go.

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