How bad do things need to be before we get to see some leadership? That’s the question most South Africans will be asking as they watch what’s unfolding at Eskom.
South Africans generally do not think very much of the leadership in the country’s utilities, with good reason, considering the last decade of enormous corruption and maladministration. Not only did it leave the companies unable to provide services that are central to the functioning of the economy; their finances threaten to bankrupt the whole country.
But it’s hard not to feel sorry for the current Eskom management, who are fighting a seemingly losing battle to save the utility, which provides virtually all the country’s energy. The reasons for Eskom’s woes are many and have been discussed extensively.
South Africans are living with the consequences of load shedding, which first became part of the vocabulary a decade ago. The latest round is set to last a few months, a legacy of the corruption that left Eskom with not enough coal, maintenance backlogs and expensive delays in the construction of new power stations.
The numbers are truly staggering. Eskom is forecast to make an R11.2bn loss for the fiscal year, and its managers have already warned that this will be exceeded. It has more than R400bn in debt and is spending R45bn just on servicing that debt.
At its interim results presentation in November, its chair, Jabu Mabuza, said a whopping R2.3bn in irregular contracts have so far been identified and handed over to authorities.
The numbers are truly staggering. Eskom is forecast to make an R11.2bn loss for the fiscal year, and its managers have already warned that this will be exceeded. It has more than R400bn in debt and is spending R45bn just on servicing that debt. The debt service cost is almost twice the cash it generates.
The company is clearly unsustainable and a plan was needed in 2017.
While it’s a disgrace that none of the people involved have been held to account, Mabuza made a compelling point last week about the need to focus on fixing Eskom as a top priority. While the company was committed to holding the responsible individuals accountable, the most important thing is to find solutions to take it forward, he said.
He couldn’t be starker about its bleak future. So it wasn’t the biggest shock in the world when it was revealed this week that Eskom will run to the government for yet another bailout. It wants the state to take over just less than a quarter of its debt, R100bn, to give it breathing space as it seeks to implement a turnaround strategy.
The problem with this request is fairly obvious. In the absence of a compelling strategy and difficult decisions, this will likely prove to be money down the drain and Eskom will soon be back to ask for more taxpayer cash.
It’s also trying to get more from the public via above-inflation price increases of about 15% for the next three years. Other than the direct cost to consumers in terms of payments to Eskom, it is likely that they will pay more in the form of higher interest rates, since the Reserve Bank has cited administered prices among the biggest risks for its inflation outlook.
It should come as no surprise that the public has had enough and there’s no more appetite to keep throwing money at Eskom, or SAA for that matter.
The government, which appointed a new board at Eskom with much fanfare early in 2018, is strangely silent.
On the money, finance minister Tito Mboweni has already indicated that there is none and that Eskom should rather go to the bond market to raise finance.
Investors have already made their verdict, responding to this week’s news by boosting yields on the company’s bonds to the highest in almost two years, meaning they will demand higher rates to lend to it.
Why anyone would want to lend to a company that, according to its own chair, is caught in a permanent loss-making position, is hard to fathom.
The immediate issue with Eskom may well be a lack of cash, but the longer-term problem that threatens its existence is a lack of a strategy and prospect for meaningful change.
The governing party, the ANC, is more concerned about winning elections and so won’t support job cuts at Eskom until then. Unfortunately, it seems oblivious to the damage to the economy that might materialise by then.