Cosatu’s Matthew Parks. Picture: SUPPLIED
Cosatu’s Matthew Parks. Picture: SUPPLIED

The first thing that comes to mind when looking at Cosatu’s plan to save Eskom using state pensioners’ money is that if it’s such a clean and simple idea, why had nobody thought of it before? The problem is that people have thought and debated it before, and rightly decided it wouldn’t be wise.

Since Cosatu’s parliamentary co-ordinator, Matthew Parks, seems to accept that the R250bn the union federation proposes be thrown into Eskom will never be repaid, we don’t have to dwell on the wisdom of linking workers’ future income with the performance of a failing company.

Even that becomes moot because in the plan, as imagined, the risk ultimately will be taken on by the state — in other words, taxpayers. The Government Employees Pension Fund (GEPF) works on a defined-benefit basis, where payments are not dependent on investment returns.

Even if it were, the risk in this case would not be borne by Cosatu members alone. As far back as June 2019, the Public Servants Association (PSA), one of the biggest contributors to the funds administered by the Public Investment Corporation (PIC), said it wanted the PIC to stop buying Eskom bonds.

“So long as they have the PIC as a piggy bank they will never be able to sustain themselves and run like a business. Eskom should be a business and not rely on bailouts from pensioners’ money,” Tahir Maepa, the PSA’s deputy GM for members’ affairs, told Bloomberg at the time.

There are other reasons why economists would be worried about the proposal, which would essentially involve the creation of a special purpose vehicle to take over about R250bn of Eskom’s mammoth R450bn debt that it can’t service through its own cash generation. Previously, the government rejected a plan that it take some of Eskom’s debt on to its balance sheet.

Assuming this will be on top of the government’s existing commitments to fund Eskom over the next decade, we will be talking north of R350bn. That’s not even taking into account the above-inflation tariffs that Eskom has been granted. There must be a time when enough is enough. 

The plan, for which President Cyril Ramaphosa has shown some enthusiasm, smells of prescribed assets by the backdoor. And if it is carried out, the next question will be whether this will be the start of many, where workers’ pensions are ploughed into dysfunctional state-owned enterprises (SOEs) endlessly, until there’s no money left.

At a time when there is so much scepticism about the government’s commitment to making the hard decisions needed to get SOEs on a stronger footing so that they stop being a burden on government finances, this would not be a good idea, to put it mildly. As a local economist puts it, it creates yet more uncertainty about the policy outlook.

With no clarity yet on whether this will make it into Ramaphosa’s state of the nation speech this month, or eventually become policy, it’s hard to use markets to judge how it is viewed by investors. SA’s 10-year bond yields, which move inversely to the price, are at their lowest levels since September, not a sign of panic about an impending fiscal calamity.

The worst thing Ramaphosa can do is to further risk his credibility by rushing to make an announcement in the state of the nation speech about a plan that hasn’t been thoroughly thought through by specialists at the Treasury. The past few years have been littered by big announcements that have yet to see the light of day, creating both expectations and uncertainty. The proposed Eskom unbundling is just one of them.

Whatever is done will have huge legal implications and cannot be rushed through by a government that has shown itself averse to making decisions on simpler things. For one thing there need to be consultations with all the unions, not just Cosatu, and it will probably face legal challenges.

The sensible bet would be this is something that will eventually fall to the wayside. With a crucial ratings update on the cards, it could prove damaging nonetheless.

Correction: February 7 2020 

This story has been republished to clarify in the fourth paragraph that PSA’s members are not the biggest contributors to the funds administered by the PIC.