Embattled power utility Eskom is yet to receive feedback on the turnaround strategy it submitted to the department of public enterprises in November 2018.
At a climate change and sustainable development conference held at Eskom on Tuesday, GM for corporate strategy at the utility, Leo Dlamini, said the plan was designed to deal with Eskom’s R420bn debt burden and a severe operational crisis.
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Eskom COO Jan Oberholzer told Business Day the utility is awaiting feedback from the department on its proposed turnaround plan.
Though it is still under embargo, Dlamini offered “a glimpse” into the plan, which hinges on five key elements: cost savings; increased revenue; balance-sheet optimisation; ring-fencing of business units; and the implementation of its nine-point plan to arrest the operational crisis.
On savings, Eskom would seek to cut costs in an attempt to remove R20bn every year from its bottom line. On increased revenue, the electricity tariff needs to increase. Despite public resistance, Dlamini said electricity prices in SA are relatively low.
For “balance-sheet optimisation”, Dlamini said Eskom’s debt is too large while income from operations is too little. Not only does this prohibit Eskom from raising more money on the market, but it is also unable to service its debt.
“So you need an intervention,” he said.
In the national budget presented by finance minister Tito Mboweni on February 21, R23bn would be allocated to Eskom each year for the next three years. However, Dlamini noted that Eskom chair Jabu Mabuza had previously indicated that about R100bn in relief is needed.
Dlamini said Eskom had proposed ring-fencing its business units to create better visibility of costs within the different units.
“It’s a complex business. It’s very difficult to manage and pronounce globally on businesses that are very distinct,” he said.
The fifth and final aspect of the strategy is the implementation of a nine-point plan to arrest the operational crisis at Eskom. The plan was announced in November 2018 and seeks to tackle operational issues such as coal shortages, lack of maintenance and problems at new power stations Medupi and Kusile, among other issues.
But while Eskom awaits the department’s feedback on its proposed plans, a number of other initiatives have been announced. The department’s spokesperson Adrian Lackay said a turnaround strategy remains relevant, “particularly the nine-point plan”. Lackay noted a number of developments since Eskom had submitted its plan.
In December, President Cyril Ramaphosa appointed a task team and by February had received its first recommendations. In his state of the nation address, he announced that Eskom would be unbundled into three separate business units. Then, in the budget speech, it was announced that Eskom would be financially supported with R69bn over the next three years on condition that an independent chief reorganisation officer is appointed to deliver on the recommendations of the presidential task team.
On Monday this week, public enterprises announced it had put together a technical review team to conduct a “rapid but intensive” review of Eskom’s ailing operations. The department said further interventions would be announced in due course.
On Thursday there will be another development for Eskom when the national energy regulator announces its decision on the utility’s application for tariff increases of 17.1% this year and 15.4% and 15.5% in the following two years.
Oberholzer said not only is the utility awaiting feedback on its proposed turnaround strategy proposals, but is also in the dark about its unbundling.
“We have not been given any information yet about what that entails,” he said.
Lackay responded that the details were published in National Treasury’s 2019 budget review document.
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