Public enterprises minister Pravin Gordhan has outlined the next steps for Eskom, saying the new restructuring office will have only one overriding responsibility: to make a recommendation on the restructuring of the debt.
As there are several proposals already on the table around which much technical work has been done, Gordhan said in an interview on Wednesday he expected an answer “within weeks”.
Gordhan, President Cyril Ramaphosa and Eskom have come under fire from business and investors since Eskom released its annual financial statements at the end of July for their lack of decisiveness on a long-term solution for Eskom and for their choice of a chief restructuring officer.
At the results presentation Gordhan announced that Freeman Nomvalo, a former Treasury official and the CEO of the SA Institute of Chartered Accountants, would be the convener of a restructuring office. Investors and business had envisaged a strong corporate finance and turnaround expert for the role after Ramaphosa indicated in his state of the nation address in May that this would be a major milestone in the rescue of Eskom.
Gordhan said the restructuring office would not be involved in splitting up Eskom and would deal with debt restructuring and assist in the production of a “paper” that would provide a road map of the unbundling process. The paper, which Gordhan has said would be ready by mid-September, will be drafted by government officials from the presidency, the departments of energy and public enterprises and the Treasury.
“Freeman Nomvalo has started work and is building up a skills base around him. Their role will be to look at the pros and cons of the debt-restructuring options and to provide a recommendation within weeks. It is not a piece of work that will be stretched over months,” said Gordhan.
The work already done on restructuring the debt includes: a turnaround plan by Eskom that was submitted to the government in December; a report by a presidential expert task team submitted in June; and various other proposals that have been put together by the banking industry.
Financial solutions that have been put forward include: the government taking R250bn of Eskom’s R440bn debt burden onto its balance sheet; setting up a special-purpose vehicle to which the debt would be transferred and raising cheaper, green financing; and swops of debt for equity in the most viable part of a new Eskom, which would be the transmission company.
Linked to the financial solution is the unbundling of Eskom into generation, transmission and distribution, which will allow competition into the energy market.
Eskom has estimated it has the capacity to carry debt five times the size of its earnings before tax, depreciation and amortisation (ebitda). CFO Calib Cassim said that based on 2019 results of an ebitda of R31bn as well as some expected improvements to earning, Eskom was able to sustain R200bn of debt.
In an interview on Wednesday, Cassim said “R250bn needs to go off our balance sheet. That is the story that we have been telling investors and ratings agencies.”
Cassim and Eskom chair Jabu Mabuza last week visited the US and UK to brief investors, facing a barrage of questions about the delay in producing a long-term plan as well as questions about the role of the restructuring office.
“Our perspective is that the primary task of the office is to deal with the balance sheet. It is not going to do the unbundling. That will be done by the Eskom board,” said Cassim.
Gordhan said that as well as working on the debt solution, a plan was in place to stabilise Eskom’s generating fleet, which is performing poorly due to neglect and a shortage of skills at power stations.
“The plan includes building resilience at the power stations and empowering power station managers. Eskom will hire about 200 technical staff and engineers for the power stations. This is crucial in returning stability of supply.”
The government also remained committed to unbundling Eskom.
“The R128bn in financial support that has been provided by the minister of finance will give us space to do the technical work. We believe there is a lot of cost saving that can be done, outside of personnel cuts, once we look at the three parts [of the business].”
Gordhan said the vertical disaggregation of Eskom entailed an enormous amount of technical work and could involve changes to 20 laws.
The government’s focus would also now turn to relations with labour and building a partnership agreement over a “just transition” for Eskom, he said.
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