Eskom is on track to spin off and put into operation its transmission company by the end of November as part of a sweeping overhaul of the cash-strapped power utility to improve its financial and operational performance.
The distribution and generation arms will be unbundled into separate companies later.
Eskom acting group CEO Calib Cassim told members of parliament’s standing committee on public accounts during an engagement at Eskom’s head office at Megawatt Park that there are two vital remaining requirements for the transmission company to be hived off.
The first is to get the transmission licence from the National Energy Regulator of SA (Nersa), which is expected at the end of July; and the second is to get the consent of lenders which will hopefully be achieved by the end of August. All creditors will be given an opportunity after this to raise questions.
Cassim said about R40bn of Eskom’s total debt of about R400bn will be allocated to the transmission company, which will operate the national grid.
“We do believe that the transmission business going forward will have a capital structure that is much more sustainable obviously taking into account the debt relief as well.
“We need to make sure that the revenue streams going forward from the transmission is enough to service the debt and to generate profits so we don’t repeat the mistakes (like) what is sitting in the consolidated
picture,” Cassim said.
“We do see transmission being sustainable on its own
balance sheet going forward,”
he added.
The distribution company, which will supply electricity to customers, will get about R30bn of debt, while the generation company, which will run the power plants, will take most of the remaining debt, Cassim said.
Eskom’s debt will be split according to where it was raised, with most of it going to the generation business.
Portfolio-raised debt will be split according to the capital expenditure that was incurred historically.
Acting CFO Martin Buys added that the allocation of debt was achieved through intercompany loan accounts so that the external debt such as Eskom bonds and loans will remain with Eskom Holdings. The reason for this, he said, is that it is easier to allocate specific debt, for instance if there is a project to fund a specific asset.
In terms of the Treasury’s R254bn debt relief plan for Eskom, it will advance R184bn to the utility over the next three years for debt and interest payments and thereafter will take over R70bn of the debt.
Cassim also told MPs that the cost of the recently concluded 7% wage increase per annum over the next three years for Eskom employees will be paid out of operations.
The increase would be funded from savings derived from the fact that the permanent staff complement was about 2,500 lower than the numbers in the organisation’s corporate plan which had been budgeted for. These posts will not be filled overnight.
The 7% wage increase was higher than the 4.6% increase allowed in the tariff increase regulated by Nersa.
Cassim stressed the importance of the wage deal for the stability of Eskom staff when dealing with the crisis in the organisation, especially at the power stations.
“We can’t afford to have an unsettled workforce,” he said. The settlement means that there will be stability on wages for the next three years, therefore allowing Eskom to focus on the electricity crisis.
He noted that Eskom has about 35,000 employees, or about 40,000 including its subsidiaries.
Cassim was asked by DA MP Benedicta van Minnen whether the wage increase will have an effect on Eskom’s debt.
The utility has refused to disclose the cost of its three-year pay deal, saying the total will depend on factors such as staff numbers. “We looked at the number in terms of our financial position, liquidity and cash flows that will be funded through the operations,” Cassim said.
The wage deal includes a 7% annual rise in housing allowances for the period of the agreement.
Lowest-paid employees who are party to the central bargaining forum will get taxable payments of R10,000 for the first two years.
Eskom started with an initial offer of 3.75%, which it adjusted to 4.5%, and then 5.25%, but unions rejected these offers.
Stanlib chief economist Kevin Lings recently told Business Day that the deal is “generous” and “it’s going to cost a significant amount of money [to implement]. How is it going to be funded? Eskom’s ability to fund itself is not good. This increases financial risk for Eskom, the government, and limits the ability for Eskom to spend money on other things such as rebuilding capacity within the organisation. It [the deal] does put a burden on the entity.”
ensorl@businesslive.co.za
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.