It is tempting to allow oneself to succumb to Eskom fatigue. But that would be a terrible mistake as the electricity utility, which also happens to be the largest of the state-owned enterprises (SOEs) that are hobbling the economy, could turn out to be the clearest and most urgent danger to the whole democratic order.
News that the government is appealing to banks to resume lending to Eskom and other SOEs that are flirting with financial collapse just serves to reinforce how serious the situation is. It is still not clear what specific requests have been made, but it is hard to see how banks, which are after all custodians of the nation’s savings pool and guardians of its financial stability, can justify lending out money if they don’t have high levels of confidence that it will be paid back.
After a brief period of optimism following the appointment of a new Eskom board earlier in 2018, realism has returned and it is not fanciful to ask whether the recent strikes and incidents of sabotage that brought back load shedding could finally push Eskom over the edge.
If you are a bank or a bond investor that agreed to lend to Eskom on the basis of a financial recovery plan that assumed no wage increase at all, why would you lend to them now?
To recap, the new board came in and started 2017’s round of wage negotiations with a stance that the company could not afford any sort of pay increase. It also acknowledged that it would need to cut its workforce of about 48,000, which it has estimated to be about a third too big.
So imagine you were one of the lenders that had agreed earlier in 2017 to extend credit to Eskom based on this prudent approach by the board.
Then fast forward a few months… A day of strikes and sabotage and limited load shedding, and the government steps in to say that Eskom’s offer is no longer acceptable.
The company has since offered a 4.7% hike, with the unions demanding almost twice as much. After the previous capitulation from Eskom and the government, it is probably safe to assume the final figure will be closer to 9% than 5%.
If you are a bank or a bond investor that agreed to lend to Eskom on the basis of a financial recovery plan that assumed no wage increase at all, why would you lend to them now? The obvious question to ask before you extend any more loans to them would be where the extra money to pay a wage bill that may now be almost 10% higher than you were expecting is going to come from.
We know Eskom is not going to see a surge in revenue, which has been flat or declining in recent years. If the company is going to borrow more and add to an annual interest bill that is already above R45bn a year just to fund salary increases, it is hard to be optimistic about its prospects. Prudent lenders would be minded to reduce rather than increase their exposure.
This is hardly breaking news. Eskom chairman Jabu Mabuza acknowledged how dire the situation was, after the release of interim results showing a R367bn debt load. "We can’t run a business that relies on borrowing to cover consumables," he said.
The immediate danger for the greater society is the simple fact that Eskom’s business model means it borrows massive amounts of money to develop projects such as the building of power stations, and does so with government guarantees. If Eskom were to default tomorrow the government would be on the hook, and it’s not hard to work out what would happen to the sovereign’s credit rating and cost of borrowing.
It is most likely this would have a domino effect, with lenders calling in their (government-backed) loans to other SOEs. The ensuing economic chaos could, and definitely would in most democracies, be enough to bring down the government.
A cursory look at a school history textbook would make it clear that what usually follows in such circumstances is social chaos, more poverty and the end of democracy.
The worst thing about Eskom is that the crisis over wages and labour relations in general is only a relatively small part of its deeper crisis.
There are many other issues that have been placed on the back burner, such as the fact that a big chunk of its "customer" base doesn’t pay for the electricity it uses, and probably never will.
The bigger question of whether Eskom has a future at all in its current form given the move to renewable energy doesn’t seem to be part of the agenda yet. In this sense, Eskom is in the same boat as South African Airways, which remains bogged down by its own labour and other domestic political issues while its competitors take off, leaving it in the dust.
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