We are almost out of time for a decision on Eskom. Although President Cyril Ramaphosa said last week at the Goldman Sachs conference that “the plan is in place; it is tested; it is credible” he was not being precise. To be fair, he did add “but we also have to look at the debt”, but that part of the plan is neither in place nor tested.
The urgency has been brought on by two things. The first is that Eskom has six weeks to finalise its annual financial statements and as things stand, the R23bn-a-year bailout that was announced in February notwithstanding, it is not a going concern.
The second reason for urgency is that month by month the company is in a liquidity squeeze. Because parliament did not pass the Appropriation Bill — the legislation that gives effect to the budget — before parliament rose at the end of March, Eskom has not been able to get the R23bn from the Treasury. At most all that can be transferred to it is R17.6bn; the rest can only be transferred after parliament passes the bill.
Lenders have also become increasingly anxious. With the problems at the Medupi and Kusile power stations now public knowledge and Eskom’s debt crisis also in the public domain, even the China Development Bank (CDB), whose loans are specifically linked to Medupi and Kusile, has the jitters.
Funders are anxious to know that their debt will carry the same guarantees as all other Eskom debt and they will not be at a disadvantage. It was these fears that stalled the R7bn drawdown in March from the CDB. That is partially resolved now, with R4bn drawn and R3bn still in negotiation.
The most ambitious idea on how to deal with Eskom’s debt has been made by Ramaphosa’s task team, headed by UCT professor Anton Eberhard. Its proposal is for a large debt transfer from Eskom — in the region of R150bn — into a special purpose vehicle that will be owned by the Treasury. This entity will be able to replace some of Eskom’s expensive debt with cheaper blended finance that includes concessional climate-change money.
The special purpose vehicle idea has some big brains behind it. Apart from Eberhard and fellow team member Grové Steyn, two private sector top bankers and a top private sector lawyer have been involved and are quite convinced it can work. The concept is similar to a bank rescue, where a large portion of the debt is split off into a bad bank, allowing the good bank to continue its commercial operations on a sustainable footing.
The supporters of the special purpose vehicle model believe the effect of doing things this way — rather than simply transferring debt to the balance sheet of national government — will be neutral for the government’s credit rating. But as the special purpose vehicle will be fully owned by the Treasury, it is hard to see how this debt will be regarded any differently from a straight transfer. The Treasury is looking at the idea with some scepticism.
The special purpose vehicle idea is linked to the idea of raising cheaper debt using concessional climate change finance. As SA is well within the upper limit of its carbon emission reduction commitments the suggestion is that in exchange for accelerating these commitments, SA could access concessional finance. As the world needs a bigger commitment all round if it is to keep climate change within the 2ºC target, and SA citizens would benefit from replacing coal with renewable energy, which is cheaper and cleaner, this looks like a win-win situation.
But will government also see it as win-win? The commitment above would certainly involve accelerated closure of SA coal-fired power stations and have an impact on coal mining into the future. Ramaphosa has promised labour there will be no job losses as Eskom is restructured. He cannot now go back on that promise.
The Treasury is also aware of the danger of relieving Eskom of its debt burden only for it to go off and accumulate more. At the very least there needs to be much more reassurance that the new Eskom will be different. Preferably, some form of discipline must be built into the new structure.
The task team has also thought about this and has written in a substantial commitment of R90bn in cost compression over the next five years. While savings can be made — especially in coal contracts and efficiencies in the power stations — the R90bn number was pencilled in before Ramaphosa’s no job losses commitment.
These are immensely difficult decisions and no-one should underestimate them. But there is no time for procrastination. D-Day is almost here.
• Paton is writer-at-large
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