With municipal debt to Eskom growing at the rate of almost R1bn a month, it was astonishing to learn at parliament’s standing committee on public accounts (Scopa) last week that there is no-one in the cabinet who is seized with the problem.
Local government & traditional affairs minister Nkosazana Dlamini-Zuma says it is not within her powers and responsibilities to take it on. Her predecessor in the previous administration, Zweli Mkhize, had chaired an interministerial task team on Eskom debt. He made periodic appearances at parliament and mediated on the issue. But that committee fell away with the last administration and was not reconstituted.
Deputy President David Mabuza, who is head of the interministerial committee on service delivery — a body set up in the sixth administration to replace the Mkhize committee and a proliferation of other interministerial committees — has told the committee in writing that municipal debt is not his responsibility either. So while President Cyril Ramaphosa now frequently urges people to pay their electricity bills, no government mechanism exists to enforce this.
As we stand, said Scopa chair Mkhuleko Hlengwa in amazement and frustration, “there is no structure in government that is dealing with the problem of debt owed to Eskom”. Municipalities and Soweto residents who are direct customers of Eskom owed the company R27bn at last count. By the time the financial year ends in March, Eskom CFO Calib Cassim estimates the figure will be about R30bn.
On reading the news report of the Scopa meeting, Cassim must have felt gutted. While popular perception is that extracting payment from Soweto residents and defaulting municipalities will hardly move the needle on Eskom financial crisis, this is not true. Eskom generated about R33bn cash from operations in 2019/2020 and had debt servicing costs of R70bn. This will rise to about R80bn in 2020/2021.
This leaves a revenue gap of about R50bn a year, to which the almost R1bn a month, or R10bn a year, in revenue collected would make a significant difference. This gap is being closed now by transfers from the Treasury, which has allocated R128bn over the three budget periods.
Eskom’s bigger financial problem — the R450bn it owes to banks and bond holders — is meanwhile rumbling along in the background. It is now accepted by all — the government, Eskom and investors — that the company needs R250bn in debt relief if it is to be sustainable.
There is no other way to make this debt disappear from Eskom’s balance sheet than to shift it to the sovereign, so all roads and restructuring options lead back to the door of the Treasury. Proposals that the debt be shifted into a special purpose vehicle, for instance — the suggestion by the Eskom presidential task team — would enable debt restructuring to bring down costs, but the debt would still be on the government’s balance sheet.
Even Cosatu’s proposal for pension funds to take on Eskom debt through a special purpose vehicle structure has now morphed into something that would in the end amount to the government taking on the Eskom debt. Through the process of the talks with business and the government, Cosatu now envisages that investments in Eskom by pension funds would need to meet the same criteria as any other investment they make. This means they would have to produce a return and be underwritten by a government guarantee.
Finance minister Tito Mboweni has put forward a similar idea on dealing with the debt, with fewer complications. His proposal, made in internal discussions, is that the Treasury set up a liquidity facility to borrow from the market and then lend on to Eskom.
The government is taking its time mulling the options. In August 2019, it appointed a chief restructuring officer for Eskom, Freeman Nomvalo, whose specific task was to weigh up the options and make a recommendation to the government within a month or so. That process has turned out to be disastrous, as Nomvalo was a completely inappropriate choice. His report has not yet surfaced and if it does is unlikely to carry any weight.
If all roads lead back to the Treasury, why is the decision turning out to be so prolonged and agonising? The answer lies in how to exercise some leverage over Eskom in return for taking on the debt. In the expert task team version of the special purpose vehicle, concessional climate change finance is proposed, which would entail Eskom accelerating the decommissioning of coal plants. In the Cosatu version, where pension funds are accessed, labour gets to exert influence over job security and puts a blanket ban on privatisation. In the Mboweni liquidity proposal, it is the Treasury that gets to exert control over how Eskom manages its finances.
As Eskom can meet its commitments on the basis of the Treasury transfers promised over the next 24 months, it can bide its time while the government deliberates.
• Paton is editor at large.
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