Eskom battles under mounting debt

Thursday, February 14, 2019

High levels of debt and default risk have left Eskom in dire straits as the power utility battles to meet demand.

The embattled parastatal is facing a R420 billion debt burden and the Department of Public Enterprises (DPE) says the State-owned entity (SOE) will cease to exist at the current trajectory by April this year.

The department, led by Minister Pravin Gordhan, on Wednesday briefed the Portfolio Committee on Public Enterprises on the issues emanating from the State of the Nation Address, progress in addressing audit findings of the Auditor-General on the department and SOEs for the 2017/18 financial year.

Appearing before the committee, Eskom said it is technically insolvent.

“…[Eskom] will cease to exist at the current trajectory by April 2019. The high levels of debt currently are at R420 billion of the sovereign debt. Default risk is threatening the economy,” the committee said in a statement issued after the briefing.

At the SONA on 7 February, President Cyril Ramaphosa had announced a bold move to salvage the company, which would see Eskom be broken up into three divisions: Generation, Transmission and Distribution -- all under Eskom Holdings, while at the same time, remaining the property of the State.

In the subsequent SONA debate on Tuesday, Gordhan said the Eskom Board will appoint a panel of experts to do an assessment of all the power supply challenges that the utility has encountered over the past few days, as load shedding continues to intermittently plunge the country into darkness.

In responding to the presentation by the power utility, the committee on Wednesday reminded Eskom of the ministerial task team and war room set up to deal with Eskom.

“The committee questioned what happened to the ideas of the war room? The committee said it heard of another war room that has been established with experts.

“The committee wanted to know if the [war room] is operational and if it is offering expertise to assist the current crisis facing the country of load shedding,” the statement said.

Similarly, the committee wanted to know if the department is investigating the possible issue of sabotage at Eskom after reports alluded to possible sabotage.

The increase of employees and costs came under scrutiny after the power utility said employee costs increased significantly, driven by employee benefits. In its report, Eskom said the number of employees increased from 32 000 in 2007 to 48 000 in 2018, with associated costs growing from R9.5 billion for R29.5 billion.

High cost of Medupi and Kusile

Eskom’s Build Programme has added to the cost overruns and poor performance at the power utility. Medupi and Kusile have suffered massive delays and cost overruns due to poor planning, poor engineering designs, poor procurement practices and corruption.

The costs for the plants have escalated significantly to over R300 billion.

Gordhan said the designs of Kusile and Medupi were badly done and were then changed. In his SONA debate, the Minister had attributed the non-performance of these two plants to the bad designs.

The committee expressed concern and wanted to know how changes in construction were done without government not being aware.

The committee proposed that DPE should submit a special report of the cost breakdown of Medupi and Kusile so that it knows of the real problems that have transpired.

The committee wanted to know if there are discussions with National Treasury with regard to municipal debt, which has increased by R1.6 billion from R17 billion in September 2018 to R18.6 billion in December 2018.

The committee said this matter involves the economy of the country, and possible funding needs to be injected with credible business plans.

In order to urgently address the operational problems at Eskom, chief amongst which is generation, Gordhan and Eskom chairman Jabu Mabuza, have called on ENEL, one of the world’s leading energy suppliers, to provide the power utility with external technical assistance.

ENEL will send two or three coal power station engineers to South Africa shortly.

Over the years, Gordhan said, Eskom has also produced a number of top engineers, many of whom left Eskom during the period of corruption and State capture, and are now working in countries like Tunisia. –