BUSINESS NEWS - “I sit on a state-owned entity board and walking in there was like [a] bloodbath. It was like walking into a room where there was a murder scene and you are walking in there as an economist, and you are a private investigator, you are a forensic investigator, you are a turnaround strategist and you are looking for the money.”
This is how independent economic strategist Dr Thabi Leoka described her experience when she first tried to wrap her head around the problems at one of South Africa’s struggling state-owned entities. Leoka was appointed to the board of SA Express in 2018, at a time when public enterprises Minister Pravin Gordhan started to clean house at these ailing firms.
Leoka said a lot of anger has been directed towards the boards and executives at state-owned entities, with people accusing them of not doing the necessary work.
“There is so much work that has been done, even at Eskom, but there was so much corruption over the past nine years that it will take almost as long – I hope not – to fix these entities and I think that is where Eskom is.”
Leoka was participating in a panel discussion hosted by the Old Mutual Investment Group on Thursday morning, prior to President Cyril Ramaphosa’s speech in Parliament.
Asked about the state of the economy, Leoka said her biggest fear was Eskom, whose debt was equal to 15% of the country’s debt.
“Eskom’s current debt is the same debt that South Africa had before the financial crisis in 2008/2009. So it is too big to fail and money needs to be injected in Eskom,” she said.
Too big to fail
Eskom implemented rolling blackouts on Sunday amid problems with several of its power generating units. Its precarious position is arguably South Africa’s biggest short-term problem.
The power utility’s debt has ballooned to over R400 billion.
In his speech, Ramaphosa tried to dispel fears that splitting Eskom into three separate state-owned entities as announced in his State of the Nation address was “privatisation through the backdoor” as metalworkers union Numsa referred to it, or that cost-cutting would lead to retrenchments.
“It is not a path to privatisation,” Ramaphosa said. “Restructuring will reduce the risk of a massive Eskom.”
The president said there was no single solution to the power utility’s problems. Restructuring, refinancing, cost-cutting, tariff increases or better plant maintenance on their own wouldn’t have the necessary effect. This, and more, would have to be done simultaneously.
Finance minister Tito Mboweni will announce measures to assist Eskom in stabilising its finances during his budget speech next week, at a time when public finances are severely constrained.
Ramaphosa said while restructuring Eskom won’t solve the immediate electricity supply crisis, it would position the power utility to more effectively meet the country’s energy needs into the future.
The president said the response to the crisis at Eskom must be inclusive and consultative.
Government had not done enough to bring some of the key stakeholders, such as labour, on board, but is determined to correct this, he added.
Eskom’s precarious situation has put Ramaphosa between a rock and a hard place.
Any solution that could threaten jobs could see the ruling party lose support in the run-up to the election, while failure to address the power utility’s debt problem could see Moody’s downgrade South Africa’s sovereign credit rating. The rating agency has already warned that splitting Eskom into three would do little to address the power utility’s challenges unless it is accompanied by immediate credible measures to stabilise Eskom’s finances. A downgrade would put further pressure on state coffers and reduce the country’s ability to pursue its development goals.
Johann Els, chief economist at the Old Mutual Investment Group, says the expectation is that Eskom will get some government support in the budget, possibly a cash injection of R10 billion to R20 billion, which will help it to service its debt. This could be reallocated from areas of underspending.
He does not expect government to take on any of Eskom’s debt yet, as this would require a structural turnaround that would be difficult to implement before the election, but a small cash injection could be done in a manner that would be deficit-neutral.
“That will sort of satisfy Moody’s for now.”
