Parliament is set to give the nod to a R23 billion cash injection for Eskom and the conversion of a R60bn loan into equity, but avoiding future bailouts rests heavily on two outcomes over which the utility has limited control: the completion of its new power stations on time, in budget, and the approval of its application for a 25 percent tariff increase.
Motivating for Parliament to pass the bailout and conversion of the loan this week, Eskom presented its plans to return to financial viability and put an end to load shedding.
Acting chief executive officer Brian Molefe said Eskom’s financial woes were cyclical in nature and followed a trend dating back to the 1940s, when it began building power stations.
Having no revenue at the time, it had relied on borrowing and government funding to invest in this capital-intensive phase.
Once the power stations were completed it had become cash-positive until it had had to build new ones again in the 1980s, when the country had experienced a crisis similar to the current one, with a maintenance backlog and extensive load shedding.
It had then returned to financial health in the 1990s, until about 2006, when it began another “downward slide” as it required money for maintenance and its new build programme.
Reflecting on an outline of its current financial position given by acting chief financial officer Nonkululeko Veleti, which showed total operating costs of R145.4bn for this financial year versus revenue of R172.8bn, Molefe said it was important to note it was only its capital requirements that made Eskom dependent on borrowing and government assistance.
He showed a graph demonstrating the cyclical character of Eskom’s financial position during capital intensive phases.
This indicated it would emerge from the current downward curve once its spending on the build programme began to taper off and it began to earn revenue from new generating capacity - three years from now.
In future, Molefe said, it would be prudent to use the upward cycle, when it was cash-positive, to invest sustainably in new generation and flatten the curve, instead of waiting until there was again a capacity shortage requiring huge capital investment.
But a presentation by the Department of Public Enterprises showed how reliant Eskom would be on the tariff increase and completion of its power stations to achieve an investment grade debt service coverage ratio of 2.5 by 2017-18.
Among key financial performance metrics shown to MPs, the department projected a turnaround in profit after tax from minus R5.19bn in 2015-16 to a positive R16.45bn in 2017-18.
This, it said, would result from a combination of price increases, business efficiency savings, extra borrowing and the equity injection.
“Implementation of the selective reopener (tariff increase application) is critical to ensure the business is in a positive financial position in financial year 16 in terms of liquidity and profitability,” the department said.
Eskom said in its presentation deviations from capital expenditure allocations would affect its financial health and sustainability.
“It is critical that each division keeps within the capital allocations.”
But there is considerable uncertainty over its ability to stay within the timeframes for completion of the power stations, already five years behind schedule and billions over budget.
Asked after the meeting how confident he was of meeting the deadlines, Molefe said: “We’re going to give it our best shot.
But reflecting on events of the past week, in which a bomb threat at Kusile and shooting at Medupi had contributed to work stoppages, he added: “As I say, even when we give it our best shot, there’s things… that still cause delays, that add up.
“In the space of four days we had two very serious incidents that arose just from the behaviour of human beings – the bomb threat as well as the shooting of people that are on their way to work.”
He told MPs earlier the bomb threat had required the evacuation of the construction site until it was declared safe by police.
“Those few hours looking for a non-existent bomb from an SMS were costly and added to the delays in our build programme,” he said.
Similarly, a drive-by shooting at workers waiting for transport to the Medupi site on Thursday had resulted in interruptions while traumatised workers were counselled.
Both incidents took place against the backdrop of an unprotected strike, which Molefe called “treasonous” in light of the “national crisis” of load shedding.
“I think it is actually treason. It is criminality of the highest order.”
Sunday Independent