Kevin Crowley and Lutho Mtongana
A NEW chief executive who has helped turn around another state-owned company and a deadline to recover debt from municipalities are pleasing investors in bonds of Eskom, the power utility.
Municipal debt
The country on Friday named Brian Molefe, the chief executive of state logistics operator Transnet, to head Eskom after its board suspended the top executive at the company, Tshediso Matona, and three other managers.
The company, which is staging the longest spate of rolling blackouts since 2008, is owed R4.6 billion by local districts and plans to cut supply to the top 20 defaulting municipalities if they do not come up with a payment plan by June 5.
“Any news that comes out of Eskom indicating a degree of stability is a positive development,” Elena Ilkova, an analyst at FirstRand’s Rand Merchant Bank unit, said on Friday. “They’re waving a big stick” at municipalities, she said.
“It’s a very strong signal that’s backed by government, so that’s positive.”
Yields on Eskom’s $1bn (R12bn) of bonds due February 2025 declined 14 basis points to 6.59 percent, the lowest level in a month, since the utility announced plans to cut power to non-paying areas for as many as eight hours a day.
The rate fell 5 basis points after Molefe’s appointment. That compares with a 4 basis-point drop in dollar debt of emerging market utilities, JPMorgan Chase indices show.
Eskom has undertaken 28 days of rolling blackouts this year. It was also grappling with a R225bn funding shortfall in the five years to 2018 and would receive R23bn from the Treasury in coming weeks, Public Enterprises Minister Lynne Brown said on Friday.
The 20 districts earmarked for cut-off, which collectively owe Eskom about 80 percent of the outstanding amount, cover 3.8 million people, Statistics SA data show.
Towns and cities affected include coal-rich Witbank to the east of Johannesburg, Secunda to the south and Klerksdorp and Randfontein, which lie west of the economic hub.
Massive scale
While it was not the first time Eskom had threatened to restrict non-paying municipalities’ access to power, it had not done so “on such a massive scale before”, Ilkova said.
Eskom supplies districts that then distribute power to consumers, meaning paying customers would also be cut off.
“That’s very harsh if you’ve paid your bills,” she said.
Homes typically rely on electricity for heating and cooking, rather than gas.
Industrial users would not be affected as most of them receive their power directly from Eskom, not via local distribution networks, according to Shaun Nel, a spokesman for the Energy Intensive Users Group of South Africa, which speaks for 31 of the country’s largest electricity users.
Some of the affected districts had used the funds collected from electricity users to settle other bills, Brown said.
“Many of these municipalities have systemic problems, some of them are not actually viable,” she said.
If the areas did not respond, Eskom’s board was “going to act against the municipalities. I’m hoping it doesn’t get to that.”
Randfontein, which owes R81.7 million, had submitted a repayment plan to Eskom and was awaiting its approval, council spokesman Tshidiso Tlharipe said.
The municipality was itself owed R224m from residents for taxes and services.
Madibeng in the North West province, the biggest of the top 20 defaulting municipalities with 477 000 people, had signed a repayment agreement with Eskom on April 10, regional spokesman Sipho Nkosi said.
The district “is servicing the poorest of the poorest communities – as a result, it’s difficult to collect the projected revenue”, he said.
Thaba Chweu in Mpumalanga was making a “concerted effort” to pay Eskom, while Govan Mbeki in the same province was negotiating a payment plan, spokesmen for the districts said.
Makana in the Eastern Cape had agreed to pay the debt in monthly installments, spokeswoman Yoliswa Ramokolo said.
Matlosana in the North West province, with 398 000 people, had signed an agreement for repayment in January, spokeswoman Ntswaki Makgetha said.
All other municipalities did not respond to requests for comment.
Getting customers to pay their bills was “a step in the right direction”, Ilkova said. “But it won’t solve Eskom’s long-term problems overnight.” – Bloomberg