Eskom has shelved plans to ask the PIC to convert some of its debt to equity, Eskom chairman Jabu Mabuza told MPs. Photo Simphiwe Mbokazi/African News Agency (ANA)

PARLIAMENT - Eskom has shelved plans to ask the Public Investment Corporation (PIC) to convert some of its debt to equity, Eskom chairperson Jabu Mabuza told members of Parliament (MPs) on Tuesday.

"We are not asking anybody to convert debt," he told a joint meeting of the portfolio committees on energy and public enterprises

Mabuza said the reason for this was that the company realised it might send an alarm signal to other creditors.

"We have since become aware that it might not be a good idea because it might trigger covenants that we have with some lenders."

Eskom floated the idea earlier this year of asking the PIC to convert some of the R84 billion it holds in Eskom bonds into shareholding in the company.

But Mabuza said it sent a clear message to investors on recent roadshows to London and New York that it was not going to ask bond holders to convert debt into equity.

"To ask a bondholder to forgo a coupon in lieu of a dividend in a company making losses would be asking a creditor to compromise,” he said.

The debt conversion plan met with loud opposition from trade union federation Cosatu, since the PIC manages R1.9 trillion on behalf of the Government Employees' Pension Fund and social welfare funds.

Eskom has debt of R388bn and is unable to service its debt costs from its revenue. 

But Mabuza stressed that it was not defaulting on any of its debt.

"We are making payments and all things being equal we should be able to pay our debt."

Eskom is due to submit a new strategic plan at the end of September.

Mabuza said the company needed to focus on improving revenue and cutting costs, adding that there "is little we can do about our balance sheet".

He said he was taking a philosophical view that Eskom's agreement to pay 7 percent wage increases over the next three years had bought the company stability for that period after strikes prompted load-shedding this winter. But he added that the company needed to look at its bloated staff complement to ensure that it had the right skills for the future.

"I don't know whether we will be downsizing but we are determined to right-size."

Public Enterprises Minister Pravin Gordhan said the company needed to consider how it needed to evolve over the next decade, given technical changes in the energy field and the gazetting of South Africa's new draft Integrated Resource Plan.

The long-awaited blueprint significantly ups the percentage of renewable power in the country's energy mix.

"We need to start asking: what will Eskom look like in 10 years, or five years?" Gordhan said.

The Integrated Resource Plan (IRP) envisions that by 2030, coal would still account for 46 percent of Eskom's installed generation capacity and provide 65 percent of electricity volumes. 

A part of the briefing focused on the considerable problems Eskom experienced with coal costs and low reserves, a hangover in large part from the company's decision to give preferential treatment to the Gupta-owned Tegeta, which failed to provide both the quantity and quality of coal the company needed.

Mabuza said turning away from old suppliers in favour of Tegeta at the time, meant that the company was now at the mercy of these suppliers in terms of pricing.

"We can now go and get these people at the prices they demand."

Gordhan mooted the idea of declaring coal a national asset, which would oblige suppliers to first serve Eskom before turning to the export market.

- African News Agency (ANA)