Companies / 12 July 2019, 09:00am / Banele Ginindza
The restructuring drive for power utility Eskom, which has been identified by government as the biggest threat to economic growth and stability, has started in earnest, with Finance Minister Tito Mboweni hinting that the process would include retrenchments and the review of the utility’s coal costs.
Mboweni said in his budget vote yesterday that President Cyril Ramaphposa has set up an interministerial team that would involve looking at the struggling utility’s coal costs and how much it paid to maintain its workforce.
He said some of the measures would involve cutting of costs, including slashing funds splashed on coal and jobs, it has emerged from the budget votes of the departments of Finance and State Owned Enterprises.
Mboweni said Eskom had become a financial drain as he was on the verge of applying for a special appropriation bill later this month for funds to keep Eskom afloat. He said this would be in addition to the close to R70billion over a three year period announced in the budget speech in February.
Mboweni said Eskom presented the biggest risk to the financial framework of the country and there was a high risk of systemic failure if Eskom collapses because of financial problems.
“But it cannot be a blank cheque, there is a broad strategic framework that is being developed in a green paper that will be developed into a white paper on the role of SOEs in a fast changing macro and micro economic environment,” he said. The government was urgently working to stabilise the utility and crafting a broad strategy for the future, while shoring it up through the special appropriations bill, he said.
International ratings agencies have identified Eskom as the biggest threat to the country’s growth prospect, warning that failure to address its problems could lead to a downgrade of SA’s sovereign debt to junk.
Earlier, Public Enterprises Minister Pravin Gordhan said President Cyril Ramaphosa had set up an inter-ministerial tasks team to derive the final plan to restructure Eskom. Gordhan said the special paper on the future of Eskom would focus, among other things, on identification of cost saving including coal costs, staffing costs and the introduction of capital efficiency.
The paper will address the indebtedness of Eskom, including financial arrangements, restructuring of the entity as well outlining the future energy environment.
“Eskom faces operational, financial and structural challenges, which are driven by massive cost and time overruns on the new build programme, collapse in governance, unsustainable debt levels, under-investment, and poor maintenance of plants, which has led to increased diesel usage eroding Eskom’s cash position,” Gordhan said.
Other than Eskom, Mboweni said urgent additional financing would be sought from the contingency reserves account for the South African Airways (SAA), the South African Broadcasting Authority (SABC), as well as arms manufacturer Denel.
He highlighted that the government’s spending since the February Budget speech had hiked by about 2.4percent due to the unprecedented demand for funding from its SOEs which has led to the lowest gross domestic product per capita output since the 1960s.
“It is difficult to maintain this momentum, there is a need to recalibrate some sectors of the government’s performance,” Mboweni said, moaning that in some cases, such as in aviation and in broadcasting, various companies are making profits and providing good quality service.
Yet SOEs in the same sectors, operating under the same economic conditions, are relying on government bailouts. “We cannot allow this to continue,” he said.