Eskom on a tight leash as Treasury stiffens conditions for latest bailout
JOHANNESBURG/CAPE TOWN – The National Treasury on Tuesday put Eskom on a tight leash, imposing stiff conditions for the struggling power utility to meet before accessing its latest bailout.
The Treasury ordered Eskom to give it daily liquidity position updates, including on its income, operational expenditure, working capital, capex, financing cash flows, cost analyses on its projects and any deviations from its budgeted allocations.
The Treasury said, among the 26 strict conditions for further bailouts, Eskom also needed to provide monthly updates on the restructuring of its business, operational status and how well its generation fleet was performing.
The conditions come just weeks after Finance Minister Tito Mboweni issued a stark warning that Eskom needed to change its business model in order to survive. During the presentation of the Special Appropriations Bill in Parliament in July, Mboweni said the government would impose strict conditions to ensure transparency and effective management of the utility.
He said Eskom was allocated R26 billion for the 2019/20 financial year and R33bn for 2020/21 to meet its financial obligations.
Yesterday, Eskom chief operating officer Calib Cassim told Parliament's Portfolio Committee on Public Enterprises that the utility entered into new contracts in the current financial year at a cost of R1.5bn.
“Cash from our operations is not sufficient to meet our debt service requirements,” Cassim said. “Eskom has a cost of capital of 10 percent, which we are not allowed to recover. We will always see the pressure build up on the balance sheet and debt in general.”
The Treasury said Eskom needed to produce separate financials for its generation, distribution and transmission operations.
It said the utility also needed to provide monthly updates on the restructuring once the bill was enacted.
The Department of Public Enterprises would be required to publish a paper on an Eskom restructuring roadmap, by not more than a month from the enactment of the Bill.
Eskom faces massive financial problems as it has declining sales and increasing debt servicing costs arising from about R450bn of debt, large capex commitments to complete the construction of its troublesome long-overdue Kusile and Medupi power stations.
President Cyril Ramaphosa also told the Presidential Economic Advisory Council that the government remained committed to the restructuring of the ailing power utility. Ramaphosa said the Integrated Resource Plan, which was before the Cabinet, would bring Eskom to financial and operational stability by creating a reference point for implementation.
“The paper will also help to inform ongoing engagement with social partners, especially as we seek a just and contextually sound approach to the energy transition under way globally,” Ramaphosa said.
“It is important that we provide the market with clear signals of the nature and contours of our reform process.”
The Treasury ordered Eskom to submit monthly management reports that included profit and loss accounts, cash flow and balance sheet updates, including commentary addressing deviations from the budget that exceed R100 million.
In addition, it said Eskom had to report on actions taken to recover outstanding electricity sales of more than R100m every month, plans to manage cash; on the initiatives to reduce primary energy costs and detailed cost, timing and benefit plans to complete Kusile and Medupi.
It said all capital plans would have to be approved by it and the Department of Public Enterprises and that all matters relating to irregular expenditure reported on by the auditors, would also have to be addressed.
In addition, none of Eskom's executives will receive a bonus during the years where the national government is providing equity support.