Nolan Wapenaar, the chief investment officer at Anchor Capital, said on Friday that a controlled default of Eskom on its debts was the most appropriate tool for restructuring the business.
“An Eskom default does not mean the lights go out and that it ceases to exist. Instead, it is put under curatorship with a view towards restructuring its operations, payroll and balance sheet structures,” Wapenaar said.
“Under such a business rescue scenario it would be essential to ensure that suppliers continue to be paid on time, while the business is being fixed. This is a remarkably similar exercise to that which was undertaken for African Bank, just on a far grander scale. We are advocating that Eskom undergoes a negotiated business rescue.”
The power utility's financial and functional failures are widely seen as the biggest single risk to the South African economy and are a corrosive source of uncertainty for business.
Eskom’s chief financial officer, Calib Cassim, last week told the National Energy Regulator of South Africa (Nersa) that rising municipal debt, coupled with Eskom’s poor financial and operational performance pose a systemic risk to the sustainability of the company.
The power utility wants Nersa to allow it to hike tariffs by 15percent a year over the next three years. It has warned that its debt will reach R600billion should it fail to implement its proposals.
Professor Raymond Parsons from the North West University Business School said urgency dictated that the government's strategy on Eskom should feature strongly in the State of the Nation address next month to build confidence in Eskom's future.
“A share scheme which encourages participation by outside financial institutions should also be part of Eskom’s future restructuring,” Parsons said.
President Cyril Ramaphosa last week told the international community that his government was developing a response to the financial and operational crisis at Eskom.
“In the next few weeks, we will be announcing a set of measures to stabilise and improve the company's financial position and to ensure uninterrupted energy supply,” Ramaphosa had said.
According to reports, the special task team into Eskom appointed by Ramaphosa has called for the government to separate the utility into three state-owned entities responsible for power generation, distribution and transmission.
The power utility's business model, designed in the 1980s, has come under close scrutiny for having not adequately evolved to take into account the new challenges facing a modern power utility, such as adjusting to power from renewable producers.
Wapenaar said it would be prudent for the government to give up some of its stake in Eskom to reduce the contingent liability that is spiralling out of control.
“Clearly, a significant portion of the SOE should be listed, just like the success we have seen with Telkom. This ensures transparency and, with good governance, will allow for future access to debt markets.”
The World Bank in its latest economic outlook on South Africa said the South African economy would not withstand a financial meltdown of Eskom.