Gordhan: Coronavirus delayed work on Eskom debt solution

The Covid-19 crisis has been a priority for government in recent weeks, but as soon as the matter settles, attention will turn to Eskom’s debt solution, said Public Enterprises Minister Pravin Gordhan.

The minister was speaking during a joint sitting of the portfolio and select committees of public enterprises son Wednesday. Members of the committees were updated by the minister and Eskom CEO Andre de Ruyter and acting chair of the board Professor Malegapuru Makgoba on the power utility’s recovery plan and the progress of its unbundling.

“At this stage given all developments we have had in recent weeks, in relation to Covid-19 and other challenges. We cannot say we have a debt solution,” Gordhan said.

“As soon as we settle down, on some of the Covid-related issues as government, we will begin to give attention to what is the best direction to take on the issue of debt,” he added. 

Eskom has a debt burden of more than R450 billion. At a state of the system briefing in May, De Ruyter said that Eskom plans to cut its debt to R200 billion. The unbundling of Eskom into three entities – generation, transmission and distribution – is a critical part in addressing the debt burden, Gordhan said.

“Restructuring is a complex process. It’s going to take time,” Gordhan said.

De Ruyter went on to explain that the restructuring of the balance sheet, and the apportionment of debt between the three entities is a “challenging issue”. Eskom needs to consider the capacity of each individual division to service debt, their asset base and what revenue can be generated from these assets.

This is why Eskom has opted to put in place divisions before implementing the legal separation of entities, he explained. De Ruyter said Eskom will engage with lenders to make sure they are comfortable, before moving onto the legal separation.

No more bailouts

While Eskom is grateful for the commitment Treasury has made to provide equity injections over a 10-year period, De Ruyter said it was understood that the fiscal space remained constrained, and even more so due to Covid-19.

“We will require no additional bailouts during the current financial year from National Treasury,” he said.

Gordhan echoed his views by saying government wanted to ensure entities could “stand on their own two feet”. “They must not depend on government or the fiscus,” he said.

Government will be considering several proposals on Eskom debt, such as those collated by the chief restructuring officer and from Cosatu, in which the trade union federation called for the establishment of a special purpose vehicle. “That is a matter that was discussed in the Nedlac context. There is a broad framework agreement that we need to finalise. It is close to finalisation. Again because of current circumstances we have not been able to give it some attention,” Gordhan said of the Cosatu proposal.

Speaking on growing municipal debt owed to Eskom, which on 31 March 2020 amounted to R28.04 billion, Gordhan said that it was a matter considered by the deputy president’s task team on Eskom, which includes representatives from the utility, as well as the ministers of several departments such as finance and cooperative governance and traditional affairs.

“We have a bit of a paradox. On one hand have municipal administrators and sometime politicians who withhold cash collected from customers to whom electricity is supplied … on the other hand, when Eskom takes action against municipalities or attempts to interrupt power supply in some cases, it harms the industry as well.”

He said it was important to put heads together to “solve the conundrum”.

“We must make sure municipalities are run in a way that communities understand why they pay for the services they receive. And ministers themselves must make sure that which is collected and due to Eskom or waterboards is paid over,” he said.

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