South Africa will soon agree on a comprehensive and unified approach to roll back Eskom, which is 402 billion rand in debt, according to the minister who oversees the state power company.
Eskom, which relies on coal for most of its electricity generation, has subjected the country to continuous intermittent blackouts for more than a decade and accounts for about 40% of its climate-warming greenhouse gas emissions. The National Treasury, the Department of Energy, and the utility itself have made broad and sometimes contradictory suggestions for fixing the company.
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Options on the table include selling some of its old coal plants and accelerating the decommissioning of others, capturing carbon emissions, getting the state to assume more than half of its debt, and converting R82 billion of bonds held by a pension fund for state workers in shares.
“There will absolutely be one voice as we move towards 2022 and a direction we also want to go in,” Public Business Minister Pravin Gordhan said in an interview on Nov. 26. Eskom “will look very different than it is today” at the end of the current administration’s term in 2024, he said.
President Cyril Ramaphosa pledged to address operational problems at Eskom when he took office three years ago and to root out the corruption that haunted the company during the rule of his predecessor Jacob Zuma. But power outages have risen to a record this year, slowing production and economic growth, while the utility has posted four consecutive annual losses and is still dealing with theft and mismanagement.
Years of the so-called state capture have left a lasting mark on the company and it will take time to address the damage and change its culture, according to Gordhan.
“In some cases, you will want to fire someone on the spot, but the law will not allow you to do so,” he said. “It would be nice to be able to do that: if you get caught red-handed, get fired right now, pack your bags, go home and find another job elsewhere.”
Progress has been made at Eskom’s division into generation, transmission and distribution units, a process that Gordhan said will be completed next year.
“That will give us a much better idea of the valuations of each of the three entities and then we will have to figure out how we attribute the debt to each of those different entities and solve the remaining amount,” he said. Finance Minister Enoch Godongwana will have to decide whether the government assumes part of Eskom’s debt at budget time in February next year, considering the serious fiscal constraints facing the country, he said.
Godongwana has voiced opposition to the utility taking on more debt until its balance sheet is repaired, possibly by selling coal plants. The idea is relatively new and is being explored, according to Gordhan.
“We might want to put an idea in the public domain” to gauge reaction, he said. “Some of you will say, ‘Who would be stupid enough to buy a power plant?'” But there are those who will consider it, he said.
Eskom has said it expects to make a profit again in 2026 and has outlined plans to add a renewable energy division that will invest up to R106 billion in wind and solar projects, allowing it to reduce its carbon footprint. Western nations have offered $ 8.5 billion in grants and concessional loans to help South Africa get off coal.
Gordhan said he supports an expansion into green energy, as the country needs to expand its generation capacity while replacing the megawatts it loses as coal plants are shut down.
The minister also voiced his support for Eskom CEO Andre de Ruyter, who has faced calls from unions and some business groups to resign over the utility company’s failure to end ongoing blackouts.
“He has my backing at 150%. Eskom is an entity that has gone through a difficult time and the challenges in Eskom are not easy, given the problems we have had with corruption and what we call state capture in South Africa, ”Gordhan said. “We need to take additional steps to provide you with the support you need.”
© 2021 Bloomberg