Eskom admits financial crisis

The new Eskom Board approved by Cabinet this week comprises. Picture: Gallo Images

ESKOM confirmed yesterday that it is in financial crisis but denied it was on the brink of collapse, saying plans were in place to deal with the situation.

The utility’s poor governance and management has left it teetering on the edge of insolvency, with reports that it has only R1.2bn in reserves. Public Enterprises Minister Lynne Brown says money is running out as it struggles to raise funds in an unsympathetic market.

Economists warned yesterday that the situation was dire and would affect the entire economy if there was no urgent remedy. Brown yesterday referred enquiries to Eskom’s spokesperson Khulu Phasiwe. Phasiwe said Eskom was facing serious liquidity problems and that it would be in “trouble” if the situation got worse. “However, we are not insolvent.”

When asked about the seemingly frivolous expense of advertising Eskom to consumers – it produces 95% of the country’s electricity – he said the adverts run over the past few weeks were budgeted for. “We can confirm that reserves are low but not near insolvency levels. We are much better than the R1.2bn mentioned but our reserves are much lower than what they should be. Our target for reserves was R20bn but we are not near that,” he said.

He said operating costs had skyrocketed. In 2016-17, for instance, Eskom spent R21bn to buy electricity from independent power producers (IPPs). “Another key factor is the fact that electricity sales to consumers and corporates are down as the economy is not doing well,” he said. Customers were forced to reduce their spending and turn to alternatives such as gas and wood for fuel. But Phasiwe said there are measures in place to soften the situation, such as continuing to cut costs.

Eskom would also press municipalities to fast-track the outstanding R11.2bn owed and also recoup R63bn owed by IPPs. “This money is going to help. Energy regulator Nersa will inform Eskom how it is going to get the R63bn owed by IPPs and we hope to have this money by the end of March. “The approval of 19.9% electricity tariff increases for 2018-19 will help,” he said.

Raymond Parsons, professor of NWU school of business and governance, said: “We must not underestimate the extent to which corrosive uncertainty has arisen for the SA economy from the chronic problems of finance, management and governance of key public utilities like Eskom.

“These persistent failures have serious implications for the private sector. Given SA’s fiscal vulnerabilities and other priorities, the Treasury can also not apply a financial ‘band aid’ for SOEs. “Eskom needs a fundamental restructuring,” he said. He warned of the real prospect of much higher tariffs in subsequent years, the cumulative impact of which will be highly damaging to the economy and consumers.

Ian Cruikshank, chief economist at IRR, said the disaster at Eskom would push government borrowing “through the roof”. “Very soon we will see more strikes as more jobs are lost and prices soar,” Cruikshank said. Energy expert Chris Yelland said the Minister of Finance, Malusi Gigaba, had warned himself during his mini budget that Eskom was the biggest threat to the economy.

Yelland said load shedding was not on the cards as the country has sufficient electricity but “SA’s debt levels are approaching those at the end of apartheid of close to 50% of GDP”.