Mid-Term Budget: Concern over Eskom’s future as debt balloons

Pylons carry electricity from a sub-station of state power utility Eskom outside Cape Town.
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Energy analyst Chris Yelland, has called on Finance Minister Tito Mboweni to provide clarity on the way forward with Eskom to allay fears from lenders over the future of the power utility.

Mboweni is due to deliver his medium-term budget policy statement in parliament on Wednesday which will reveal government’s financial targets for the coming years.

Among the top interests is how the state will address Eskom’s R450 billion debt burden.

Yelland says the power utility is in desperate need of a bailout in order for it to survive.

He says this plan is necessary but not sufficient.

“It is absolutely important to give the financial community and lenders the assurance that there is actually a plan, a credible plan, on the table. The minister has to give clarity about this debt position and how it is going to be serviced.”

“There is going to have to be a bailout of one form or another because Eskom’s net operating revenue is not even covering half of its debt service commitments. Debt has to be reduced, hopefully that will be clarified today,” says Yelland.

The power utility has reported budget overruns of close to R 150 billion and has roped in the Special Investigating Unit (SIU) and the Hawks to recoup some of the monies.

Eskom is also reviewing its contracts to establish which suppliers have been overpaid.

Part of the issues which have left Eskom in a R145 billion deficit are contract management systems, that are in a mess, coupled with poor internal controls and the fact that some employees do not know when their contracts are supposed to end resulting in over payments.

Eskom Chairman Jabu Mabuza says, “We are going through them with a fine tooth comb to be sure what we pay is what we should have paid. There are instances that there have been double invoices and Eskom employees that sign-off on invoices push them ahead to the pay office.”

The financial situation at the power utility remains dire as it is now R454 billion in the red. The entity also raked up R25 billion in irregular expenditure in past year alone.

Lawmakers have been keen on the declaration of interests of Eskom boss.

Mabuza says he disclosed his business interests to the minister and put them in a blind trust account and recused himself.

Another Eskom Board member ruffled feathers after she complained about political interference at the entity, including on municipal debt.

She says the struggling energy provider should be implementing load shedding for the next eight months.

Eskom Board Member Busisiwe Mavuso says there are units that have not been maintained in 10 years. She said the reason why these power plants keep falling with no warning is because of the decision not to implement load shedding at a cost of maintenance.

“If you are going to be given an instruction to keep the lights on at all costs because we are nearing elections – this is problematic. I wish we were actually given latitude to do our job,” said Mavuso.

Mavuso also joined calls to have a strategic equity partner for Eskom, in efforts to reduce employee costs.

She said, “In terms of the income statement – the only thing that we can control as this board is the employee costs because that is what is within our control.”

The committee has tasked Eskom to renegotiate long term Evergreen contracts and those of the Independent Power Producers (IPP).