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New Eskom board will provide ‘comfort’ to markets as inquiry continues

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Eskom inquiry chairperson Zukiswa Rantho. Picture: Lindile Mbontsi
Eskom inquiry chairperson Zukiswa Rantho. Picture: Lindile Mbontsi

The newly appointed Eskom board will provide the reassurance markets have been seeking as the parliamentary inquiry into corruption at the power utility continues this week.

Spokesperson Khulu Phasiwe explained that Eskom and Treasury would be approaching financial institutions to secure R20 billion for the state-owned enterprise. This is part of an ongoing process by Treasury, only this time when they approach the markets they will have addressed some of the concerns previously raised about instability at board level, he said.

The state-owned entity will also be in the spotlight this week when the portfolio committee on public enterprises resumes its inquiry on Eskom on Tuesday, when it expects to receive evidence from suspended chief financial officer Anoj Singh.

On Saturday it was announced that businessman Jabu Mabuza would chair the Eskom board, and recommended that former Land Bank chief executive and Absa Capital executive Phakamani Hadebe be appointed as Eskom’s acting group chief executive.

The appointment of the new board has been welcomed across the political spectrum, as well as the business sector.

Cas Coovadia, managing director of the Banking Association of South Africa, said the appointments would go a long way towards rebuilding confidence in the leadership in South Africa and in the economy.

“The new board, under the leadership of the newly appointed chairperson, must move quickly to strengthen the executive team at Eskom, get rid of those in the team under investigation for corrupt activities, address the ‘going concern’ crisis and enable the organisation to play the critical role it must to enable economic growth,” he said.

The board has 90 days to appoint a permanent chief executive and chief financial officer, Fin24 reported.

The government wants all Eskom executives facing “allegations of corruption”, including former acting chief executive Matshela Koko and Singh, to be removed immediately. Both Singh and Koko are expected to testify at the Eskom inquiry this week.

“Now we have people with experience, and who are credible. The announcement by the Presidency that Koko and Singh will be removed with immediate effect, all these things provide comfort to the market,” said Phasiwe.

“It shows Eskom and government are addressing the issues of corporate governance.”

Phasiwe said that when Eskom and Treasury went to the markets in the new round of discussions, financial institutions would hopefully lend them an ear and provide the funding required. He explained that the R20 billion was needed annually, because it provided a buffer for Eskom to operate at optimal level.

Business Day reported that there was a possibility that the World Bank could issue a default letter for its $3.75 billion (about R45 billion) loan to the power utility.

“So far we have not received that letter, which is good,” said Phasiwe.

He added that the World Bank’s concerns were no different to those of other financial institutions like the African Development Bank and the Development Bank of Southern Africa.

“All financial institutions were concerned about the liquidity of the company and primarily issues of corporate governance. Now that has been partially addressed.”

When Deputy President Cyril Ramaphosa met with the World Bank at the World Economic Forum in Davos this week, he would be able to provide an update on the new board and assure financial institutions that there was a process to appoint new executives.

“Hopefully all these things will provide necessary stability and the comfort the financial institutions are seeking,” said Phasiwe.

He added that Eskom had not heard from ratings agencies yet.

In November Moody’s downgraded Eskom’s long-term corporate family rating (CFR) to Ba3 from Ba2 (the third notch below non-investment grade) and placed the state utility on review for another downgrade. At the time Moody’s said the action was made in the light of Eskom’s deteriorating liquidity and poor corporate governance.

S&P also downgraded Eskom’s long-term foreign and local currency corporate credit rating to B- (the sixth notch below non-investment grade) from B+, with a negative outlook.

But Phasiwe was hopeful that the ratings agencies would consider the changes being made at the power utility. He said there were matters beyond Eskom’s control, like below-inflation tariff increases. But the power utility was dealing with issues within its control, such as people allegedly involved in corruption.

Previously, Finance Minister Malusi Gigaba highlighted the severity of Eskom’s financial position, warning that it could cause the country’s economy to collapse. He also explained that the fiscus could not afford to bail out the power utility.

Treasury had issued R350 billion of government guarantees to Eskom, of which R275 billion had already been used. Eskom needed to borrow about R60 billion a year for the next four years to finish the new build programme consisting of Medupi and Kusile, Fin24 reported.

In November 2017, Fin24 reported on details from a leaked report to shareholder representative Public Enterprises Minister Lynne Brown. It showed Eskom is estimated to have a R5 billion negative liquidity position by the end of January 2018. – Fin24

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