China is so wary of Eskom’s promises about the construction of Medupi and Kusile that it’s still withholding a R7 billion payment out of fear that the power utility might not continue with the construction of the projects.
Rapport, City Press’ sister publication, previously reported that the Chinese Development Bank (CDB) was meant to have transferred the money in March, and the fact it didn’t do so had led to a scramble to scrape together emergency funding for Eskom. At the eleventh hour, Absa granted Eskom a short-term loan of R3 billion.
The government said the CDB was going to transfer the money in April, but that also did not happen.
Adrian Lackay, spokesperson for Minister of Public Enterprises Pravin Gordhan, confirmed that senior department officials had flown to Beijing to consult CDB officials. He said the meetings had gone well and the transfer would happen soon. He said the loan was not in danger.
The transfer is part of a much bigger loan of more than R33 billion which was concluded between Eskom and the CDB a little less than a year ago. The loan was meant only for construction costs in respect of the ongoing projects and the Chinese were concerned that the money would be sucked up by salaries and diesel for turbines.
These fears were sparked by public comments that Eskom was considering scrapping the construction projects.
Jabu Mabuza, chairperson of Eskom,had since emphasised that the projects would continue after a full analysis of the costs and benefits.
Peter Attard Montalto, head of capital market research at Intellidex, suggested in a note to investors that the Chinese interest in Eskom is broader than just this one load to Eskom to complete Medupi and Kusile, and that they might have an appetite for equity investment in the power utility.
“The Chinese position is interesting considering what wider conditionality there could be as part of the broad suite of Chinese loans to Eskom – which could include potential collateral of future equity as one potential example. Eskom’s status in a broader sense is therefore important to the Chinese.”
The Chinese position was important when one took into account conditions that might exist as part of the larger bundle of Chinese loans to Eskom – which could include a future interest (in Eskom) as one potential example. Eskom’s status in a broader sense was therefore important to the Chinese, said Montalto.
Gordhan’s public enterprises department put out fires this week over market speculation that the Chinese wanted to lay their hands on Eskom’s assets.
The government earlier announced that Eskom would be split into three and that it would seek co-shareholders for the transmission business.
Lackay said the CDB loan existed entirely independently of all the speculation. The loan was guaranteed by the government and was not backed by Eskom’s assets.
Lackay said if Eskom defaulted on complying with its obligations in terms of the loan, the Chinese would have no right to attach any part of Eskom. The government would have to pay the debt on behalf of Eskom. But that did not mean potential Chinese interest in investing in Eskom as part of the unbundling process would not be considered, Lackay said.
The government still had to appoint an official to facilitate the unbundling and it was expected that it would have to provide Eskom with further financial assistance in the interim.
Montalto said that if the R7 billion from the CDB was transferred soon, and taking into account the emergency funding the government had secured, Eskom should be able to pay its bills over the short term.
He had, however, repeated his warning that the government would have to give Eskom a second, much larger bailout to shore up the R250 billion hole in its balance sheet.
If that did not happen before the end of June, it was expected that auditors would have to qualify Eskom’s financial statements for the year ending in March as a result of its inability to proceed as a going concern. That could have a disastrous impact on both Eskom and the whole economy.