Business

Eskom urgently needs cash injection to avoid debt crisis, says CEO

2020-02-18 18:39

Ailing power utility Eskom urgently needs more cash to stabilise its ballooning debt pile with the funds coming from a rise in tariffs or new equity, new chief executive Andre de Ruyter said on Tuesday.

Eskom, which supplies 90% of the country’s power but has struggled to meet demand, had a bid for a big electricity tariff increase rejected by a court this month.

Eskom’s urgent application to the court involved hiking rates by 16.6% from April 2020 and a further 16.7% from April 2021.

It said its proposed urgent rate hike followed an error by the regulator Nersa, which in 2019 set Eskom’s tariff rises at 9.4% for 2019/20, 8.1% for 2020/21 and 5.2% for 2021/22.

“The issue of Eskom debt has to be addressed to make Eskom sustainable,” de Ruyter told Parliament’s Standing Committee on Public Accounts.

The money is going to have to come from somewhere. Either it comes from a tariff increase or it comes from an equity injection.

The utility has debt of about R450 billion, mostly backed by the government, and is struggling to service the interest on its borrowing due to falling revenues.

Its access to capital markets has also been constrained by years of mismanagement.

“The money is going to have to come from somewhere. Either it comes from a tariff increase or it comes from an equity injection. It (the debt) doesn’t just disappear. In fact it creates a very significant risk to the sovereign,” said de Ruyter.

In July, the government allocated Eskom R59 billion over two years to service its debt, on top of the 10-year, R230 billion injection it provided months before that.

Meanwhile, the Energy War Room, a grouping of the main cabinet ministers responsible for the power industry, will meet for the first time this week since being reconstituted by President Cyril Ramaphosa in December.

The team – which is headed by Deputy President David Mabuza and includes the ministers of finance, energy and public enterprises – will meet on Thursday, according to the deputy president’s office, which didn’t give further details.

The so-called war room was previously established in 2014 to tackle the power shortages that have dogged the country since 2008 and was tasked with improving maintenance of power plants and the payment of debts to the state-owned power utility by state companies and municipalities.

Neither issue has been resolved.

The utility has been forced to impose several rounds of severe power cuts in the past year that have dragged economic growth lower and increased the risk of credit downgrades, especially from Moody’s, the last agency that gives South Africa an investment grade rating.

– Additional reporting by Bloomberg

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March 29 2020