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Eskom is running out of cash and it could get worse

The utility’s problems relate to governance issues, negative investor sentiment and possible credit rating downgrades, explains energy analyst Chris Yelland.

NASTASSIA ARENDSE:  We are going to be talking about Eskom. The power utility says that it’s not insolvent, but is facing serious liquidity issues and could be in trouble if the situation persists.

A final draft for the second quarter paints an alarming picture with regard to its funding difficulties.

For more I’m joined by Chris Yelland, who is an energy analyst and the MD of EE Publishers. Chris, thanks for your time this evening.

CHRIS YELLAND:  Good evening to you and your listeners.

NASTASSIA ARENDSE:  I’ve always had an idea that things are bad at Eskom, but tell me more about this report and this alarming picture that it seems to paint.

CHRIS YELLAND:  The report is prepared quarterly and this is the second quarter report by the chairman to the shareholder representative, Lynne Brown. As you say, it paints a rather bleak picture about the funding situation that Eskom finds itself in – the difficulties in raising funding, as well as the impact on its short-term liquidity. So we are seeing that liquidity at the end of September, which is this reporting period, is significantly lower than target, and dropping.

So the liquidity – that means cash reserves, cash equivalent or securities that can be converted into cash at very short notice – is only going to be R1.2 billion at the end of November against target of some R20 billion. So significantly lower than what Eskom would like it to be.

And unfortunately that’s not where it ends, because by January it’s projected to go into a negative R5 billion situation, then recovering somewhat by the end of the financial year at the end of March to about R5 billion positive, but still a quarter of what Eskom wanted.

It’s all related to the fact that Eskom is having difficulty raising funds. It intended to go out for a bond issue on the international market this year, but this has been delayed because of, really, the low appetite for Eskom bonds internationally and locally. This means that this bond issue has been delayed to probably some time next year when hopefully conditions will improve. And conditions will only improve when Eskom puts forward a credible board with credible management, a new CEO, a new CFO, new executive management, perhaps even a new chairman and perhaps even a new minister in public enterprises who will instill confidence in the lenders. 

NASTASSIA ARENDSE:  I was going to talk to you about the governance issues, because that surely can’t help when it comes to investor sentiment, especially when you are listening to some of the comments coming out of the Eskom inquiry in parliament?

CHRIS YELLAND:  Not only is it not helping, but it is the very heart of the problem. This liquidity problem that Eskom is facing is directly related to governance issues and negative investor sentiment, and possible credit rating downgrades looming. And it’s all related to, first of all, the qualified audit report that Eskom received in its 2016/17 financials, the constant changes at the board and management level, and the suspension of the CEO and the CFO and other key executives, and perceptions of corruption and malfeasance within the organisation. This is what is driving the liquidity problem.

NASTASSIA ARENDSE:  Chris, thanks so much for your time this evening.

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Q. What did SA have before candles?
A. Electricity.

en al die sleg bloksoms (France Hlakudi…….) hardloop nou weg.

Running out of money…. and yet I heard a new consumer marketing campaign from Eskom on the radio the other morning.

10% – They will just pay without any concern.
30% – They will cry and gripe but will still pay and carry on with their lives.
60% – They will have less food on their tables and will probably use lamps.

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