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Eskom must cut its debt by more than half – CEO

From a ‘staggering R488 billion’ to R200 billion.
Eskom CEO André de Ruyter. Image: Moneyweb

Eskom needs to cut its debt from a “staggering R488 billion” to R200 billion for it to “achieve independent financial sustainability.”

This is the view of André de Ruyter, Eskom Group CEO, who gave the keynote address at The Joburg Indaba on Thursday.

“Our financial modelling illustrates that Eskom can only achieve independent financial sustainability if its debt balance is reduced to R200 billion, a closing cash balance of R30 billion, and an Ebitda margin of 35%,” he said.

“Our debt was a staggering R488 billion as at end March 2020; as you may imagine, the interest bill on this is unsustainable, and requires us to borrow money to pay interest.”

De Ruyter said “It is clear that a structural solution must be found,” despite the equity assistance from National Treasury.

He hinted that such a solution was on the way as he was “encouraged by the positive progress made at Nedlac in this regard.”

Read de Ruyter’s full speech here.

Read: SA agrees on pact to fix Eskom

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Pointless cutting half of your debt if you don’t cut half of your bloated workforce.

Not sure who you are talking to Mr. de Ruyter but they are idiots if they believe a word you say.

You have no plan to run ESKOM like a business you intend running it like a welfare organization.

Don’t you think the CEO is aware of this? This guy has to operate in a situation full of obstacles.

We all know what is needed. The CEO, and FIN minister knows it; but the noose is controlled by the unions, communists in cabinet and the deployed cadres.

Re- Appoint the staff with knowledge and experience that were retrenched through “packages”

Contact the Gupta’s and Ace et al and ask them to kindly return what they took that was never theirs( a cool billion or three) , ask the elite in the civill service to repay just one GDP that’s been looted since ‘94 and you’ll be on your way to save the day

Sorry my friend, you’re fighting an uphill battle trying to work with criminals

Good luck

Borrowing to pay interest means that at some future point you run out of cash facilities at some time so either the debt gets written off or the company gets a capital injection ( equity/ prescribed assets )

In short the business is going broke absent a serious financial intervention-read-taxpayers or pensioners to pay!

If the Republican’s win the US election maybe we can go and beg them for money and hand over management to American Electrical Power, a US Board and US rules.

By the way -where is the ZAR 10bn for SAA-tiny money in comparison to Eskoms R250bn need…

Claw back the money from the people who stole it. Eskom is an instrument under the control of the Tripartite Alliance that abuses its monopoly on the delivery of a crucial resource to loot the consumers directly, through the retail price, and indirectly by going deeper into debt.

It is clear that the Tripartite Alliance members plundered the national asset for their personal gain and to the detriment of society. It is quite disingenious for them to ask consumers to pay the debt that resulted from the plundering by alliance partners.

Use the pension funds of the members of the Alliance to pay down the debt. Their inflated salaries and benefits was funded by SOE debt and government guarantees.

Ring-fence the pensions of honest and hardworking government employees who are not ANC members or COSATU members and then use the pension funds of alliance members to pay their own debt. Start this process tomorrow. Now this is real social justice and real equality.

You can start by cutting the work force – sorry, the ANC wont let you.

1. Cut the unproductive workforce (= >50%)
2. Stop using the poor quality coal that damages the plants; and
3. stop paying exhorbitant prices for this poor quality coal from dubious mines
4. Then, stop exporting the good quality coal to China and use that instead
5. Recoup money stolen by state capture (you know who they are)
6. Collect outstanding payments from non-payers (municipalities et al).
7. Start feeding IPP into the grid so the country does not grind to a halt when a bolt “drops” into a boiler.

All structural, just as you say, Mr de Ruyter.

Good list, would add that they recoup 50b from the contractors on the two big builds and the KZN pumped storage debacle

One more item : from now on only contract on EPC Turnkey basis for any new generation capacity that they cant rather buy on IPP basis

Just collect the money owed by municipalities and other clients and collect the money stolen over the last 20 years by the ANC.

The reality we need to confront is that Eskom needs to sell some of its old fleet of power stations and enter the renewable energy market. You simply cannot half that debt with Medupi and Kusile lingering on your balance sheet. Offload old power plants and enter the renewable energy.

I look at Nampak and have no idea how and why they hired Andre, other than Tito was the chairman at Nampak.
Rather, cut the labour(cannot do) cosatu alliance, re-negotiate coal contracts( can’t do, BEE and President mates all supply coal to Eskom), question fuel supply contracts( same as previous), question Babcock( BEE partner previous Chairman and CEO), and you can see why we have a problem.
So for the CEO to simply say cut the debt, does not change what has actually caused the problem.
I have not heard him say cut fuel contracts, coal contracts, labour etc

All things considered, Eskom is a form of ‘economic terrorism’ perpetrated on the citizens and economy. People who want to get off the grid must do and be damned with getting permission. If Eskom was serious about self-correcting some of their 14,000 excess staff would have been let go but not one from my understanding.

De Ruyter has more than his work cut out for him. He needs the current power structure to reverse an embedded Marxist cult like theme, that is apparent throughout all SOEs and the alliance. He makes the right noises but will he really be allowed to do what needs to be done. I fear not in this environment and not with a guaranteed very hostile union stance to any sort of lay off proposition.

To really tackle ESKOM debt, you need to look at all the underlying causes and they are not just a question of being dramatically overstaffed, with under skilled workers. Although that would make a great start.

ESKOM has grown into an African version of ENRON in certain ways. You have a truly massive structure, one of the largest individual organisations in the EM world. In a private form it would have gone bankrupt well over a decade ago, however, it is constantly propped up for the purpose of its much needed utility to the country in electricity, but also as the main tool of its utility to the ruling class as an ATM.

What a lot of very clever people fail to see or acknowledge, is that there is an awful lot of smoke and mirrors at ESKOM. Coal supply being a mismanaged joke, as is quality and price. I have watched snakes of trucks tipping load after load of literally black wet mud for days and people wonder why boilers trip out when the pressure constantly drops. Herein lies another problem mentioned before, why is coal supply being brought in by road, from mines not fit for purpose in so many cases. Why still to this day are blind eyes turned to this.

ESKOM debt is currently well over R500 billion, R523 billion i believe. What ESKOM and their various financiers (local and international) fail to see is the secondary market debt that has grown on top of the ESKOM pyramid scheme. We should start with just the local big 5 RSA banks, forget how many private RSA finance companies have also financed large blocks of not ESKOM debt per say, but debt based on ESKOM contracts. This debt includes but is not limited to – mining companies and their coal supply contracts and related mining supply assets. Purchased on the strength of a paper ESKOM contract. Transport companies with thousands and thousands of trucks and trailers. A company like First Rand/ Wesbank needs to sit down and ‘compare notes’ with ESKOM and the licencing department/ SARS etc. Then cross check thousands of directors, shareholders, proxies against same. (all these people structure debt upon their income based on ESKOM as well… see below)

There are levels of fraud on the go that truly boggle the mind. As an example, it has been perpetrated for so long now, that you have generation 1 and 2 ghost assets, supporting generation 3 ghost asset purchases. By generation 1 – i mean in trucking your finance term is typically 5yrs for trailers and trucks, but they carry inherent value (if they exist) for many years. My point is that 15yrs ago, company X acquired a fleet of assets, some real many are just plaques or fake pink slips. They served a purpose as collateral for loans against those assets, loans which was then shared through many schemes local and foreign. In many cases some of these ‘assets’ are purchased and a handful are operated for appearances – but the main work is subcontracted to real transport companies that are all too happy to get sustained work (as they may not be totally BBBEE compliant) and in the process make the shell company look good in the eyes of the banks and ESKOM performance bench marks. Banks do not care as long as their HP agreements are paid each month. They are paid after all by inflated ESKOM contracts – banks in some cases i am sure are well aware, another topic for another time. Generation 1 assets fall off the banks books in year 5, but are still ‘active’ on the balance sheet. Rinse repeat with purchase of generation 2, bigger larger expanded fleets… so on and so forth. A scary multiplication factor is at work here.

Add on top of this massive overdrafts that are granted on the ‘strength’ of many of these balance sheets that contain a large amount of trailers and trucks that do not exist. These overdrafts are used to buy real assets for their directors, through inflated salaries and bonuses, they buy houses, here and offshore, they buy shares, they buy Kruger Rands and various movable assets, they use the money to buy other real companies and list them in proxy names. This is prevalent throughout the logistics supply chain structures feeding ESKOM and they work hand in glove with many of the mining companies – in themselves creating ever increasing debt, ‘assets’ and over drafts – all being built on top of a monolith of debt, allegedly too big to fail in ESKOM.

I am only scratching the very surface here. ESKOM is a zombie company for sure. What everyone is oblivious to at this stage is the number of secondary zombie companies that have been built on top and around ESKOM, that in a lot of cases are just fraudulent shells – for sure they supply an ‘auditable’ service in the very broadest sense of the word but they are not scrutinized ever – because an ESKOM contract is considered AAA paper to most banks. Foreign financiers are even more in the dark than local bankers. I personally know Italian banks that have financed trucks and trailers as one example.

A pyramid scheme works as long as you have an ever expanding amount of money pouring into it, which up until now you have had, what if or when this tightens up or stops. Or if for just 6-12 months, someone tightens up quality controls and asset inspections, reduces some of the vastly over inflated contract prices. Dominoes.

A small logistics and coal supply contract into ESKOM is around R2b – R5b a year, there are dozens of these. ESKOM consumes close to 90m tons a year, more than Richards Bay exports. The numbers involved are staggering. Imagine tens and tens of billions per annum in inflated contracts at various levels, the further you move away from ESKOM into the secondary supply companies that are held up by the inflow of inflated ESKOM cash, you have further third and fourth layers of companies servicing those, also with inflated balance sheets, dodgy assets and massive over drafts. ESKOM in a way has become a perfect example of fractional reserve banking in an operational utility. It has been so bad for so long that i do not believe anyone right now can get to the core, it would mean forensic audits on several hundred companies going back 15yrs.

I focus on logistics as that is my field of expertise and i worked in or around this entity for over 20yrs. What i do know is that this same practice is very evident in all support and supply companies with ESKOM – mining, engineering, diesel, transformer oils and all sorts of consumables and sundry services. Transformer oils is unique – many millions of litres purchased, once expired it is drained and supposedly sold but it is not, it is removed and the cost written off as cost of waste disposal. However, a whole secondary industry exists on ESKOM used oils. They are cleaned, filtered and treated with additives to make respectable diesel (GAS OIL) and then resold back into the real and black markets with entire chains again of companies involved. Most of this takes place outside of the ambit of SARS – a whole other kettle of fish.

If anyone is wondering – yes the largest criminal syndicates and under world players are all very well represented here. How could they not be, considering the ease with which they can pilfer. Make no mistake they are not 2 bit petty thieves, these are blue chip criminal organisations that are run like a well oiled military machines, splitting up turf and profits between the different factions. They ruthlessly crack down on dissenting voices, investigations or anything that might stand in the way of their cash flows (see recent fire at ESKOM tippler covered by Moneyweb) and have access to the highest offices in the land – or so it is said.

In finishing off this summary – you have ESKOM then as the base source entity, itself in a world of pain and debt. From there you have several tiers of companies expanding out from the source. I am focusing on the bad apples which is a large percentage but yes before you ask of course there are legitimate companies operating – but directly most have been squeezed out – the main legitimate companies are now subcontracted out in many cases.

So ESKOM has R500 billion in debt. So in 15yrs at ESKOM under many dubious leaders and disasters and worst still the decade of state capture, how much would you guess in terms of Zombie debt has been built upon Africa’s ENRON? I might hazard conservatively probably well over R1T and all likelyhood multiples of that. Regardless of what that number might be – financial institutions tied to that rotting carcass might be in for a rude awakening if they ever have to call in the assets underlying the debts. They might find they are covered for only R0.05/ RAND if they are lucky.

I have not named any individuals or companies, i have just laid out my opinion and professional observations garnered over many years. I hope the moderators will allow this to be posted – i can modify it if they need me to.

Andre, fix the cause and the result will go away.

Simple, you spend more than you get, like my Dad used to explain why my pocket money was finished before the month.

Andre, old chap do you ever get that feeling that you not quite in control there, you just cannot get a real grip on things????

I will tell you why. Your one hand is tied behind your back, the ANC did that when you took the job.

End of comments.

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