SA’s largest trade unions have blasted the Public Investment Corporation (PIC) for its decision to provide cash-strapped Eskom with R5 billion of public servants’ pension money as a loan to help the power utility cover February expenses.
Listen to the podcast: PIC rails against Eskom loan
The Eskom bailout flies in the face of emphatic denials by finance minister Malusi Gigaba in September 2017 that the R1.8 trillion worth of funds managed by the PIC, on behalf of the Government Employees Pension Fund (GEPF), would not be used to rescue struggling state-owned enterprises (SOEs).
Gigaba described media reports about the raiding of PIC funds as “malicious and unconstructive” at a time when major lenders pulled back their money to SOEs due to allegations of corruption and poor corporate governance.
The GEPF is heavily exposed to Eskom debt as it already holds about R90 billion of its bonds, which were recently pushed deeper into junk territory by Fitch Ratings and Moody’s. The loan to Eskom contradicts the PIC’s mandate, which bars it from investing in non-investment grade assets.
In justifying the loan to Eskom, Dr Daniel Matjila, the PIC CEO, said the PIC and GEPF were encouraged by the new Eskom board – led by new chairman Jabu Mabuza and acting CEO Phakamani Hadebe.
The new board hit the ground running by firing top executives who are implicated in corruption allegations, among them chief information officer Sean Maritz and chief financial officer Anoj Singh.
Eskom has approached other lenders in search of R20 billion to boost short-term liquidity and hopes that the GEPF’s R5 billion bridging facility would encourage other lenders to show it grace.
For now, one of the funders will not be specialist fixed-income manager Futuregrowth Asset Management, which is still reluctant to lend money to Eskom.
The Cape Town-based money manager, which manages over R150 billion fixed-income assets, stopped lending to Eskom in 2016 over concerns of poor governance and financial mismanagement. “As Eskom reforms, makes amends, strengthens its governance, and improves its reporting we would expect to be able to consider resuming channelling some of South Africa’s savings toward Eskom,” said Andrew Canter, the chief investment officer of Futuregrowth.
Facing the threat of its bonds being suspended from the JSE and growing concerns over its going-concern status, Eskom published its long-delayed interim financial results. Eskom’s interim profit after tax fell by 34% to R6.3 billion, net finance costs increased by 53% to R10 billion while sales revenue declined by 2% to R95.5 billion.
Tarryn Sankar, the credit analyst at Futuregrowth, said Eskom has its work cut out ahead of its full-year results in July 2018 including getting a clean audit from its auditors.
“What is critical now is monitoring and evaluating improvements in the internal control environment, how the new Eskom board and management deliver on their plans and the support and cohesion provided by various government departments,” said Sankar.
Trade unions respond
In response to the Eskom bailout, trade union federations said they were “blindsided and “betrayed” as the PIC and GEPF boards didn’t consult them on using public servants’ pension money to save the power utility.
The boards reneged on their promise – in agreement with unions – that PIC and GEPF funds would not be used at SOEs until they displayed corporate governance improvements and prudent management of financial resources.
Zwelinzima Vavi, the General-Secretary of the South African Federation of Trade Unions (Saftu), said the union, which boasts a membership of 700 000, does not oppose the principle of the PIC investing in SOEs.
“However, we are opposed to investing in SOEs that have been wrecked by the government and using the PIC as a cash cow when SOEs cannot get more institutions to lend them money,” said Vavi.
“What is worse is that the bailouts are done without consultation. We are hardly in the loop about what is going on in the PIC. We have become visitors and strangers when it comes to the money owned by workers that we represent.”
Trade unions have opposed the appointment of deputy finance minister Sfiso Buthelezi, who was accused of corruption during his time at Passenger Rail Agency of SA (Prasa), as the chairperson of the PIC. The PIC’s board is appointed by Gigaba, who also faces corruption allegations for placing Gupta-allies in SOE boards when he was the Minister of Public Enterprises.
In an attempt to boost public servants’ control over their pensions, SA’s trade unions agreed to a proposal that unions must be represented in the board of the PIC when Gigaba considers board appointments in line with the Public Investment Corporation Act. The unions wrote to Gigaba about the proposal.
Dennis George, the General-Secretary of the Federation of Unions of SA (Fedusa), said when Gigaba didn’t respond to the proposal, it was then escalated to Deputy President Cyril Ramaphosa last week. Ramaphosa agreed to get labour representation on the PIC board this year, said George.
Fedusa represents about 550 000 employees, including members of the Public Servants Association.
“We feel betrayed that the government didn’t honour our request to put labour representatives on the PIC board. If we had representation, we would be able to question the bailout of Eskom and fight back against corruption,” said George.
“The government is running the PIC while forgetting the working class people.”