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An Eskom bailout is on the way

Either a loan or cash transfer, but what size?

Government assistance in the form of a soft loan or bailout is on the cards for Eskom, according to finance minister Malusi Gigaba, who was speaking on Wednesday at the presentation of the “inclusive growth action plan” to stimulate the economy.

The management of state-owned entities featured heavily. One of the five interventions listed for the energy space included “developing the case for Eskom soft support until tariff adjustment in 2018 and submit to Treasury and the Eskom board” with the stated deadline being the end of this month.

In response to Moneyweb’s questions regarding what this will entail, Gigaba said: “The details will be unveiled as we move forward. What we are expressing is a deep appreciation of the weakening of the Eskom balance sheet. There is an urgency for us to provide assistance so that it is able to implement the capital build programme and fulfil its mandate. The Department of Energy will unveil what interim mechanisms are required in order to support Eskom until the next tariff application.”

Shaun Nel, spokesperson of the Energy Intensive User Group (EIUG), says this can only be a reference to a loan on favourable terms or a cash injection. Other sources close to Eskom agree with this interpretation.

This is a scary reversal. Barely a month ago, in response to a direct question from Moneyweb on what, if any, bailout would be required for Eskom, Gigaba said: “No bailout is required. Eskom has R150 billion available to it in terms of the government guarantee framework. If we address the governance issues at Eskom, and build confidence with regard to executive and non-executive directors, the company would fall off the list of major concerns.”

A government guarantee like those available to Eskom, means a state-owned entity can approach lenders and borrow money with the lender knowing that any default will be honoured by the national government.

In fact, in most cases, the lender can ask for its money back, and if the SOE does not have the money, the government is obliged to honour it, as we recently saw between SAA and Standard Chartered Bank when the bank declined to renew its R2.2 billion working capital facility. The fact that Eskom doesn’t seem to be able to secure funding despite the availability of guarantees raises some serious concerns and questions, namely, why are lenders not prepared to extend the company credit?

This development comes hot on the heels of Eskom cancelling the presentation of its financial year 2017 results due to concerns raised by its auditors, and amid grumbling from overseas that international investors in Eskom’s bonds were gravely concerned about the state of governance at the utility. It also makes a mockery of public enterprises minister Lynne Brown’s assurance earlier this year, that Eskom is doing well and is “even coping with a 2.2% tariff increase”.

Moneyweb has previously highlighted how dependent Eskom has become on the Public Investment Corporation (PIC) for funding. A bailout directly from government would also imply that the utility’s largest owner of its bonds has appetite for no more. Are we about to discover another Enron?

The other energy intervention announced by Gigaba includes a suggested approach to energy regulator Nersa “regarding Eskom hardship”, also scheduled for this month.

The term “hardship” refers to the obligation upon Nersa in terms of the legislative and policy framework to ensure that Eskom remains viable.

When Nersa announced that Eskom average tariffs would increase by a mere 2.2% this year, the regulator also invited Eskom to approach it for a bigger increase on the basis of hardship if necessary. Eskom responded that it would rather submit a proper tariff application for 2018/19, which it did on June 9.

Moneyweb earlier reported that Eskom was applying for a 19.9% tariff increase for its direct customers and 27.3% for bulk municipal customers.

It is unclear whether Gigaba referred to that application that has in fact already been submitted or whether he is suggesting a further application.

Nel says any hardship Eskom is suffering should be provided for in the June 9 application. If Gigaba is suggesting that Eskom submit a further application, it would be open to a legal challenge. He says Nersa anyway does not have the resources to consider another tariff application at the same time.

Eskom has also submitted two applications for tariff increases relating to over-expenditure and under-recovery in previous years and is expected to submit a further such application. Nersa this week confirmed that these applications in terms of the Regulatory Clearing Account (RCA) methodology have been put on hold pending the outcome of an appeal to the Constitutional Court against an earlier RCA interim increase.


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Constant bailouts, more like handouts

This constant bailout of SoE’s results in two major economic issues in the country – grants will remain static and borrowing by the state will escalate to the point where they will have to get an IMF loan. Come 2019 when the ANC are booted out the new government will have incurred so much debt that not even our children will be able to pay off. This mess is squarely on the shoulders of the ANC voters and they need to move away from their herd mentality

“handout” not “herd”

“No bailout is required. Eskom has R150 billion available to it in terms of the government guarantee framework” he forgot about the large salaries to be paid to incompetent people…keep in mind this man is incompetent himself.

Sorry to say that these guys are extremely competent. Yes competent in graft. They have become experts in rhetoric and manipulations and that also with regards to the millions of poor. Promises made will remain promises.

It appears that nobody at Eskom really knows anything about the company they work for. Who appointed them in the first instance?. Disgraceful.

Tariff increases from Eskom (2008 – 2017)

The tariff increases of the last ten years at Eskom has left me dumbfounded. How can a state owned company RIP its own people? Eskom keeps on asking for higher tariffs year on year. I created a table with the tariff increases and compared it with another that has an increase of inflation + 2%. The compounding effect is in play here and the losers are the poor public. Eskoms income in the last 10 years grew by 4,5 time its income in 2008. There is something drastically wrong with the company if it now requires a bailout.

12 May 14:03
Brown: 2.5 years ago SA was in load shedding, while it clocks profits now. When Mr Molefe has been declared guilty or not, then we can decide if his return has been ethical or not.
12 May 14:12
Brown: I think Eskom itself is quite sustainable and I feel (acting Eskom CEO Matshela) Koko has done well to willingly step down.
12 May 14:11
Brown: Eskom has given me an assurance that within 5 years it will reduce its reliance by almost R100bn. Those are matters that cannot be scoffed at. It shows a company actually quite resilient.

Year %Inc ValPer IncValue
1 2008 27,5 R128 R28
2 2009 31,3 R167 R40
3 2010 24,8 R209 R42
4 2011 25,8 R263 R54
5 2012 16,0 R305 R42
6 2013 8,8 R332 R27
7 2014 8,0 R358 R27
8 2015 12,7 R404 R45
9 2016 9,4 R442 R38
10 2017 2,2 R451 R10
Increased by : 4,5

Year Inf Inf+2% ValPer IncValue
1 2008 11,5 13,5 R114 R14
2 2009 7,1 9,1 R124 R10
3 2010 4,3 6,3 R132 R8
4 2011 5,0 7,0 R141 R9
5 2012 5,7 7,7 R152 R11
6 2013 5,7 7,7 R163 R12
7 2014 6,1 8,1 R177 R13
8 2015 5,0 7,0 R189 R12
9 2016 6,5 8,5 R205 R16
10 2017 2,2 4,2 R214 R9
Increased by : 2,1

Now can you imagine the compounding effect of us the taxpayer having to carry the can for Nuclear Energy at R1TRN. If can cannot get by with stolen/manipulated coal image uranium etc…..I see very dark days ahead if the Nuclear deal goes ahead.

This is you get from gross financial mismanagement. Before any bailout would be approved by the citizens of South Africa, the Gupta appointed ESKOM board needs to be removed
and replaced with a new board of competent people.

Cancel all over-prized coal contracts, supplying ESKOM with sub-standard coal.

Next, remove Gupta appointed Gigaba from MF chair.

Finally, collect the Rbillions in unpaid ESKOM accounts, and permanently disconnect all illegal electricity connections.

You can remove the board as many times as you like, as long as it is a ANC appointed board, it will continue on the same path.

Only a matter of time before the cash runs dry.

Cash has already run out. Everyday there is a service delivery protest. Money for the poor is being looted daily (SOE’s and Municipalities). The roller coaster ride is picking up speed with the brakes dysfunctional. Start consolidating your assets with some gold and dollar or pound based unit trusts.

Sadly government and quasi government institutions only really understand a grant: you are given funds to do a project. When the funds are done, you ask for more! Witness Eskom, SAA etc. Quite simple really. Most SOEs seem to be working on this basis.
The word ‘sustainable’ is not part of the vocab, yet in business there are no grants! In their great wisdom those in power even have grants incentivising young girls to have babies!

All municipalities and soe’s has been “radically transformed”. Most of them are in shambles. The whole ANC conference was about unity,radical economic transformation,land reforms but no mention of plugging the drain at the municipalities and soe’s. Eskoms tariff increase since 2008 has culminated in increasing its turnover four and a half times and it still requires a bailout. There is something drastically wrong here. The compounding effect of the last ten years increases alone is astronomical. The poor has been hammered. Just two months ago, Brown was singing praises of Molefe and how resilient Ngubane and Molefe has made Eskom and now Gigaba is planning to bail out Eskom? Surely these decisions are leading us to the path of Zumbabwe?

This is “transformation”

“radical transformation”

And only yesterday, Malusi Gagupta said NO MORE BAIL OUTS?
Except for pals and comrades I guess.

these incompetent lot don’t know which way anymore?

Corruption/Graft aside, this Government were never ever close to ready and equipped to govern RSA!And the fact that they cannot recognise this makes their incompetence even more glaring!For those of us who gave them the benefit of the doubt, well,blinded by hope, I guess!

Snowy, hope has now degenerated to depression. I am now going to consolidate my assets. Buying more kruger coins. At least when hyper inflation sets in, I will be able to eat at least.

100% Correct! But, there was a glimmer of hope when the power sharing Government was put in place to I think smooth the transfer of power and skills??? to the new ANC Government??? De Klerk was however in a hurry to join his new lover(current wife) and abandoned the Government of Unity! I believe that that arrangement must have been difficult for De Klerk and the other Nat company, but it was in my opinion our only hope? All the “wigte en teenwigte” het hulle gat gesien!

Agree……………….but the freeloaders will stop this and there are more of them than us.

Suffer Tax payer again.

From one of the best Power utility companies in the world twenty years ago, now an absolute disgrace.

From one of the cheapest electricity rates in the world twenty years ago, now only affordable by the rich.

Factories do NOT come here anymore because the electricty tariffs are super expensive.

I boycott them, I use mostly GAS, my bill is less than R300 per month. They will not get rich from me.

No reason to build Nuclear plants or buy expensive Coal.

Latest from Sikhulekile Duma: Duma shocked ANC veterans and SACP delegates when he told them South Africa was spending R212bn on its SOEs and Eskom controlled R74bn of the total amount. “Eskom officials do not need Treasury approval and they do business with whoever they wanted,” Duma said. Why on earth do they need a bailout then?

The left bum cheek doesn’t know what the right bum cheek is doing!!!!

What’s not to understand – it’s Cloudy mentality (after all his role at the SABC was not to make a profit, or even break even – it was to spend money and tell everyone just how uniquely gifted he was). Okay, so Smiley Gigaba once again confirms that he is clueless (like his boss) and keeps reversing course and changing lanes! The outcome will be a massive bailout with the bulk of cash landing in Dubai to grow the billions already there and Eskom will get approval for nuclear to further enrich the ‘middle men’.

This is the way a liberation movement that becomes a governing party trashes a country. We needed the liberation, we do not now need the trashing!

I speak to many skilled, professionals who could have left this country but decided to commit and invest in the country, its future and were determined to make a contribution. Many of these people are totally demoralised today. They and many others have been betrayed. When you read about an Eskom bail-out after the massive increases Eskom has levied over the past 10 years, you want to go explode. How many companies and jobs have been lost as a result? I am so ‘gatvol’ I don’t the vocabulary to express I disgusted I am.

End of comments.





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