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Eskom CEO bemoans slow pace of talks on cutting R402bn debt

‘Discussions in this regard are ongoing, albeit more slowly than we would have liked.’
Image: Bloomberg

Talks about reducing the South African state power utility’s R402 billion debt to a manageable level are taking too long, its chief executive officer Andre de Ruyter said.

Eskom Holdings, which produces most of South Africa’s power, can’t meet its running and debt service costs and is dependent on government handouts to keep operating. It also needs to borrow more money to help it transition away from the polluting coal-fired plants used to produce the bulk of its electricity.

Read: Eskom is being reset: CEO sets out how

“The last element of our balance sheet restructuring involves a one-off injection of between R150 billion  and R200 billion in order to enable us to have a reasonable net debt-service cost,” De Ruyter said, according to the transcript of an interview published by The Conversation, a website that posts articles by academics and researchers. “Discussions in this regard are ongoing, albeit more slowly than we would have liked.”

Eskom, which has subjected South Africa to intermittent power cuts since 2005, is seen as a brake on economic growth as the outages limit output and damage investor confidence.

Options to cut Eskom’s debt that have, or are being considered by government include moving a portion of the borrowings onto the state balance sheet or persuading a fund manager that oversees state workers’ pensions to convert its bond holdings into equity.

David Masondo, South Africa’s deputy finance minister, has suggested that some sovereign debt could be forgiven by creditors in exchange for the government recapitalizing the utility and closing down its coal-fired plants.

“Eskom cannot rely on the government bailout forever,” De Ruyter said. “We are well aware that we are not entitled to a cent of taxpayers’ money.”

The CEO urged the National Energy Regulator of South Africa to “come to the party with electricity tariffs that reflect the cost of producing the power.” The nation’s power costs would be cheap by international standards even if the utility were granted a 20% increase, he said.

South Africa’s inflation rate is currently 4.6%.

© 2021 Bloomberg

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You can only cut debt if you sell assets. Who wants to buy the dilapidated 40-year old underserviced, overused, and unserviceable power stations? They won’t even get buyers for the new dysfunctional power stations that suffer from design flaws and tend to explode when you start them up. No buyers here.

Ok, so what are our options then? There is only one alternative – do a “debt-for-equity swap” with the lenders.

The GEPF owns the debt. Privatize the Eskom disaster, cut it up in tranches and exchange a tranch of disaster for a trach of debt. The GEPF should actually accept this deal because, in reality, the serviceability of the bonds is a disaster already. They will be swapping one disaster for another. Fair deal.

In the world of finance, they describe this as an innovative solution.

End of comments.

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