Eskom CEO enters danger zone in bid to fix debt-stricken utility

Utility head is navigating a political minefield.
Image: Waldo Swiegers/Bloomberg

Andre de Ruyter, the chief executive officer of South Africa’s debt-stricken state power utility, is navigating a political minefield as he collects overdue debt, reduces electricity theft and bolsters revenue.

Eskom Holdings this month seized the bank accounts of its biggest defaulter — the Maluti-a-Phofung municipality that owes it R5.3 billion — and scaled back supplies to areas where many residents have illegal connections to the grid. It previously clashed with the country’s energy regulator over tariff increases, and suspended contracts with coal and renewable-energy vendors after electricity demand plummeted amid a coronavirus lockdown.

The utility supplies about 95% of the power used in Africa’s most industrialised economy and isn’t generating enough cash to cover its operating expenses and interest payments on R454 billion of debt. Efforts to reorganise the loans and split the company into three units to make it more manageable have made slow progress, exacerbating the need to shore up its income.

“Inevitably tough decisions have now to be taken to implement debt recovery and to send a message to errant municipalities that they must now get their financial house in order,” said Raymond Parsons, a professor at North-West University’s Business School in Potchefstroom, west of Johannesburg. “This will not be popular and there may be political fallout. We must assume that De Ruyter has the necessary backing to be doing what he is.”

Municipal debts

Local authorities, most of which are controlled by the ruling African National Congress and have been dogged by mismanagement and a lack of funds, owed Eskom R30.9 billion at the end of June. The party hasn’t commented on Eskom’s seizure of the municipality’s accounts, but President Cyril Ramaphosa has said payment boycotts are unacceptable.

Previous attempts by Eskom to cut off some township customers who didn’t pay their bills have sparked violent street protests. The utility demonstrated it’s aware of the sensitivities of taking a hard line at the weekend, when it conceded to releasing R90 million to Maluti-a-Phofung to enable it to pay salaries and other costs. Calls to its mayor’s office weren’t answered.

Eskom seizes defaulting customers’ assets as a last resort when other legal options have been exhausted, and reduces supply to areas where there are illegal connections to protect its infrastructure and avoid explosions, De Ruyter, who took up his post in January, said in an emailed response to questions.

Asked if the company consulted with the government or sought its permission before embarking on such action, he said: “Eskom is an autonomous agency of the government, whose mandate is to ensure the reliable supply of electricity.”

Lengthy process

Public Enterprises Minister Pravin Gordhan, who oversees Eskom, and his spokesman, Sam Mkokeli, didn’t immediately respond to requests for comment.

Fixing Eskom will be a lengthy process and will have to go beyond collecting overdue debt and disconnecting customers, according to Jones Gondo, a credit analyst at Nedbank Group. He expects there will be more clarity on whether a turnaround is possible when Eskom is split into generation, distribution and transmission units that separately disclose their revenue and costs.

Investors appear increasingly confident that Eskom will secure sufficient state support to meet its commitments. The premium they demand to hold its 2026 rand bonds rather than government securities has narrowed 14 basis points since the beginning of January to 104 as of July 27.

© 2020 Bloomberg

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Well done!! I just can’t see that the CEO will survive, should Eskom continue with this approach..

Pravin Gupta is busy playing with SAA.

My view is Mr. de Ruyter might be a bit naive or VERY clever.

Naive because he knew upfront he could not fix ESKOM “properly” as he does not have mandate to reduce the bloated workforce. So if you knew that before you took the job??? Go tell someone else you are trying to fix it.

VERY clever if he gets anywhere. Good luck boet. You will need it.

It should never have got this bad. They should have been shut off when they were 3 months in arrears. Once again the ANC’s ridiculous policies have created more problems than they have solved. Just like the Country.

Yes, it should never have gone that far. The only proven way of stopping electricity theft or arrears, is to nip it in the bud. If someone is caught stealing electricity, switch off immediately, invoice him for the stolen electricity (according to an approved policy or guideline from the utility) and only switch on when the amount is paid. If the account is in arrears for 30 days, switch off and only switch on when the account is settled. Now, that sounds quite easy, but in a country where everything is politisized, you can only do it if you have 100% support from the politicians. National government should have supported Eskom to do it and municipal councils should support their officials to do that. We had 100% support from our (ANC) Council, they approved a policy which allowed us to do exactly that and our total Electricity losses, technical and non-technical, were below 10% for 27 years, which is below the accepted industry standard. Without buy-in from the politicians, you will get nowhere. I hope Mr de Ruyter has that. It is very difficult to recover old arrears, but maybe he should agree with government to start at a given point and apply it from there on.

Of course Eskom will get funding…from the Pension Funds!

End of comments.





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