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Eskom in danger of collapse without bailout, South Africa says

Ministry warns of Eskom liquidity challenges.

South African power utility Eskom needs a cash injection by April to survive, the country’s public enterprises ministry warned in a presentation on Wednesday, although it later changed its wording to say the firm was “facing liquidity challenges”.

State-owned Eskom, which supplies more than 90% of the power in Africa’s most industrialised economy, cut electricity for a fourth straight day on Wednesday.

Eskom is laden with more than $30 billion of debt and is battling a shortage of capacity that threatens to derail government plans to lift the sluggish economy.

President Cyril Ramaphosa said last week that the government would support Eskom’s balance sheet but said details would be announced in a budget speech by the finance minister on February 20.

The department of public enterprises, which oversees Eskom, said in a presentation to parliament that Eskom was technically insolvent and would “cease to exist” at the current trajectory by April, unless it gets a bailout.

Read: Fixing Eskom now

The ministry later sent a version of the same presentation to journalists which it said had been corrected, which removed the timeframe and in which it substituted the words “will cease to exist” with “is facing liquidity challenges”. A ministry spokesman did not answer calls seeking an explanation.

Analysts say Eskom no longer generates enough cashflow or earnings to meet its debt-servicing costs, putting it at risk of default.

Public Enterprises Minister Pravin Gordhan, however, ruled out privatisation of the utility.

Fears over Eskom’s financial viability drove the rand 1.5% weaker against the US dollar.

The yield on the benchmark government bond, which moves inversely to its price, was up 2.5 basis points as investors fretted about the economic impact of a crisis which could see South Africa lose its remaining investment grade credit rating.

“With Eskom in the midst of trying to find a solution to its financing needs, investors are more nervous as to what this means to (rating agency) Moody’s,” Citi economist Gina Schoeman said in a note.

“Markets are highly sensitive to even a negative outlook decision because of how close this places South Africa to a WGBI-exit and inevitable ZAR depreciation and increased vulnerabilities,” she added, referring to the World Government Bond Index (WGBI).

Moody’s, the only one of the “big three” agencies to rate South Africa at investment grade, is scheduled to review the sovereign on March 29.

South Africa is rated “junk” by S&P Global Ratings and Fitch and if Moody’s joins them, the country will be booted out of the WGBI, which may prompt investors to dump its assets.

Frustration

The public enterprises department said on Wednesday that Eskom was struggling to keep its mainly coal-fired plants running due to coal shortages and poor maintenance, with 40 percent of breakdowns a result of human error.

The cash-strapped company said it would cut 3 000 megawatts (MW) of power from the national grid from 0600 GMT on Wednesday, likely until 2100 GMT. This follows a similar cut on Tuesday and 4 000 MW on Monday in the worst power cuts seen in several years that drove the rand currency down on Monday.

The power cuts have led to frustration among ordinary South Africans with traffic gridlock in major cities during rush hours as traffic lights stop working and some mothers struggling to feed their children.

“I have a baby, so making her bottles was a challenge because I had nowhere to boil water, which resulted in me having to go to a restaurant that has a generator just to get boiling water,” 28-year old Anazi Zote, mother of a 10 month-old daughter, told Reuters.

Business owners with no access to backup power sources have also been hit.

“From work to home to everywhere. At the moment the lights are off and we are using the stairs because the elevator isn’t working, and I’m on the 11th floor … it’s frustrating,” Leroy Erasmus, 25, a risk and surveying consultant, told Reuters.

Firms in the mining sector, the backbone of the country’s economy, are looking at alternatives to reduce their dependence on Eskom and monitoring the situation closely.

“Extended load-shedding (power cuts) would have a severe impact on the viability of mines, particularly deep-level gold and platinum mines,” said Charmane Russell, a spokeswoman for South Africa’s mining body.

Harmony Gold said on Tuesday that it was in talks to build a 30 MW solar plant to supply power to some of its assets, in an effort to cut its electricity costs and dependence on Eskom.

Gordhan said the government was worried about the impact the power outages could have.

“The Eskom board is taking steps to ensure that load shedding (power cuts) doesn’t become a permanent feature of South Africa this year,” he said.

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Please use all the PIC money to bail out Eskom and SAA.

That is the best way to recapture the money from some people that did not perform their duties as paid for by the tax payer.

yes…haven’t think about that in such away.Actually that is a not a bad idea, as the PIC money is going to be stolen anyway in the future.

Use PIC money first, thereafter gain access to SA Reverve Bank kitty, then once finished, print trillions of Rands (it will depreciate…a bit) as SA would be deeper junk-status in any case, and then Govt needs to default on it’s national debt.

Only as a last resort you use private retirement fund moneys.

You don’t know what you are talking about.

The are vast numbers of people dependent on their government pensions, people who worked hard for decades as teachers, nurses, at local municipalities, etc.

Why should they be punished for ANC criminality and incompetence?

Look at the desperate situation of the Transnet pensioners.

Because the GEPF is a defined fund, all members’ contributions are guaranteed by the state.

You and I and our children will be left to pick up the tab, whether as a result of more taxes and/or hyperinflation.

Dear DB-why should we the taxpayers be continuously fleeced for ANC and Unions criminality and violence and the entitlement of the Eskom workers. We the taxpayers ultimately paid the PIC money so it is just right that it is used for the taxpayers good.

Any case-did the PIC not “invest” R4.1 billion with that dodgy Surve guy at AYO or something. Money lost. So why not eskom.

Lulu, do you not understand the concept of “guaranteed by the state”?

Lulu, public servants are taxpayers, too.

And there is also tax on pension lump sums payable.

Your arguments amount to whataboutism, evading the issue.

The Surve “investment” is a small scale example of what the ANC intends.

The looting of public and private pension funds must be prevented at all cost.

Lol, worked hard.. Look at the state of education, hospitals, municipalities etc.

My father in law worked as a surgeon for the state for 40 years helping countless people and he is still working today because his pension hasn’t left him with much. This is after he was forced out of the state sector in the name of transformation. Now you’re saying he deserves to have his pension handed over to SOEs? Have you forgotten about all those people at Transnet that lost their pensions due to corruption and are now destitute. I’m sure you’d disagree if it was your pension in question.

I’m so tired of Pravin. He was/is part of the problem.

We need our heads read if we think they are going to suddenly be able to self-correct.

Very few people work the long hours like Pravin Gorghan does.

He is a genius, give him time to sort it out, he has just started the job.

This man gives up so much private/family time to South Africa.

Stop playing with the baas’ computer and go wash his car.

don’t we all?

So I’m a genius too then? Nonsense. He’s a true insider

I’m starting to think TheSpeculator IS Pravin.

Pravin, if that’s you, please get back to work. Asseblief tog. We know you’re a communist, but SA needs you to be solving problems right now not commenting on MW.

If ESKOM is a SOE, why do the employees at ESKOM earn more than ministers?

That is the difference between employment and deployment. Very few employees at Eskom….

So the average employees at Eskom earn above R1 mil a year? A Member of Parliament (which a minister has to be) earns about R1 mil a year. I assume being a Minister earns you even more on top of that.

Eskom will be fine….impossible to collapse financially.

You see, it’s backed by the “SA taxpayer”. All of us.

(…having said that, only IF there’s enough taxpayer’s left in SA)

(R430bn = cost of 7 US Navy nuclear-powered Nimitz-class aircraft carriers. Let that sink in for a moment.

A documentary i was listing to. Was saying that America is $22 trillion nish in debit. Which works outs to plus minus $66K per American citizen.

Just for interest sake.

It’s so obvious that going to introduce prescribed investments for the retirement fund industry (maybe at Gordons budget speech ? ) to bail the the SOE’s. They don’t care about the rating agencies

Hold on a bit. We’re going to fix the operational problems without losing a job – so why can’t we fix the financial problems without spending a cent?

Once again the taxpayer is going to pay for the incompetence of the government in addition to the rampant corruption. Worst part of it? Knowing that it’s a bottomless pit. It’s not going to get better because government will not change from their failed populist policies to score votes.

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