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Eskom is said to propose moving debt to state, cutting jobs

The utility is desperately seeking measures to enable the continuation of operations.

Eskom, the cash-strapped South African power utility, wants the government to take on about R100 billion of its debt as part of a rescue plan that will enable it to continue operating.

The company’s executives outlined the proposal to move the debt onto the government’s balance sheet to bond investors in London this week, according to Sanchay Singla, a money manager at Legal & General who attended a meeting with them.

The executives said they hadn’t formally raised the issue with Finance Minister Tito Mboweni or the National Treasury, according to a second investor, who asked not to be named as he’s not authorized to speak publicly about the matter. That made him doubtful the government would accept it, he said.

Eskom is saddled with R419 billion of debt, isn’t selling enough power to cover its costs and has resorted to rolling blackouts as insufficient spending on maintenance constrains power generation. While the utility said last week it may need government help to survive, Mboweni told Bloomberg Television on December 1 there were limits to what the Treasury can do and the utility should tap the bond market for funding.

The government hasn’t received a proposal from Eskom, and any debt relief proposition will have to be assessed in the context of a turnaround plan that Eskom is expected to present soon, Treasury spokesman Jabulani Sikhakhane said in an emailed response to questions. The government’s policy is that funding for state companies must be “done in a deficit-neutral manner,” he said.

Selling bonds is an expensive prospect. The premium investors demand to hold Eskom’s 2026 rand bonds rather than benchmark sovereign securities has more than doubled over the past five years to 124 basis points, even though the debt is government-guaranteed. Yields on the company’s 2025 dollar bonds are at the highest since March 2016, with the spread over US Treasuries climbing 184 basis points this year to 616 basis points.

Higher tariffs

Eskom won’t comment further on the turnaround plan until all “stakeholders” have been consulted, spokesman Khulu Phasiwe said by phone. Pravin Gordhan, the public enterprises minister, declined to comment.

The Eskom officials said they wanted to raise power tariffs which are among the lowest of the 36 nations that form the Organization for Economic Co-operation and Development, and were considering firing as many as 16 000 surplus workers, said the fund manager, who spoke on condition of anonymity said. The option of job cuts, which has been previously reported, has been rejected by labor unions. The company employs about 48 000 people.

Eskom’s debt reorganization proposal was reported earlier by Business Day. If approved it may add 2 percentage points to South Africa’s debt-to-GDP ratio, the Johannesburg-based newspaper said, citing Eskom Chairman Jabu Mabuza.

Eskom’s troubles are emblematic of a decline at South Africa’s state companies during the nine-year tenure of former President Jacob Zuma, during which corruption became rife. His successor, Cyril Ramaphosa, has pledged to wipe out graft and has shaken up management at Eskom, ports and rail firm Transnet and South African Airways.

South Africa’s auditor-general and ratings companies have warned that Eskom is a risk to the health of economy.

© 2018 Bloomberg L.P

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I have got the solution to Eskom’s problems. They are drowning in debt because the technology required to generate power by burning coal, boiling water, creating steam and turning turbines is very complicated. The business model is unsuccessful because of the mismatch between the current technology and the current grey matter.

They should put the 48 000 strong workforce on stationary bikes with dynamo’s and connect them to the grid. Pay everyone per watt generated. That way they will match the technology with the available grey matter. No wet coal, no unfinished power stations, no budget shortages, no government guarantees, just African solutions for African problems.

Just add a few solar panels so they can have a lunch break when the sun is shining.

And all the exercise will improve employee health at no additional cost. It’s a “win-win”.

grumble all you want, their problem is our problem. Why the heck does Govi care about a few percent of the 40-50k workers losing their jobs, when the load shedding is putting millions of employees at risk in factories, mines and knock on effects? It makes no sense, millions can cause social unrest, a couple thousand at a stressed utility is a strike we can deal with. Afterall, the mines were able to resolve the mass retrenchments and they have the scariest union in the form of AMCU?

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