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Eskom should weigh selling its crown jewels, FirstRand CEO says

Pullinger says embattled parastatal should dispose of Medupi, Kusile to repair finances.

Eskom should consider selling two coal-fired plants that rank among the world’s biggest to repair the state-owned utility’s finances, according to the head of South Africa’s biggest bank by market value.

The supplier of almost all of South Africa’s power is being battered by declining sales, high fixed costs, surging debt and unplanned outages that are holding back economic growth. Its two new power plants, Medupi and Kusile, are still unfinished after a decade of construction. Combined, Eskom estimates they’ve cost R292.5 billion to build.

The plants are “shiny new” assets that “you would find private-investor capital for, whether that’s local capital or offshore capital,” said FirstRand chief executive officer Alan Pullinger in an interview at Bloomberg’s office in Johannesburg. “There are big energy investors that would probably look to invest in those assets.”

Selling the plants would be made difficult if a list of conditions were imposed by the government, such as blocking job cuts, added the CEO, who once headed FirstRand’s investment-banking unit Rand Merchant Bank. It may also want to contemplate separating the generation of electricity from transmission to invite independent producers to feed into its grid, he said. The utility would have to fix its capital structure and address its cost base through a restructuring exercise, Pullinger said.

Must be fixed

Eskom chairman Jabu Mabuza has said that asset sales aren’t an option for the utility, because the “only assets we can sell, no one will buy.” The government hasn’t made any decision to privatise the company, Public Enterprises Minister Pravin Gordhan said on Thursday. Most of Eskom’s other plants are old and costly to run.

Eskom has racked up R419 billion in debt — a quarter of the government’s forecast total expenditure for fiscal 2019 — that it’s battling to repay. The utility is engaging several stakeholders, including the state, on various proposals, one of which includes getting the state to take over R100 billion of its borrowings. Labor unions have rejected previous proposals to reduce its 47 000-strong workforce.

“There is no way for Eskom to grow into its debt,” Pullinger said. “It’s got to be fixed,” because Eskom’s woes and the lack of reliable energy supply are “a massive constraint to growth.”

‘Fiscal crisis’

The Johannesburg-based company poses the biggest credit risk to Africa’s most industrialized nation, according to S&P Global Ratings.

Eskom has begun implementing rolling power cuts to manage demand as it battles to pay for maintenance at some of its plants. In recent years, it has suffered a decline in sales that has pushed demand to a decade-low as consumers turn to alternative power sources amid blackouts, and the emergence of new technologies such as solar panels. Medupi and Kusile were supposed to be fully operational in 2015 to address shortages.

Any asset sales by Eskom would likely be opposed by labour unions, who have publicly stated their opposition to privatisation.

“The only workable solution is to break up Eskom and to sell-off certain assets, such as the new mega power plants,” said Darias Jonker, director for Africa at Eurasia Group. “This latter option is particularly politically sensitive, and is thus unlikely to happen.”

Eskom’s proposal to transfer debt to the government may also trigger further ratings agency downgrades, he said.

“Eskom is pushing the government towards a fiscal crisis either way, and this is likely to happen sometime between 2022 and 2026, and thus could coincide with the 2024 election,” Jonker said.

© 2018 Bloomberg L.P

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What they should do is plain common sense. Don’t hold your breath for a bunch of thieves and communists to put the country first.

Eskom should learn to live/work within its means.

We the public did not share in their Bonuses and high living?

Eskom looks worse than SAA (Where we pay for flight tickets never received)

There is more “load shedding” to come, of a different kind:

…when MOODY’S RATING AGENCY “load shed” SA’s last investment grade rating.

Never mind coal….SA Govt will RUN OUT OF INK trying to print as many ZAR notes as possible. Add a few 000 000 000’s to each note. Familiar?

One should never underestimate human ingenuity in the private sector. The 40 year old Vales Point power station in NSW Australia was sold for scrap value by the State Government and is now making super profits for its private sector owners. Read all about it:

http://joannenova.com.au/2018/09/40-year-old-coal-plant-sold-for-1m-makes-100m-profit-and-will-run-another-30-years/

Privatisation is the only way forward. The ANC simply cannot. Their intellectual malfunction is an impediment to progress.

If Eskom sells Medupi and Kusile, their debt position will worsen and not improve. Due to the mismanagement and outright looting, the book value of those new power stations are 3 times higher than the current replacement value. They will get rid of their assets and the debt will remain on the balance sheet. Their debt to equity ratio will worsen if they sell their crown jewels. They will sell themselves further into bankruptcy. Any wriggling will cause them to drown in the quicksand. Luhtuli House painted itself into a corner here.

Guys, really, we should call a spade a spade now. This situation will impact on the financial system, the banking system and the purchasing power of the currency if it is allowed to carry on for another 12 months. In plain English this means that we should prepare for hyperinflation of the currency. If you do not know what that means you should read “Culture and Inflation in Weimar Germany” by Bernd Widdig.

…just to be nationalized when it is build up again….basterdos!

Please stop referring to Eskom, SAA and Denel SABC etc as Crown Jewels

These institutions are not crown jewels. they have no intrinsic value
They are the very opposite, a cancer on the body politic

If these two plants’ vendors and contractors bought their plants back for nearly what they charged for it and then financed it with FirtsRand debt under a PPA then SA taxpayers would only have overpaid 180% of what we already paid for it; measured in R/kWh.

Eskom HAS to stop their contracting system and go for either:
Fixed price contract with penalties.
PPA like the wind and solar guys supply energy.

You can go back to that Whatever Commission in the 80’s investigating Eskom build projects going back to the 70’s : Eskom has never in its owner model delivered any power station on time in budget.

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