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Ramaphosa plan to fix South Africa’s Eskom faces roadblocks

Lack of detail raises market concerns.

President Cyril Ramaphosa’s plan to split struggling state power utility Eskom is a positive show of intent to investors, although a lack of detail has raised concerns that change will take years to deliver.

Eskom, which produces more than 90 percent of South Africa’s electricity and employs 48,000 people, is a lynchpin of Africa’s most developed economy but has racked up debts of $31 billion.

Ramaphosa said on Thursday that to avert an economic crisis, Eskom’s generation, transmission and distribution would become separate entities under an Eskom holding company, leaving its inefficient and unwieldy monopoly intact.

Read: Ramaphosa instils hope, but ignores the elephants

Ahead of a May parliamentary election, Ramaphosa also said another Eskom bailout would be laid out in this month’s budget.

What markets were hoping for was the creation of three independent companies that could more easily cut costs, raise finance and be partially privatised in the future.

“The risk is very little will change in this structure,” Peter Attard Montalto, head of capital markets research at Intellidex, said.

“The intention may well be to have this as a first step and then separate out after that from the umbrella. However, we think the market underestimates how complex this separation process will be,” he added, forecasting it could take two years.

Max Wolman, investment director at Aberdeen Standard Investments, which holds Eskom debt, said it was debatable whether the restructuring would happen soon.

Most Eskom dollar-denominated bonds eased on Friday, with the 2025 bond slipping 1 cent to trade at 97.59 cents in the dollar, its lowest level in over a week.

The bonds had chalked up stellar gains in previous weeks, with many seeing their best monthly gains on record, as expectations built of a major restructuring.

May election

Even if Ramaphosa intends eventually to create independent units that could be partly sold off, he will face fierce resistance from left-wing elements of the ruling African National Congress (ANC) and powerful trade unions.

The ANC is expected to win May’s election but Ramaphosa will need the support of a united ruling party and union allies if he is to deliver the decisive victory that would give him a mandate to push through unpopular, but much-needed, reforms.

The two largest unions at Eskom, who say they account for half of the utility’s workforce, said on Friday they would fight Ramaphosa’s plan, with one calling it a “war”.

In the short term, Ramaphosa will need to raise Eskom’s revenues and cut its debt if he is to delay inevitable job cuts until after the election. That means tariff increases and bailouts that are toxic with voters.

“I agree with Mr. President that we need drastic action, but we can’t be paying for them screwing up all the time,” said Thokozane, a taxi driver in Johannesburg.

“If they have to cut jobs, it is sad, but we can’t go on year after year with these bailouts and tariffs.”

Ramaphosa is also trying to hold together the ANC to avoid the fate of his scandal-plagued predecessor Jacob Zuma, whom he ousted a year ago in a bitter internal battle.

‘Proxy war’

The anti-apartheid liberation movement remains deeply divided between socialist and reformist elements, and Ramaphosa faces resistance from a powerful pro-Zuma faction.

A task team formed by Ramaphosa to create a reform programme for Eskom recommended more market-friendly policies than were announced, however a backlash from left-wing members of his cabinet saw the plans diluted, an ANC source said.

“Ramaphosa’s opponents will be obstructing him every step of the way with his plan for Eskom,” said Darias Jonker, director for Africa at Eurasia Group, a political risk consultancy.

“This is yet another proxy war involving entrenched interests linked to the Zuma faction in the ANC.”

It is likely Ramaphosa will avoid major job cuts at Eskom until after the election, while the details of restructuring could be delayed so as not to rile allies, analysts say.

But with Eskom expected to lose more than $1 billion a year this year and next, there is only so long Ramaphosa can delay reforms without risking economic malaise, investor departure and credit rating downgrades.

“The Eskom issue needs a clear resolution, and we did not get that yesterday,” said Jonas David, strategist at Swiss bank UBS. “Eskom is a big concern for us.”

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Well that’s the thing. Eskom as well as the others as SAA can flush the finances of this country down the drain. And what very few in the ANC and the unions seem to understand. Then no Eskom etc, no jobs, no pay, no unions, no bailouts, only challenges (a nice word) for the cardre. Could they handle that? Well my view the sooner this happens the better, then we can start rebuilding.

When South Africans start realising that there is no free lunch, no handouts, that your life and decisions that you make mainly decide your fate, then we can start afresh. So with the negative, the outlook for me in any case is positive. Cut the costs (jobs), imprison the looters and stop the poor me, the world owes me mentality.

So Mr President, show us what you are made off. Or will the revival come after you? Your Choice.

“… fierce resistance from left-wing elements of the ruling African National Congress…”

Bhwaaa, ha, ha, ha!

The entire ANC (and its unions) is a rabid far left-wing element.

Their far left socialism is a carbon copy of the far left wing socialism that destroyed Germany in the 1940’s – namely National Socialism.

Look at my comment below about ‘rational thinking’.

The challenge of the ANC in a nutshell.

How to get the laws of physics, finance, economics, artithmetic and chemistry to get into line with BEE, developmental state, cadre deployment, EWC, and radical economic transformation.

One look at the SOE scorecard suggests we’re not doing too well. An innovation we could try now would be to let the unions run the whole show.

That should do the trick.

The laws of physics (etc) = RATIONAL THINKING.

The laws of socialism (BEE, developmental state, cadre deployment, EWC, and radical economic transformation) = IRRATIONAL THINKING.

Rational thinking leads to prosperity and happiness – hence the reason Western European countries remain the happiest and most prosperous on earth.

Irrational thinking leads to poverty and hardship – hence the reason African countries remain the poorest and most dangerous places on earth.

Rational thinking and irrational thinking is mutually exclusive – it will NEVER co-exist; it is physically impossible.

Hence I reiterate: Leave SA immediately; or prepare to do what it takes to eliminate irrational thinking – even if only in an independent state.

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