Eskom’s debt gap
How do we solve Eskom debt – the big SONA gap
Nobody said running a country was easy. Or if they did, it could not be a serious reflection on what those at the helm of South Africa currently face. Even making the annual stock-take speech is delayed by over an hour of noisy, red disruption. While the 2020 State of the Nation Address (SONA) ended on a cheery, uplifting note – the reality is by and large far less rosy. News of increasing unemployment, inequality and poverty is all too familiar – resulting in violent crime and intellectual exodus at opposite ends of the wealth spectrum. You can see the daily struggle in the faces of many of our people. Traffic lights are now a transient home to the homeless as they look for help. These days, the traffic lights too are often without power.
While there is certainly not a single cause or cure, some specific issues do have the potential to significantly improve or further damage the real state of our nation. Some pieces of the puzzle simply have greater gravitas. The President did indicate in his SONA that “This year, we fix the fundamentals” and immediately launched into a description of our constrained energy supply. Load shedding is a regular reminder of the ongoing crisis at Eskom, but the full extent of the mess is far more serious than intermittent power cuts and has the potential to plunge South Africa into a darkness that will be hard to recover from. Central to all their financial woes is one four letter word: DEBT.
To understand the magnitude of this debt, consider that in Eskom’s own documents they indicate that by 2021, debt and interest repayments will have ballooned to be their single largest annual cost, at a whopping R96 billion. This colossal figure is even more than their projected cost of R92 billion to produce electricity at a national scale. This critically debt-ridden position has a number of unsavoury potential outcomes.
In the worst case, if Eskom goes bust, it will drag sovereign ratings and public coffers with it. Eskom debt is linked to government guarantees, and ultimately the taxpayer. This nightmare scenario, with all sorts of nasty consequences for national financial flows and associated civil unrest, must be avoided at all costs. The slightly less awful case is the status quo of a limping state-owned entity that relies on band-aid bailouts to hobble on, where this money could be put to much more forward-looking measures. Many innovative ideas have been suggested on how to improve our energy sector – and how to make this transition – but the burden of Eskom debt is a major obstacle to pursing any of these progressive avenues.
So while Cyril Ramaphosa did say that we require “measures to mobilise resources that will reduce Eskom’s debt and inject fresh capital where needed”, the means to this critical end are sorely lacking. So with all due respect Mr. President, how exactly are we going to do this? What achievable actions are being considered to urgently solve this debt spiral that continues to grow unabated? The impending threat of a bankrupt Eskom requires more than lip service that merely acknowledges the problem.
An Eskom Sustainability Task Team was appointed in December 2018, and some recommendations were made, but where is the implementation of these? A number of learned academics, think tanks, labour and civil society organisations have made suggestions on ways forward. As an example, Cosatu (and others before them), have recently recommended tapping into funds within the Public Investment Corporation (PIC). While this suggestion has caused a quite a stir in the media, at least it has revived the debate on what a tenable solution could look like. Other proposals involve leveraging international climate finance that would be associated with overdue Eskom reform, but ideas like these need support and participatory development if they are to become real game changers.
It was encouraging to hear the number of measures that the President listed to facilitate the increase in generation capacity outside of Eskom. In fact, this could be considered revolutionary compared to some previous SONA stances on energy. However, Eskom is teetering on the edge of financial collapse and could take all of us with it, so we can not only look to alternatives. We must confront this core debt issue.
While the devil may be in the detail, if Government does not invest in a detailed solution to Eskom’s debt, all manner of demons will come out. This would put a real damper of our President’s affirmation that we “will continue our onward march to freedom”.
What we really need, is freedom from Eskom’s crippling debt, and to know how this is going to happen. On this score, we have been sitting at the traffic light for way too long. We need to ‘get going’ on fixing Eskom’s debt spiral. The state of our nation truly depends on it.
by Richard Halsey
