New Eskom board will provide 'comfort' to markets - Phasiwe

Cape Town - The newly appointed Eskom board will provide the reassurance markets have been seeking around issues of corporate governance at the power utility, said spokesperson Khulu Phasiwe.

Speaking to Fin24 by phone on Monday, Phasiwe explained Eskom and Treasury would be approaching financial institutions to secure R20bn for the state-owned enterprise.

This is part of an ongoing process by Treasury, only this time when they approach the markets they will have addressed some of the concerns previously raised about instability at board level, he said.

On Saturday the government announced that businessman Jabu Mabuza would chair the Eskom board, and recommended that former Land Bank CEO and Absa Capital executive Phakamani Hadebe be appointed as Eskom’s acting group CEO. The board has 90 days to appoint a permanent CEO and chief financial officer, Fin24 reported.

Government wants all Eskom executives facing “allegations of corruption”, including former acting CEO Matshela Koko and suspended CFO Anoj Singh, to be removed immediately. Both Singh and Koko are expected to testify at the Eskom Inquiry this week.

“Now we have people with experience, and who are credible. The announcement by the Presidency that Koko and Singh will be removed with immediate effect, all these things provide comfort to the market.

“It shows Eskom and government are addressing the issues of corporate governance,” he said.

Phasiwe said that when Eskom and Treasury go to the markets in the new round of discussions, financial institutions will hopefully lend them an ear and provide the funding required.

He explained that the R20bn is needed annually, as it provides a buffer for Eskom to operate at optimal level. “We need at least a buffer of R20bn per annum to deal with other things that may come as part of us doing business. Currently we do not have R20bn, we have much less.”

Business Day reported that there is a possibility that the World Bank could issue a default letter for its $3.75bn (R45bn) loan to the power utility.

“So far we have not received that letter, which is good,” said Phasiwe. He added that the World Bank’s concerns were no different to those of other financial institutions like the African Development Bank and the Development Bank of Southern Africa.

“All financial institutions were concerned about the liquidity of the company and primarily issues of corporate governance. Now that has been partially addressed.”

When Deputy President Cyril Ramaphosa meets with the World Bank at the World Economic Forum in Davos this week, he will be able to provide an update on the new board and assure financial institutions that there is a process to appoint new executives.

“Hopefully all these things will provide necessary stability and the comfort the financial institutions are seeking,” said Phasiwe.

He added that Eskom has not heard from ratings agencies yet. In November Moody’s downgraded Eskom’s long-term corporate family rating (CFR) to Ba3 from Ba2 (the third notch below non-investment grade) and placed the state utility on review for a further downgrade.

At the time Moody’s said the action was made in the light of Eskom’s deteriorating liquidity and poor corporate governance.

S&P also downgraded Eskom’s long-term foreign and local currency corporate credit rating to ‘B-’ (the sixth notch below non-investment grade) from ‘B+’, with a negative outlook.

But Phasiwe is hopeful that the ratings agencies will consider the changes being made at the power utility. He said there are matters beyond Eskom’s control, like below-inflation tariff increases. But the power utility is dealing with issues within its control, such as people allegedly involved in corruption.

Previously Finance Minister Malusi Gigaba highlighted the severity of Eskom’s financial position, warning that it could cause the country's economy to collapse. He also explained that the fiscus could not afford to bail out the power utility.

Treasury has issued R350bn of government guarantees to Eskom, of which R275bn has already been used. Eskom needs to borrow about R60bn per year for the next four years to finish the new build programme consisting of Medupi and Kusile, Fin24 reported.

In November 2017, Fin24 reported on details from a leaked report to shareholder representative Public Enterprises Minister Lynne Brown. It showed Eskom is estimated to have a R5bn negative liquidity position by the end of January 2018. 

‘Renewal’ of Eskom

The Organisation Undoing Tax Abuse (OUTA) believes the appointment of the new board is part of a renewal process at Eskom. “We welcome the change in leadership and especially the inclusion of experienced business, finance and engineering leaders who will do far more to address the challenges faced by Eskom than any of their predecessors in the past decade,” said Wayne Duvenage OUTA CEO.

“We believe the new board’s biggest challenge is not only to get rid of all those who are implicated in massive corruption but also to ensure that criminal charges are brought against them and the evidence in the Eskom files preserved to use against them,” he said of Singh, Koko, former CEO Brian Molefe and former chairman Ben Ngubane and former board member Mark Pamensky.

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