Eskom in a financial ‘death spiral’

Eskom is trapped in a “death spiral” as it is borrowing money just to pay off older debts, said energy expert Anton Eberhard at this week’s Eskom briefing.

“Something has to give,” he said.

Eberhard is a member of President Cyril Ramaphosa’s Eskom Sustainability Task Team, which is entirely separate from Eskom’s own technical team, and is focused on the longer-term prospects of the power monopoly.

Provisional findings include that Eskom will eventually have to receive some kind of “blended finance” – meaning more non-commercial loans from development lenders.

Eskom needs debt relief

Public Enterprises Minister Pravin Gordhan said that he could not speculate about what form alternative financing might take as it would be inappropriate to “put rumours in the market”.

Eskom’s debt servicing costs would escalate as time passes due to the firm’s deteriorating creditworthiness, said Eberhard.

A lot of the debt now being serviced is made up of relatively cheap loans Eskom received when it still had an investment-grade credit rating.

The more recent debts that will start to dominate repayments comprise loans received on far more onerous terms as Eskom fell to “junk” status, Eberhard said.

Revenues and bailouts are simply not covering cost and debt servicing, which means there has to be more revenue, fewer costs or more bailouts, he said.

“The current tariffs are not enough.”

The presidential team is scheduled to have a final report for Ramaphosa by the end of this month.

“One issue struck us,” said Eberhard. “Don’t underestimate the effect of state capture.”

According to Eberhard, the grand corruption at Eskom has had the effect of “hollowing out” crucial skills like those of station managers.

Eskom alone cannot solve the problem of South Africa’s power shortage, he added.

Other producers can, however, only get off the ground once government finally publishes a new Integrated Resource Plan, the long-term power planning document that sets out the amount of new capacity the country must procure from each technology – coal, solar, wind and gas.

Without it, investments by independent power producers are impossible.

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