Johannesburg - Eskom denied on Thursday that it faced imminent bankruptcy, as reports of its dire financial situation raised concern. Eskom finances had allegedly deteriorated to a point where it was struggling to pay creditors.
But Eskom spokesperson Khulu Phasiwe maintained that Eskom’s liquidity levels remained sufficient.
“The levels were subject to the execution of the funding plan until March 2018,” he told Fin24. Eskom had expedited its drawdowns on existing loan facilities to keep afloat, including the payment of salaries.
Eskom is yet to publish its interim results, which were expected at the end of November, before being postponed again in December. Eskom could not provide a date for the release.
Fin24 in November reported that the power utility’s poor governance had left it teetering on the edge of insolvency, with only R1.2bn of liquidity reserves expected to be in hand at the end of the November.
Its latest report to its shareholder representative, Public Enterprises Minister Lynne Brown, estimated that the utility would have a R5bn negative liquidity position by the end of this month.
Insiders at Eskom this week told Fin24 that the utility has not been able to execute a feasible plan to help the utility out of the dire straits the November situation had painted.
Poor corporate governance had alienated the facility and the return of the reinstated controversial executive Matshela Koko has not boosted confidence, a source with knowledge about the situation said. Earlier charges against Koko had been dismissed and the executive reported for duty at Eskom this week. His disciplinary has been widely criticised as a sham.
Another two Eskom bosses, Anoj Singh and Abram Masango, are still to have their disciplinary hearings. Eskom has also been placed at the centre of state capture allegations involving the Gupta-family, with both Singh and Koko involvement questioned.
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In August Eskom narrowly avoided a crisis when its lenders threatened to recall their loans. Only an intervention to suspend Singh at the time saved the utility then.
With Eskom executive operations basically grinding to a halt over December and drawdown facilities already maximised, there was concern that no additional funding had been acquired to help Eskom out of its perilous situation.
Phasiwe, however, said the group would be able to service its debt. He added that Eskom’s rescue plan has been operationalised and executed. “Thus Eskom has the current liquidity position and will pursue funding planned for the remainder of the financial year.”
Eskom’s debt due to its new build programme is hefty. Treasury has issued R350bn of government guarantees to Eskom, of which R275bn has already been used. It needs to borrow about R60bn per year for the next four years to finish the new build programme, consisting out of Medupi and Kusile.
Increasing costs and delays at the projects have not helped the situation.
If creditors recall the loans, Treasury will have no option but to bail the utility out. Finance Minister Malusi Gigaba has repeatedly warned that the financial crisis at Eskom presented the biggest threat to the South African economy.
He has indicated that government will not allow Eskom to fail, and thus business rescue or commencement of bankruptcy proceedings is not an option. In such circumstances the state will therefore have little option but to assist with a further bailout to keep the utility afloat.
At the end of last year Eskom had only secured approximately 56% of the funding requirements for the current financial year.
Phasiwe said that at this stage, Eskom will not approach Treasury for a bailout.
Eskom hoped that bond sales would help its position, but with a cloud of poor governance hanging over the utility, there were big questions whether it would be able to raise any funds through the bonds.
In response to questions about Eskom’s perceived poor governance, Phasiwe said that the confirmation of appointment of Eskom’s new board in December has assisted in proving the intention to resolve governance issues.
“The board has also been mandated to expedite the appointment of a permanent Group Chief Executive, which will go a long way in strengthening Eskom’s governance structure,” he said.
But the new board itself has drawn criticism, with several organisations criticising the state power utility for retaining some of its old members.
Phasiwe said despite fears that the kitty was empty, employees will be paid at the end of January. “We will be able to pay salaries as cash from operations covers salary requirements.”
Eskom also earlier said the energy regulator’s refusal to grant it a 20% hike in tariffs exacerbated its financial position. The state utility was only granted a 5% hike.
Phasiwe told Moneyweb Eskom executives would meet next week, when everybody is back from the holidays to discuss the crisis.* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER