Mystery of Eskom's money

(Gianluigi Guercia, AFP)
(Gianluigi Guercia, AFP)

Johannesburg - The clock is ticking for scandal-infested Eskom as it readies to release its financial results amid confusion around the state firm’s true financial solvency.

Eskom’s financial results briefing is now scheduled for Wednesday after it was suddenly postponed two weeks ago. The question is if it will shed any light on whether Eskom is in good financial standing or not, amid a host of controversies that has plagued the institution.

Ministerial doublespeak

The doublespeak of Public Enterprises Minister Lynne Brown and Finance Minister Malusi Gigaba has done little to lift the fog.

Gigaba last week hinted that Eskom was on the verge of a bailout, while Brown recently insisted that Eskom was doing well.

Earlier this year Brown even said that Eskom was coping with its 2.2% tariff increase, which was much less than it had asked the national regulator for.

According to a leaked application, Eskom will ask for a 20% tariff hike next time around on the grounds that it won't be able to operate sustainably without collecting on that revenue. Yet last month, after Eskom’s annual general meeting, Brown reiterated that Eskom “recorded positive results according to its financial results presented to the AGM”.

She said Eskom was in a better financial position than it was a year and two years ago, at this time.

But over the weekend, Eskom refuted claims that it only has R20bn left in the kitty.

The Sunday Times, citing leaked financial statements, reported that the utility's current funds are only likely to last for the next three months and that Eskom may not be able to pay its 49 000 employees' salaries come November, unless it receives a bailout.

The Sunday Times report also suggested the postponement of Eskom’s results is to avert a crisis that would have required it to pay back R15bn owed to the Development Bank of Southern Africa (DBSA).

The DBSA granted that loan to Eskom in 2010, and Eskom has drained the facility. But one of the conditions in the loan is that it would be recalled if Eskom failed to achieve a clean audit, a disaster for the apparently cash-strapped state utility.

Eskom: No cash crisis

But Eskom on Sunday denied that it is facing a cash crisis.

"External auditors have confirmed Eskom is a going concern, and as a result the company sees these reports as being inaccurate and misleading," it said in a statement. "It is important to reiterate that Eskom is not facing any liquidity challenges, and that the company is confident that it will maintain sufficient liquidity to support its operations."

Eskom didn’t want to go into specifics, citing the limitations placed on disclosing financial information before the official announcement, scheduled for Wednesday.

The state utility however highlighted that Eskom’s financial position has always been supported by significant reliance on debt and borrowings. It said that as a result of its improved overall financial and operational performance over the last two years, it now has an improved balance sheet.

"Eskom also has sufficient government guarantees to execute its funding plan," it said."It has also maintained access to capital markets and raised committed funding."

Possible bailout

Hints of a bailout started surfacing last week at Gigaba’s media briefing on inclusive growth.

City Press reported that Gigaba's plan to revive the economy revealed that National Treasury intends to provide Eskom with “soft support”, which could mean a multibillion-rand bailout or increasing Eskom’s government guarantees to above R350bn.

Eskom was given a July deadline to submit to Treasury and the Eskom board a case for "soft support".

Gigaba said at the briefing that details of a bailout will be unveiled as the process unfolds.

“What we are expressing is a deep appreciation of the weakening of the Eskom balance sheet,” he said.

“There is an urgency for us to provide assistance so that it is able to implement the capital build programme and fulfil its mandate. The Department of Energy will unveil what interim mechanisms are required in order to support Eskom until the next tariff application.”

Raising debt

With its governance crisis and despite still having the backing of government guarantees to the tune of R350bn, sources for funding are becoming more difficult to find. Government guarantees imply that Eskom can secure lenders, backed up by an undertaking from the South African government that it will honour any default.

South Africa has R477.7bn of guarantees available for public institutions. Of that, R308.3bn has been used. Information from Treasury indicates that Eskom is the biggest recipient, having used R218.2bn of the R350bn available to it by the end of the last financial year.

Chief financial officer Anoj Singh said that Eskom’s debt is expected to peak at R500bn.

Singh said international roadshows indicated there is still a significant appetite from international investors for Eskom’s bonds, despite the scandals and governance crisis around the company.

Singh believes the bond market could deliver up to $1.5bn (R19.78bn) in funding to bring Eskom to its financing target. But he said that going forward, the state enterprise would rely significantly on developmental financial institutions such as the China Development Bank.

"We'll rely on them for around 45% to 50% for our finance needs," he said. He added that Eskom expects 10% of its funds to be raised from international bond markets. 

If Eskom receives another bailout, it will be the second in only two years after it received a R23bn government bailout in 2015 to fix rolling blackouts that were plaguing South Africa at that stage. 

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