De Ruyter: Eskom debt will not simply disappear - we need money from somewhere

A bus passes power lines at dusk. (iStock)
A bus passes power lines at dusk. (iStock)

Eskom's R450bn debt burden needs to be addressed – either through an equity injection, a tariff hike or higher sales – but the money must come from somewhere, CEO Andre de Ruyter has said.

The chief executive was among other Eskom officials who briefed the standing committee on public accounts on Tuesday, about matters relating to the Medupi and Kusile power stations. The construction of these power stations has been delayed, and there have been cost overruns running into hundreds of billions.

De Ruyter said Eskom took on three mega projects – Medupi, Kusile and Ingula – while tariff increases were capped at consumer inflation. This put the power utility in a position where "inevitably" it had to take on significant debt on its balance sheet. "This debt has been exacerbated by corruption, delays and so forth.

The very concept of being able to pursue these projects without a substantial equity injection in Eskom, is not a sustainable business model," he added.

"At some stage, unfortunately, the money has to come from somewhere. Whether it comes from a tariff increase or whether it comes from an equity injection, it (the debt burden) does not disappear."

De Ruyter acknowledged that Eskom's debt burden poses a significant risk to the fiscus. "The issue of Eskom debt has to be addressed in order to make us sustainable," he said.

Eskom's debt servicing obligations amount to about R70bn per annum, which is a "huge burden" on Eskom's income statement, De Ruyter said.

Chicken and egg situation

According to De Ruyter, for Eskom to generate higher sales, it would mean having megawatts available to sell, which in turn means the power plants need to be fixed and the economy needs to grow. "It’s a bit of a chicken and egg situation. We are constrained. But once the plant is fixed and electricity is available, hopefully the brake can be released and we can move on," he said.

So far Eskom has made an effort to bring on experienced project managers to tend to issues at plants, according to De Ruyter. "Project management in particular is a skill which has been neglected at Eskom," he told members of Parliament.

"We have got very good engineers but project managers are needed to make sure engineers work effectively. That is a skill we lost," De Ruyter said.

Responding to questions related to outstanding debt owed by Soweto municipalities to Eskom, De Ruyter said there had been an improvement on the previous rate of payment from 12% to 25%, owing to the president's call for residents to pay for services rendered.

"We do need to work hard on establishing a culture of payment on services rendered. We cannot afford to supply electricity at no charge. When a service is supplied, a payment must be made," De Ruyter said.

Eskom has been disconnecting areas where the payment rate is between 0% and 30%. While this might be an inconvenience for residents who do pay, De Ruyter said that there is no alternative. Supplying electricity free of charge puts Eskom in a "financially compromised" position, he said.

Eskom will meet gain with Scopa on March 4, 2020, when its finances will be further probed.

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