Restructuring of Eskom debt inevitable
A restructuring of Eskom's more than R440bn debt load is inevitable and the only issue is deciding on the distribution of the costs, according to one of the country’s top business people.
“I don’t think anybody is in any denial that Eskom’s debt has to be restructured,” Norman Mbazima, nonexecutive chairman of Anglo American Platinum, said in an interview. “It’s just a tough thing about how it’s going to be restructured. In the end, who’s going to pay?”
The utility, which has been described by economists as the single biggest risk to the economy, will receive an additional R59bn in additional aid from government spread over two years, Reuters reported on Monday. The government has already pledged R230bn of support over the next decade to keep the company solvent. Eskom is drowning in debt and has been struggling to keep the lights on.
The company’s dollar-denominated 2021 securities have gained in recent months, with the yield falling about 3.7 percentage points from its 2019 high in January, reflecting confidence that it will get financial support from the government.
It’s either the people who are going to pay this debt are going to take some kind of haircut, the future users of electricity might have to pay for some of it through the tariffs, or the taxpayer has to take some of it.
Finance minister Tito Mboweni, who is due to announce the additional package for Eskom on Tuesday, has previously rejected calls for the state to move a portion of the company’s debt onto its own balance sheet.
“It’s either the people who are going to pay this debt are going to take some kind of haircut, the future users of electricity might have to pay for some of it through the tariffs, or the taxpayer has to take some of it,” said Mbazima, who has held various positions over the past 18 years at Anglo American, one of Eskom’s biggest customers and previously a major coal supplier to the utility.
Eskom's financial crisis is likely to be an even bigger burden for the government after the economy contracted in the first quarter by the most in a decade, prompting the Reserve Bank to revise its 2019 forecast for growth in GDP to just 0.6%. That means it is less likely that SA will make any headway in fixing its fiscal position and avert a credit downgrade by Moody’s Investors Service, which may make government even more resistant to the idea of taking in some of Eskom’s debt.
While the challenges posed by Eskom are tough, Mbazima said he was confident that a solution would eventually be found, considering the key role the company plays in the economy.
“For something like Eskom, there is a solution,” he said. “Eskom is going to be here and it’s going to continue to provide electricity to the populace. Therefore the solution for this exists and must be found. It’s very tough, but it has to be found.”
Mbazima, who stepped down as deputy chairperson of Anglo American SA at the end of June, said there was much reason to be optimistic about the country’s economic prospects because the government was putting in place the necessary reforms and creating an environment for policy certainty.
“What I’m seeing is that the foundation stones are being put in place to enable us to take off,” he said. “I can see for example that inflation is under control, I can see that the whole political machinery has been improving over the last two years.”