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Eskom’s eishkom debt shocker

According to EWN Eskom’s CEO Phakamani Hadebe says that Eskom is needs to hike the price of electricity 15% a year for the next three years – because of its in massive debt.

Hadebe claimed that Eskom’s debt climbed from R380 billion at the end of last year, to R419 billion this year.

According to Eskom’s 2008 results, it had issued R39.788 billion in debt securities.

My Broadband in December reported on Eskom’s financial woes, and showed that in 2008 Eskom’s revenues were at R44 billion, versus 177.4 billion in 2018.

It is technically insolvent, though the state will pretty definitely bail them out if it comes to it, because Eskom going bankrupt would put us in a worse situation than Zimbabwe.

My Take

But tariffs have soared over the past decade, with Eskom keeping getting those hikes past Nersa on the basis of saving the utility from this monster of a debt problem. How did this happen?

Here’s a graph from a presentation to Parliament on Eskom’s troubles from 2017, which shows their profitability up until the end of the 2015/2016 financial year.

Capture

What you see there is that this big dip in profits happened in the 2008/2009 financial year – when load shedding hit and Eskom had to scramble to deal with it. Most years after that they’ve made profits, though they weren’t good enough to dig into that debt.

Now lets go back to February of 2009, and a report from ESI Africa.

US$17.8 billion of Eskom’s debt will be guaranteed by the South African government, finance minister, Trevor Manuel announced during his budget speech this week.

Note that the amount quoted is in dollars. Why this is important will become clear in a bit.

According to James-Brent Styan writing at Tech Central, in 2008 it was calculated that load shedding cost South Africa’s economy about R2.1 billion a day, and without the power crisis South Africa would have had a 10% larger economy by 2014.

That would have meant about a million job opportunities. Throw in the fact that the cost of power was going up while becoming so unreliable, and you see that the economy wasn’t having a good time.

It also means that in terms of production – we have a major disadvantage when it comes to imports and exports.

If we are forced to import more than we export, it means that there is less demand for the rand, and more demand for the dollar, so the rand loses value and dollar gains value.

On the 13th of February 2019, when that report by ESI was released, one dollar was worth R9.97 according to Pound Sterling Live.

So the amount borrowed was R177.466 billion – but now that would be about R245.56 billion. At the time of writing this, $1 equals about R13.76.

The fall of the rant wasn’t purely down to Eskom, Zuma’s financial mismanagement of our country will go down as the stuff of legend, but Eskom was a major contributing factor.

At the same time, Eskom’s credit rating got worse. I would be tempted to point to Zuma’s chopping and changing of finance ministers and the fact that this landed the entire country in junk territory – but Eskom was on its was down that road long before that.

Worse credit ratings means that the interest rate Eskom had to pay went up, at the exact same time it had to engage in massive build projects to try and avoid future load shedding.

These projects were riddled with corruption, and so they cost more than was budgeted, and overran their deadlines. Labour disputes by workers who recognised that once stations were up they’d be out of their jobs didn’t help.

Throw in state capture and the way that the Gupta family messed the utility around for years, and that growth in debt becomes more and more understandable.

So here’s the rub – how do we deal with it? Because we’re going to be on the hook for that debt whether NERSA allows the electricity hike or not. We can’t let Eskom go under, because if load shedding cost us R2.1 billion a day in 2008, how much would shutting down Eskom as a whole cost us now?

At the same time we don’t want that power hike, because we’ve had them before to the point that Eskom’s revenues have tripled mostly on the strength of those hikes and yet the debt is still growing.

What is the solution here?

This is one of those issues which I think should be an election issue this year – because so many of our current problems with the economy as a whole centre around Eskom, and the mess that has been made of it needs some serious attention if we are to fix the mess that is our country.

 

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