Page 32 - Energize September 2021 HR

VIEWS AND OPINION

We are pleased that today everyone accelerated decarbonisation of the South African electricity supply industry, by making highly
acknowledges the solutions to South concessional funding available to Eskom.
Africa’s electricity deficit cannot be left Various funding methods are being explored. One thing we do not repeat often enough
to Eskom and the government alone. It is that the solution to the country’s energy problems does not belong to Eskom and the
is as much in private capital’s interest to government alone. Everyone has a stake in the solution. We therefore have to find ways to
increase available generation capacity as energise the private sector to roll up its sleeves and get involved. For this to happen, investors
it is in the government’s interests. While need a decent return on investment, while assuming an appropriate degree of risk, just as any
the state has a very limited ability to make investor would do when building a factory. This could be a win-win solution: investors get their
any further significant investments, the return – which increases the tax pool for the government – and the country regains energy
private sector has indicated its willingness security and grows job opportunities. It’s a no-brainer.
to invest in generation capacity to solve the For Eskom’s part, within its ability, we have started with a pilot programme to repurpose
single most important factor holding back the Komati power station, which has reached the end of its operational life. This will allow
the country. And that is electricity. In this Eskom to use the existing infrastructure and save some jobs for the local community, instead
context, we were very pleased with the of leaving behind a ghost town. We have three other power stations on which we have invited
lifting of the licensing requirement from investors to give us partnership proposals to repurpose the stations. We can all share the
1 MW to 100 MW, as we believe that this responsibility and harvest the fruits together.
step will enable substantial new capacity to
be added in the short term. Anton Eberhard: We’ve alluded to Eskom’s high debt levels, currently sitting at around R400
billion. In financial year 2021 you managed to reduce gross debt by R81,9 billion, in part
Anton Eberhard: I’ve been interested because you received a government bailout of R56 billion. I calculated that between 2008 and
to see that you have been floating the 2021, Eskom has received a total of R220 billion in bailouts. Given the state’s worsening fiscal
idea that Eskom should start investing and debt situation, and all the other social needs that need to be met, is this sustainable?
in renewable energy. In many ways this Indeed, should infrastructure utilities not be financially viable on their own? But Eskom’s debt
makes sense. Solar and wind energy are service cover ratio sits at 0,3 – that is, it generates less than a third of the cash it needs to
now the cheapest grid connected sources service the interest of its debt and principal repayments. What is your strategy for restoring
of energy. And as the CEO of Eskom, you Eskom’s financial sustainability? Cost cutting? More government support? Higher tariffs?
need to offer an alternative vision and Refinancing of Eskom’s debt with concessionary loans linked to more rapid decarbonisation of
future for Eskom staff as the old coal fleet the generation fleet? All of these?
comes offline. But how will Eskom be able
to raise finance for new power generation André de Ruyter: It is indeed correct that Eskom cannot rely on the government bailout forever.
with your current unsustainable levels of We are well aware that we are not entitled to a cent of taxpayers’ money. That is why Eskom
debt and limited headroom for further state has embarked on the reforms and corporate savings so it can achieve operational and financial
guarantees? I know there are discussions stability in a short space of time. That is the reason we have aggressively tackled procurement
around concessionary climate-related corruption, operational inefficiencies and cost-cutting across the board through prudent
finance leading up to COP26 (the 2021 management of resources and a reduction in headcount. These we can do internally; they are
United Nations climate change conference) within Eskom’s scope of activity.
but surely even these funders would be The National Energy Regulator of South Africa also needs to come to the party with
worried that Eskom is currently technically electricity tariffs that reflect the cost of producing the power. Even with a 20% annual
insolvent? increase in the tariff, the reality is that Eskom prices will still be at the bottom third of
comparable international electricity prices. This does not make too much sense, particularly
André de Ruyter: Eskom continues to for our export sector, which consumes electricity to produce commodities priced in US dollars
explore its funding options. It is important and compete with companies who pay in US dollars for their electricity input. In addition
to separate the legacy debt that Eskom to the very real need for cost-reflective tariffs, we also need to address the thorny issue
carries from its growth opportunities, of non-payment for electricity by defaulting municipalities, particularly in the Free State.
not only in generation, but also in The ever-growing outstanding debt to Eskom is now at about R39 billion, or roughly 10% of
vital investments in transmission and Eskom’s debt.
distribution, to enable private investors Our active partnering approach to capacitate and enable municipalities to improve their
in generation to access the grid. For this, distribution systems to enable them to pay us has found favour with a number of municipalities.
we need to borrow new money – these Unfortunately, there are one or two intransigent municipalities where we are forced to take
investments are inevitable and will have legal action and strictly apply nominated maximum demand limitation, which causes significant
to be made regardless. We are in regular and regrettable disruption to daily life in those towns.
engagements with the key financial The last element of our balance sheet restructuring involves a one-off injection of between
stakeholders, including developmental R150 billion and R200 billion in order to enable us to have a reasonable net debt service cost.
financing and multilateral institutions. Current equity injections from National Treasury are applied by and large to paying interest, and
These entities have expressed a keen as such do not fundamentally address the issue of legacy debt. Discussions in this regard are
interest in enabling and assisting in the ongoing, albeit more slowly than we would have liked.

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