Biscuit blackout as Eskom hits crisis

The Treasury and Department of Public Enterprises are locked in negotiations to bail out Eskom, the embattled power utility that has struggled to keep the lights on and is now facing a devastating cash crunch.

Eskom is meeting trade unions tomorrow to discuss proposed cost-cutting measures, which include less overtime, a recruitment embargo and early retirement packages.

Informal consultations with trade unions began on Wednesday last week.

The massive drive aimed at saving the parastatal more than R1-billion a year over five years includes reviewing spending on event sponsorships, restricting flights and hotel accommodation for staff, and even ditching tea and biscuits at meetings, according to insiders at Eskom.

Eskom spokesman Andrew Etzinger conceded that "Eskom is under considerable financial pressure [and] necessary and appropriate austerity measures are being implemented". Public Enterprises Minister Malusi Gigaba's spokesman, Mayihlome Tshwete, said the government was investigating ways of assisting Eskom.

Tshwete said: "The 8% [tariff increase] granted by the National Energy Regulator of SA (Nersa) has had a bearing on Eskom's financial position." But the increase was short of the 16% a year tariff hike Eskom requested for the next five years.

Etzinger said Nersa's decision resulted in a R225-billion revenue shortfall for Eskom over the five years.

"The Eskom board and the Eskom management executive committee had to move decisively to find a solution to this shortfall. The solution had to take into account all possible elements, efficiencies, deferral, cessation of activities, additional debt finance, consideration of additional shareholder equity."

It was in this context, said Etzinger, that Eskom had embarked on an "ambitious cost-saving programme" over the next four years.

Tshwete said Gigaba was in talks with Finance Minister Pravin Gordhan to finalise a plan to help Eskom.

"The ministers are in conversation ... the point of departure is for Eskom to function as effectively as possible," he said.

Gordhan's spokesman, Jabulani Sikhakhane, acknowledged that the power utility was implementing a business productivity plan.

"Eskom has indicated to the government that should risks that were not provided for in Nersa's decision materialise, such as further delays in the bringing into operation of the first Medupi units, [Eskom] would require additional funds," said Sikhakhane.

The completion of the two coal-fired power stations, Medupi in Limpopo, and Kusile in Mpumalanga, and of the Ingula hydro-power plant in KwaZulu-Natal, has been running two years behind schedule, with significant cost overruns.

It emerged in parliament in October that the construction costs of Medupi had risen from R91-billion to R105-billion, partly due to more than six weeks of labour unrest and the associated destruction of vehicles and equipment.

Etzinger said: "The delays with Eskom's building programme have added to the current financial situation as a result of the additional capitalisation of interest due to time delays, owners' development costs, and penalties. However, the main contributor has been the decision by Nersa to grant Eskom an increase of 8% for five years."

Etzinger confirmed that Eskom was in discussions with the unions.

Sikhakhane said: "In the event that these risks materialise, and Eskom requires additional funds, funding from the budget would be the last resort because of the tight fiscal environment in which South Africa finds itself."

The government has already given Eskom a R60-billion subordinated loan and R350-billion in guarantees, against which Eskom has so far used R122-billion. Sikhakhane stressed that the Treasury believed that the support already given to Eskom "should be sufficient to enable it to complete the building programme, provided there are no new risks".

He said that the Treasury and the Department of Energy were monitoring Eskom's financial position.

Funding the debt repayment and interest on the R337-billion it borrowed to build the power stations has been a major headache for Eskom.

Unions are worried by Eskom's cost cutting.

Numsa metals and energy sector coordinator Stephen Nhlapo said: "If Eskom is serious about costs, they need to review executives' salaries and bonuses. Skilled workers [who take early retirement packages] will take the packages and later return as consultants."

Deon Reyneke, head of Solidarity's metal, engineering and electrical industry division, said the voluntary separation and early retirement deals could lead to a mass exodus of skilled workers.

"Eskom cannot afford to lose them ... we're talking about engineers and artisans," he said. Eskom's ageing supply network was in need of maintenance and upgrading, he said.

Last week, a boiler casing ruptured at Duvha power station near Witbank in Gauteng, causing significant damage and putting more pressure on the national grid.

The parastatal distributes power to about 5million customers.