Eskom eyes markets for funds

05 July 2015 - 02:04 By Loni Prinsloo

New Eskom boss Brian Molefe says the troubled utility will go to the markets to raise more money if it hits a funding crisis - this after a cash injection from the government earlier this week. "We will be able to go to the market if we need," Molefe told Business Times this week after the regulator refused to increase electricity tariffs and the South African government had to sell its stake in Vodacom to bail out Eskom with R23-billion in the short term.Eskom raised about R14.4-billion in January this year, and Molefe said that since then the utility was in a better position to raise money because of the Eskom Special Appropriation Bill and the associated Amendment Bill that were passed in parliament two weeks ago."Because the president gave us that money, Eskom's gearing is looking better, which means we are in an even better position to raise money than we were in January," said Molefe on the phone from Scotland, where he was receiving an honorary degree in engineering.The cash-strapped utility has a R225-billion funding gap.But analysts warn that Eskom's debt is becoming very expensive. The utility paid 7.4% in interest for the debt it incurred in January after its credit rating was downgraded by Moody's and Standard & Poor's since it last went to the markets, in 2013.story_article_left1In March this year, S&P again downgraded Eskom's credit rating - to junk.Emerging markets economist at Nomura Peter Montalto said: "Through this whole period of uncertainty - with the suspensions of the Eskom executives, tariffs, etc - they are basically paying 1.5% more than they would have. This kind of cost increase of funding will ultimately feed back into tariffs" through tariff assessments by the National Energy Regulator of South Africa (Nersa) in the next few years.The regulator, for the first time, has thrown out Eskom's application for a 25% tariff increase, partly because Eskom had not included information such as the utility's total costs and savings.It was asking for money to run expensive diesel generators and to buy energy from independent power producers (IPPs). Eskom is paying between R1-billion and R1.5-billion a month for the 2000MW it is generating from diesel generators.But the fact that Eskom failed at the regulator, Nersa, this week has not ruffled Molefe, who said Eskom would still get that money, even though it would have to be done through a claw-back. "We wanted to pass on the costs of diesel and IPPs to the consumer. But instead of having the money in advance, the process has now been postponed and we will have to get it back through a claw-back," said Molefe.Montalto said a tariff hike would have made more economic sense.He said Molefe had done a good job to raise morale at Eskom and establish smooth relations with the government, but it was not clear if he would be able to deal with the deep structural issues at Eskom - including rent extraction, higher wages, black economic empowerment inefficiencies and inefficient capital allocation by the company.Peter Major, divisional head mining and resources at Cadiz Corporate Solutions, said Eskom had a highly dysfunctional board. "Even if Brian Molefe was Moses, he could not fix this," he said.During Molefe's first press conference as Eskom's new acting CEO, he boldly announced that Eskom would triple the amount of maintenance it had carried out before, to ensure that little or no load-shedding took place.story_article_right2But general perceptions are that there has been more load-shedding since that "reassuring" announcement."We have unprecedented maintenance issues at Eskom, and Medupi had also been taken off the grid for further testing since the press conference," said Molefe.However, he said that load-shedding had been kept to a minimum. "We have only had stage three load-shedding once since the press conference about three weeks ago. For the most part, it has only been stage one load-shedding - mostly in the evenings from 5pm to 10pm. Not having load-shedding during business hours helps us to curb the impact on the economy," said Molefe.Plant availability has also deteriorated by more than 10% over the past 18 months, partly because of the impact of load-shedding on substations and the backlog in maintenance.Sasfin's David Shapiro said Molefe, who earned his stripes at the National Treasury and Transnet, had basically been set up for failure at Eskom, which he described as an extremely complicated utility. "He is a good man and I respect him. But he has been set up for failure. Like Chris Griffith at Amplats. Tough jobs," said Shapiro.Molefe's three-month secondment from Transnet to Eskom comes to an end within two weeks, but it is expected that he will get a permanent appointment to the toughest job in South Africa.prinslool@sundyatimes.co.za..

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