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Thu Jul 28 18:30:21 SAST 2016

Pravin utters P-word

Graeme Hosken and Bloomberg | 05 February, 2016 01:05
Gordhan met business leaders to discuss steps to boost investor sentiment and avert a credit-rating downgrade to junk. File photo
Image by: Matthew Lloyd / Bloomberg

If Eskom were for sale who would buy it?

Finance Minister Pravin Gordhan is said to believe there would be huge interest if a 49% stake in the parastatal was offered to the private sector.

In a meeting last week of ANC leaders and government officials, he argued for a sale.

His proposal has put him in conflict with Eskom boss Brian Molefe, who has begun turning the utility around, a person with knowledge of the discussion said.

The minister suggested private shareholders be able to buy as much as 49%, said the insider who did not want to be named. Molefe disagreed, said the insider.

The proposal follows Gordhan's recent meeting with business investors and comes ahead of a meeting this week between President Jacob Zuma and big business.

Gordhan met business leaders to discuss steps to boost investor sentiment and avert a credit-rating downgrade to junk.

Discussions included whether government should allow private-sector involvement in projects like the Kusile and Medupi coal-fired power plants owned by Eskom.

On Wednesday Molefe, declining to comment on what he or Gordhan had discussed at the meeting, said: "There are people who felt, to alleviate the financial pressures, a portion of Eskom needs to be sold to the private sector. I don't think it would be a good idea. I don't think we'd get a good price."

He said the timing would be poor because Eskom's high debt and comparatively low electricity prices meant it wouldn't raise a lot of money, with the buyer profiting when cash flow improved.

"I would wait for our capital projects to finish, for better utility prices and I would sell then."

Molefe was appointed to head Eskom in April to bring stability to the utility as power cuts - due to inadequate power generation capacity - affected economic growth. Eskom, also building a hydropower complex, needs nearly R237-billion over the next five years to fund new plants. It already has R322-billion in loans and bonds, according to Bloomberg data.

ANC economic transformation committee chairman Enoch Godongwana, who was at the meeting, said: "There is growing appreciation within the ANC that this issue must be tackled."

Giampaolo Garzarelli of Wits School of Economics and Business Sciences , said private ownership would mean accountability for service delivery failures.

"In case of public ownership there is usually at least another level in between: the political one, which does not respond to the same incentives as private ownership. If there are problems of public service delivery, traditionally the only tool at the consumer's disposal in democratic systems is the vote."

And, he said, even with new politicians in office, public management often remained the same at lower levels.

"Citizens cannot directly voice their dissatisfaction by replacing mismanagement. Public utilities are usually monopolies, rendering matters even more difficult because there are no substitutes. Given Eskom's performance over the past decade, privatisation, even partial, is promising."

But Cosatu spokesman Sizwe Pamlu said such a move would push people, especially the poor, "into darkness".

"With true unemployment at 35% and 60% of the 30 million employed earning less than R5000 [a month], electricity will become something for the rich, especially as private companies will be looking for returns [on their investments]."

Energy analyst Ted Blom said Eskom was not worth it.

"No one will put up the money. Eskom is too bankrupt, its balance sheet assets are grossly over-valued and its power units' efficiency is declining."

He said the two new power stations in Eskom's portfolio were each five times the World Bank value.

"Who is going to pay five times the value when you can buy a unit for a fifth of the price?

"If you write down these over-evaluations, Eskom's balance sheets will collapse. On top of this, Eskom doesn't have access to enough water for its Medupi and Kusile power stations. Its maintenance schedule is five years behind, it doesn't have enough access to quality coal with Mpumalanga's coal fields nearly worked out and it's having to write off billions of rand in debt."

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