President's task team pushing for speedy unbundling of Eskom
The task team set up by President Cyril Ramaphosa to resolve Eskom's problems is pushing the utility to meet tight deadlines for its unbundling while it grapples with deep-seated operational issues.
Thuto Shomang, the acting director-general of the department of public enterprises, said on Friday at an Absa post-budget breakfast that Eskom had been working on its own restructuring plan since Phakamani Hadebe's appointment as CEO in May last year.
This plan had already proposed a functional unbundling in two years and a three- to five-year period for a legal unbundling.
But the sustainability task team appointed by the president in December last year has pushed for earlier timelines. The Budget Review this week made specific mention of separating out transmission as a subsidiary within four months and bringing in strategic equity partners.
But Shomang said it would be difficult to take definitive steps around equity investors for Eskom now.
"The thing is we first need to improve the operational performance of Eskom, deal with the separation of the businesses and then as we go along we look at all of those things."
Shomang said Hadebe had worked on a turnaround plan that acknowledged the need for Eskom to be unbundled, for tariff hikes that would make the utility sustainable, for cost-cutting of between R25bn and R30bn, and for shareholder support.
"As Eskom we said we need to split these businesses. We talked about functional unbundling of the business in a period of two years, and beyond two years they will do legal unbundling.
"This was Eskom. The task team came and reviewed the turnaround plan and said, 'Oh, we agree with Eskom.'"
Shomang said the only difference was that the task team wanted Eskom's legal unbundling timelines brought forward.
This and the appointment of a chief reorganisation officer, which finance minister Tito Mboweni said in the budget was a condition for future financial support, appears to have created unease.
Shomang said Eskom and the Treasury had to resolve their technical differences as Eskom's own plan talks about a turnaround management officer, who reports to the board.
"The turnaround plan has to be implemented by the management and board and that's the most critical thing. This is a long conversation," he said.
Adrian Lackay, spokesperson for the department of public enterprises and the task team, said urgent steps had to be implemented soon even though the unbundling process may take three years. "By mid-2019 the systems operation must be established. We don't have two years."
This week, Mboweni said the government will pour R23bn into Eskom every year for the next three years to alleviate its R440bn debt problem. The Treasury has modelled for total funding of R150bn spread over 10 years.
Treasury DG Dondo Mogajane, who was the keynote speaker at the Absa event, said the modelling was based on an assumption that Eskom's latest annual rate application to the energy regulator would result in a 10%-11% tariff increase.
R100bn the additional tax measures introduced since 2015/16
The Treasury said in response to questions from Business Times that provisional allocations appeared in the framework over the next three years, to assist Eskom to meet its debt-service costs and redeem debt.
"Financial and operational conditions for this funding are currently being finalised. There is significant uncertainty around the long-term projections. Beyond the medium term, the size of the support will depend on a range of factors, including economic growth, demand for electricity, and the rate of reorganisation at Eskom."
Shomang said that at this stage the funding allocated to Eskom is considered an equity injection.
"We need to decide in what form do we send it to Eskom. Eskom needs to assess in terms of how does it help them; they need to model that because investors want to know whether it helps . their financial position or not. We need to firm that up."
Meanwhile, Mondli Gungubele, chair of the Public Investment Corporation, said on Wednesday that the asset manager was mulling options such as taking over Eskom's debtors book of about R28bn. Those who owe the utility money include municipalities and residents of Soweto. Another option was to convert Eskom debt into equity.
Lucie Villa, Moody's lead sovereign analyst for SA, said in a report this week it was unclear "how the separation of Eskom into three distinct entities under the holding company will operate financially over the medium term". The agency expects cost-cutting measures after the elections in May. Moody's will release a ratings decision on SA next month.