No selling Medupi, Kusile yet, says CFO
The sale of Medupi and Kusile, Eskom's newest power stations, could still be on the cards if other funding options for the cash- strapped power utility fall short.
Eskom's CFO, Calib Cassim, said on Thursday: "We've considered this in the past. We've done all the work. It didn't make economic sense [then] and at the moment it's not on the cards for us." But, he added, selling them could be revisited when the power stations are complete.
Cassim said selling Medupi or Kusile was not feasible until they were completed, otherwise Eskom risked selling them "at such a discount. Once you sell it to whichever party, you would then have to get a back-to-back agreement over the next 50 years at probably a rate that is much higher to the end consumer. At this point in time, our focus is Eskom completes its work [and] at a later stage reassess this as an option."
Eskom has a revenue shortfall of R120bn over three years. Cassim said Eskom was considering domestic and foreign funding, which includes drawing down on an existing World Bank loan.
The Treasury, whose representatives will be in Washington this week for the International Monetary Fund and World Bank spring meetings, said the two institutions "were not being approached for additional financial assistance regarding Eskom".
Cassim said Eskom could access more of the R33.4bn loan from China Development Bank to complete the construction of Medupi and Kusile. This week Eskom secured a R6.8bn loan from the New Development Bank for an environment protection project at Medupi. Eskom could also approach African Development Bank and export credit agencies.
Cassim said some of the loans were ring-fenced, which constrains Eskom's ability to use the funds for other purposes.
"Depending on the market's appetite and the positioning of our funding, we would consider an international bond but . it makes more sense if we can do more local issuances than go [for] foreign funding."
Eskom's annual funding plan requires it to raise R46bn by March 2020. It has so far received R16bn of the R46bn requirement. "Now it's a matter of understanding what are the best options to close the remaining R30bn for the financial year going forward," said Cassim.
The government has provided R23bn each year over the next three years to service debt costs. Cassim said initially Eskom assumed it would receive R100bn from the government. It also applied for a 15% tariff increase for three years but the regulator approved less, resulting in the revenue shortfall over the next three years.
Cassim said conversations were ongoing about the government taking the debt on its balance sheet. The government said in February Eskom's generation, transmission and distribution units would be separated to save the utility, which is drowning in debt of R420bn. The Treasury had tight time lines for transmission to be hived off.
In February finance minister Tito Mboweni said Eskom would get no further government funding without the appointment of a chief reorganisation officer, but no one has been appointed yet.Cassim said Eskom's understanding was that this officer would develop a road map for the separation. But even so, "it's practically impossible to separate an organisation like Eskom, go through all the necessary processes and governance, including having discussions with lenders, for that to be concluded in three to four months, even a six-month window".Cassim said: "The bigger challenge is how do you allocate the debt and understanding that from a covenant or loan agreement perspective? That will take a lot more time and engagement."Eskom had begun engaging lenders but the separation of the business would have to be phased in over three to five years, said Cassim.Besides raising funds and restructuring the business, Eskom aims to cut costs by up to R33bn in the next three to five years. This includes selling its home loan business for between R6bn and R7bn and offering voluntary severance packages to older staff. It also hopes to trim its staff through attrition.