HILARY JOFFE: Eskom's debt headache likely to be a long hangover

Then there is the formidable problem of keeping the lights on

08 November 2020 - 00:02

When public enterprises minister Pravin Gordhan unexpectedly told the audience at Eskom's financial results briefing last week that he would reveal a solution to the power utility's R480bn debt problem within a couple of months, Eskom CEO André de Ruyter was quick to reassure the market this wouldn't involve a "haircut" that would reduce the value of their bonds. Instead, he pivoted to the prospect that as Eskom debt matures, it could replace it with cheaper, longer maturity "green finance", with estimates that up to R200bn of such finance might be available. Eskom has long said it needs to more than halve its debt in order to be sustainable. Its financials showed again it is not making enough money to cover the interest and repayments on its debt and survives only thanks to government handouts totalling almost R140bn over a three-year period.

The idea its legacy coal debt could be replaced with cheap green finance is appealing in many ways. It came out of a proposal from Eskom's sustainability task team last February that estimated as much as $11bn (R173bn) could be available for a blended climate facility involving global climate funds, development finance institutions and other institutional investors. Global climate funders could be keen to invest in decarbonising the economy; so too would other institutional investors given how big the green theme has become in financial markets. SA has the opportunity to transition to a more renewable energy and gas-powered grid as many of its coal-fired stations near the end of their lives. But lenders aren't going to give cheap concessional finance without watertight conditions. That would likely mean Eskom would have to accelerate getting its coal-fired power stations off the grid. The Integrated Resource Plan envisages that more than a quarter of its coal capacity will be decommissioned by 2030. Accelerating that would presumably mean shutting down old power stations across Mpumalanga in the near future. And that is complicated in so many ways...

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