‘We are in trouble’: National Treasury DG Dondo Mogajane on Eskom — and then there’s the SABC
The first hint of conditions on Eskom’s R59-billion bailout emerged on Wednesday when National Treasury Director-General Dondo Mogajane briefed MPs on the Special Appropriation Bill. This came as pressure is ratcheting up on another financial front: the SABC is technically insolvent.
The Eskom Special Appropriation Bill, in its 38 lines, states the troubled Eskom will get R26-billion for the 2019/20 financial year and R33-billion in the following financial year. And it says the finance minister “may impose conditions to be met by Eskom before any part of the amount is transferred…”
Such conditions under discussion include selling off Eskom Finance Company’s loan book of around R10-billion — the in-house lender focuses on Eskom employee’s home loans — and using the Special Appropriation Bill monies only to pay off debt and interest on debt. Other conditions include daily reporting on its liquidity and monthly reports signed off by the chief financial and executive officers.
But such potential conditions are not yet finalised, MPs on the Standing Committee on Appropriation were told. The bottom line, however, according to National Treasury Director-General Dondo Mogajane, is grim: “We are in trouble…”
And that trouble may be worse than Parliament having to approve R59-billion extra appropriations over two years — an earlier special appropriation law in 2015 allowed government to sell its Vodacom stake to raise R23-billion for Eskom — in another bailout after February’s Budget allocated an additional R23-billion-a-year to the power utility over the next decade.
MPs were bluntly told that if Eskom doesn’t raise the money it has said it would by itself or R46-billion for the 2019/20 financial year ending 31 March 2020, more demands on the already strained national purse will follow.
“Failure to execute the funding plan may… require additional funding in addition to the funding provided through the Special Appropriation Bill.”
So right now the National Treasury’s unrelenting message is that everyone must pull together: Eskom cutting costs, upping maintenance and the power utility’s managers taking a salary cut.
“If an executive at Eskom earns R2-million, can that executive earn R1.8-million?” asked Mogajane — and business cutting its profit margins on, for example, coal.
“It can’t be business as usual when the economy isn’t doing well and tax revenues are not coming through,” Mogajane told MPs, adding later:
“Eskom cannot be the same tomorrow. It has to be a different one”.
Wednesday’s briefing on the Special Appropriation Bill financing of Eskom — the power utility is some R450-billion in the red, and counting — kept the director-general on his toes.
Many of the MPs’ questions on Eskom governance structures, the role of its newly appointed chief restructuring officer and even the power utility’s coal contracts — “90% given to two companies… (which) are milking that poor emaciated cow hoping skin and bones will turn into milk” as ANC MP Dipuo Peters put it.
The committee is set to meet Eskom and Public Enterprises on 10 September 2019 in the programme to process the Special Appropriation Bill. It’s a meeting National Treasury wants to gate-crash.
A special paper on Eskom would be available only in September, according to Public Enterprises Minister Pravin Gordhan.
It’s meant to situate the troubled power utility’s recovery in a broader context, including the unbundling into three parts — generation, transmission and distribution — first raised in the February State of the Nation Address, and yet to be acted on.
Apparent Cabinet tensions led to toing and froing between finance and public enterprises. The plan in early July had been for the Eskom special paper to be released with the Special Appropriation Bill tabled by the finance minister on 23 July, but that changed.
As Public Enterprises claimed control of the Eskom paper, a leaked presentation, seen by Daily Maverick, is planning to finalise the unbundling of Eskom over a lengthy four years. Understood to have been presented by Eskom board chairperson Jabu Mabuza, currently doubling up as acting CEO, it clearly indicates Eskom in its current form is unsustainable:
“If we do nothing, Eskom will collapse and bring down South Africa,” one slide says.
But aside from cost reductions of R33-billion, better maintenance and the unbundling that is already more than six months behind, this presentation indicates that Eskom would rely on government for much of its recovery. And electricity users are set to pay even more in electricity tariffs, which remain a mainstay revenue generator for Eskom even as its own figures show declining electricity sales in a tough economic environment.
Amid the tension over division of labour in Cabinet, Finance Minister Tito Mboweni on Tuesday released a smartly policy-focused discussion paper on what should be done to boost economic growth and create a million jobs so South Africa can move from a stubbornly stalled economy.
In that finance paper, Eskom is still being unbundled with its independent transmission company buying electricity from independent power producers. Private homes and firms that have gone off grid — electricity prices have soared over 170% in the past decade, according to official statistics — should be allowed to resell their excess power to the grid. And Eskom should auction off its coal power stations, under strict conditions.
But closer to home is the Eskom Special Appropriation Bill that must be passed by both the National Assembly and National Council of Provinces (NCOP) for Eskom to get the special R59-billion allocation. Following the deadline for public comments on 6 September and public hearings, the committee is scheduled to finalise its report on the bill by 17 September, after which it will go to the House and, if adopted there, to the NCOP.
But this Eskom special appropriation process is unfolding amid dire finances and governance crises at other State-owned Entities (SOEs). This includes arms manufacturer Denel, which has twice now not paid full salaries and failed to pay over full pension and social security contributions. It is looking for a bailout.
And after three different communications over just more than a year asking for a R3-billion bailout for the public broadcaster, the SABC on Tuesday told MPs it had run out of money.
“Cash flow is depleted and therefore the SABC cannot honour payments to service providers, adhere to its committed contracts and commission local content,” according to the presentation to the NCOP’s public enterprises and communications committee. “The SABC is technically insolvent.”
The difference between the SABC and Eskom? If Eskom fails, so does South Africa. Full stop.
It’s a new order of financial crisis priorities. DM