Eskom is offering non-core and older employees voluntary cash separation packages (VSPs) to cut its workforce as part of its turnaround plan.

On 29 January 2020, the executive committee secured and recommended to the Eskom board a limited amount of R400 million to implement limited separations.

The Eskom Board supported the proposed voluntary separation package benefits implementation process and plan with costs capped at R400 million.

This window of voluntary cash separation packages will open for managerial level employees in non-core positions.

Further to this, managerial employees from 60 to 62 years old will also be eligible to apply, irrespective of being in core, critical, or no-core positions.

“This process is voluntary, and no employee should be coerced or requested to apply,” Eskom told employees.

Approval for separations will be at Eskom’s discretion and based on “approved guiding principles that will be communicated in due course”.

The approved separation benefits will be based on two weeks remuneration per completed year of service and a gratuity payment of R75,000.

The window for applications will open in the 3rd week of February 2020, with employee exits planned for the end of April 2020.

Large workforce

It is widely recognised that Eskom has a bloated workforce, but because of the government’s resistance against any staff cuts the company cannot retrench staff.

Eskom’s national spokesperson Sikonathi Mantshantsha said an Eskom staff audit conducted in September 2018 revealed that the company has 16,000 more employees than what it needs.

Despite this finding, the government’s message to Eskom was clear: “Don’t touch them”.

“The reality of the matter is that the last call comes from the shareholder in any organisation, and Eskom is no different,” said Mantshantsha.

“In this instance, the shareholder happens to be the government [which said no employees may be retrenched]”.

Voluntary cash separation packages are seen as an acceptable way to get rid of employees without retrenchments, which is why Eskom is now using this strategy.

This article was first published on MyBroadband.

Will Ramaphosa announce a reworked version of the Cosatu plan in SONA?
Probably not. Ramaphosa is reported to be “favourably disposed” to Cosatu’s proposal, according to his spokesperson, but said he doesn’t want to undermine the investment mandates or fiduciary duties of the PIC, the IDC and the Development Bank.

Meanwhile, according to reports, neither the GEPF nor the PIC have been approached about the scheme.

The GEPF and the PIC have a fiduciary duty to assess whether taking on such a large chunk of Eskom debt is in the best interest of their members, says Constantatos.

“Cosatu’s plan is a negotiation tract – but as a plan it’s totally unworkable,” says director and head of capital markets research at Intellidex Peter Attard Montalto.

What are the biggest problems with the Cosatu plan?
One of the main problems is that it will effectively introduce prescribed assets – which means that government will (for the first time since apartheid) force pension funds to invest in certain assets.

“If the PIC is forced to invest in Eskom, your private pension fund could be next. It’s prescribed assets by the backdoor – and could be the start of a slippery slope where retirement money is tapped to bail out state-owned enterprises,” Constantatos told Business Insider SA.

Pension fund savings are not Cosatu’s money to fiddle with, Montalto said.

He also believes that by bailing out Eskom using pension fund money, this will create perverse incentives for other state-owned enterprises to also try to go the same route.

Also, setting up the special vehicle to host the debt will also have considerable costs, partly because of the fees that investment banks consultants will charge, says Montalto.

Importantly, Eskom’s debt is just part of its massive conundrum – and not even the most urgent issue.

Montalto says Eskom still has some time to deal with its debt. It may require a bank bridge-to-bond (an interim facility) soon, but thanks to a large government bailout this fiscal year and next, the big crunch will only come at the end of March 2021. “Cosatu has overplayed the emergency of the situation somewhat, we need action in the coming fiscal year time frame,” Montalto says.

Eskom’s operational problems are as important and urgent to solve as its debt, says Constantatos. Its costs are too high and it is in desperate need of restructuring.

“If you bail Eskom out (via the PIC) – what will stop it from gearing up again? You can’t solve the debt problem without solving the other problems.”

Montalto also wants to see immediate action to allow private companies to generate electricity to feed into the grid, as well as the restructuring – and perhaps selling off – of its generating assets

How else can Eskom’s debt problem be solved?
A variety of remedies – in combination – have been proposed in the past.

One of the plans was the creation of a new vehicle to host Eskom’s debt, which would be managed by Treasury. Government could also directly take over Eskom’s bonds – which in theory would lower the cost of repayments, given that Eskom pays a higher interest rate than government.

This would allow the utility some breathing space to fund the maintenance work that will help it keep the lights on. In the end, taxpayers and tariff payers will have to be prepared to shoulder the utility’s debts, Montalto said.

Thirdly, Eskom could secure “green” funding from development finance institutions in Europe. Loans of between R150 billion and R200 billion – at discounted interest rates – could be given to Eskom in return for moving away from coal-based power generation and decommissioning coal stations.

Then there is the option of renegotiating terms with Eskom debt holders – it helps that most of its bonds are in South African hands, with the PIC already owning a fifth of Eskom bonds. This could involve lowered rates and stretching bond terms.

But Futuregrowth, one of the biggest local investors in bonds, with some R194 billion of assets under management, says it has not been contacted yet about any debt plan for Eskom.

Compiled by Helena Wasserman


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