Explainer: Eskom, Zondo Commission and the mission to keep the lights on

Explainer: Eskom, Zondo Commission and the mission to keep the lights on

- Eskom was on everyone's mind as the President attempted to reassure investors of stability in South Africa

- With the State of Nation address around the corner, the pressure is on to convince the public that the lights will stay on

- However, reviving Eskom from R419 billion worth of debt, will be no easy task

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With President Cyril Ramaphosa attending the annual World Economic Forum in Davos, Switzerland this week, every effort had been made to reassure much-needed investors that all was well in South Africa.

The situation at Eskom was high on the agenda, with the power behemoth 'technically bankrupt' and struggling to regain stability.

Ramaphosa told attendants that an announcement would be made in the next few weeks to establish a set of measures to 'stabilise and improve' the company's financial position, as well as, to ensure an uninterrupted energy supply.

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The Eskom sustainability task team the president had appointed in December last year had been given a deadline for the end of this month.

The fact that he had addressed issues at Eskom on an international platform to secure investments for South Africa, shed some light on how concerned the President really is.

So how bad is the situation at Eskom, as far as financials are concerned?

The 2018 Budget Review saw Eskom's financial position declared 'a major risk to the economy and the public finances'.

This announcement had presided the release of the mid-year report for the financial year which concluded at the end of March. The release of that report revealed losses of over R2 billion as well as an increase in abnormal expenditure to R19.6 billion.

Following the March report, Septembers results had revised the figures for the projected 2018 losses to R11.2 billion, putting Eskom R419 billion in the red ( from R40 billion in 2007).

Other problems facing the entity were also discussed, including insufficient coal and the under-performing power supply ( only 77% average instead of the 80% proposed level set by the entity).

It was also revealed that Eskom has already drawn at least two-thirds of its government guarantees ( R350 billion).

To put the size of the power entity's government guarantee into perspective, the next biggest recipient would be SANRAL at R38.9 billion.

READ ALSO: Fact check: Does Soweto owe half of Eskom's national debt at R17 billion?

So how did the power behemoth end up here?

State Capture has played a massive role in the downfall of the once great Eskom. Organisational inefficiencies, lacking technical capacity and bloated, inexperienced management have all played their parts.

The Medupi power station has suffered years of delays and cost escalations. The proposed cost in 2007 had been estimated at R56 billion. Due for completion in 2013, the cost now sits at R145 billion and the station remains incomplete.

The Kusile station has suffered the same fate, with the 2018 Budget Review estimating that the cost will stand at around R161.4 billion.

Added to this, there is no doubt that billions have been lost to State Capture. Numerous incidents, including the pre-payment for coal to facilitate the Tegeta ( Gupta-linked) acquisition of the Optimum coal mine and payments to consultants, had contributed to massive financial losses.

The parliamentary inquiry's finding had put forward that:

“The abuse of public resources to benefit these private interest stands in direct contradiction to Eskom’s constitutional obligations to ensure its procurement processes are equitable, transparent, fair, competitive and cost-effective… (V)arious Eskom board members were conflicted in their dealings with some of the private businesses and may have acted unlawfully together with senior management to benefit a network that sought to achieve the capture of Eskom…”

Included in this, Malusi Gigaba and Lynne Brown ( former public enterprises minister) were found to have been 'grossly negligent' and will appear before the Zondo Commission.

So, what do we know so far about the plan to keep the nation powered?

At this point in time it seems to depend on restructuring Eskom in to three divisions. The entity will be split into Generation, Transmission and distribution.

Naturally, the massively indebted entity would require additional financial support in order to survive.

However, while the details have shifted, none of this has changed since July 2018. At the time, the ANC had confirmed it would discuss the restructuring. The proposal was to tap the Public Investment Corporation, which manages R2 trillion worth of assets including pensions and social saving, to turn a R120 billion loan into equity.

This plan was thwarted, with workers naturally declining the notion of tying their pensions to a sinking ship. COSATU and SAFTU had both opposed the move, especially in the face of other questionable investments made by the PIC.

A government bailout to the tune of R100 billion was then proposed, along side the restructuring proposal. Privatization seems to be an option that remains off the table.

With the Eskom sustainability task team due to complete work next week as well as President Cyril Ramaphosa due to give his State of Nation address in February, the path forward for the power entity should be illuminated.

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Source: Briefly.co.za

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