Eskom is looking for R884 billion


Eskom want to increase as much as R884 billion in the next three years through a large increase in electricity prices and potentially the largest government state-owned company bailout in history.

If the utility gets support from National Energy Regulator (Nersa), who started this week's national audience, will have a negative impact on the economy, including job losses and the closure of vulnerable businesses.

Energy consultant Ted Blom noted in his presentation to Nersa that the proposed increase in electricity prices would cut 134,000 jobs.

Eskom has submitted an application to Nersa to recover R21.6 billion for the 2018 financial year because of a shortage of income as a result of a decrease in electricity sales.

The company has submitted three annual increases in electricity prices of 15% each for the financial year 2020, 2021 and 2022 with total revenues of R762 billion.

President Cyril Ramaphosa said this week at the pre-World Economic Forum that his Eskom task team "worked diligently to make a proposal. Eskom is still a big challenge but … there is a glimmer of light at the end of the tunnel. "

Jeffrey Schultz, an economist at BNP Paribas, said Nersa could not give Eskom three times in a row 15% annual electricity price increase.

This is because Nersa used a complicated formula to decide how much power Eskom gave.

The regulator also considers the waste of expenditure under consideration, he said.

Schultz said the 8% increase for three consecutive years was probably more feasible than 15%.

Eskom indicated this week that cash from power plants is not enough to cover debt payments and capital expenditures.

The presentation showed that during the half year ending in September, Eskom generated R22.3 billion in cash from the sale of electricity, which fell below the R23.2 billion paid for debt payments.

Eskom Phakamani Hadebe CEO this week warned at the Nersa hearing in Cape Town that a large increase in local rates would not be a "silver bullet" that would solve all Eskom problems.

Even if Eskom gets the increase it wants, it still has an R50 billion debt hole to install. "To make sure, Eskom is looking for a massive bailout."

Director General of National Treasury Dondo Mogajane confirmed this week in an interview with City Press that Eskom wanted a bailout of R100 billion.

The biggest bailout of state-owned companies was in 2015, when Eskom received R83 billion – consisting of R23 billion in cash and the elimination of R60 billion interest-free loans.

Read: Again, taxpayers will bear the burden

Isaac Matshego, an Nedbank economist, said rating agencies tended to react negatively and aggressively to the Eskom bailout carried out without a credible plan to stabilize it because this would be interpreted as a signal that Eskom would continue to drain the country's finances and the wider economy.

Mogajane said the government did not have R100 billion to guarantee Eskom.

"If we have to give them [R100 billion] then we have to bridge [government’s expenditure ceiling]. If we give them money – then we have to borrow more. The R100 billion bailout did not come out of the question itself. On the table. Hold everything constantly, if you need extra money – something must give.

"I have to stop certain programs from being given to Eskom – just like SAA."

Every money allocated to Eskom will require a government budget and expenditure to be re-prioritized.

"It is important to prioritize growth. The rating agency will be happy … All the balls hang in the air now. These things will be strengthened when we enter the country address and budget speech … We are waiting for the Nersa process. "

BNP Paribas' Schultz said that the Ministry of Finance is likely to wait until Eskom has proposed a turnaround plan and for Nersa to come out with determination, which can be done in March or April, before deciding what level of government injection might be made.

Finance Minister Tito Mboweni made his mind known about Eskom when, in December, he tweeted a filter image, said Schultz.

"The fiscus is not in a position to continue pouring money into unproductive assets," Mboweni said in an interview with Bloomberg.


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