Late in 2019 Cosatu and Numsa suggested that the Government Employee Pension Fund and other pension funds be directed towards providing Eskom with some sort of debt relief.
Cosatu want private capital to be invested in Eskom to relieve its debt burden but are then also opposed to any form of privatisation. It is not possible to have both. It is a contradiction. One can’t make this go away through a sleight of hand, whether through a separate SPV or using other structures labelled with terms like “hybrid”, “mezzanine”, “blended”, “collateralised”, “synthetic” and so on.
In the real world, beyond accounting and legal definitions, matters get much more complicated. Loan agreements often prescribe what a company may and may not do, meaning lenders do have a say in how things are run. If a business is very indebted, lenders get a bigger say at the cost of the discretion of owners, and if a business goes insolvent, lenders become owners. With long-term debt approaching R500-billion and equity of R150-billion, the capital structure debt/equity ratio is 3:1.
At the root of the problem is that government, operating through the Department of Public Enterprises , has been a truly awful, awful shareholder. The biggest sin is that it has never either understood or bothered to find out how Eskom actually functions. When things go wrong, as they have been for a decade now, it appears that the DPE or whoever is the minister at any point in time is as surprised as anyone.
Along the way, Eskom’s management has “taken the ball” and run with it. Understanding their shareholder, they have sought to run Eskom in an extremely opaque fashion knowing that there is little accountability. We see the results: extremely poor investments, the development of a needlessly high cost base, declining technical, environmental and financial performance and latterly before some course correction under Ramaphosa, widespread corruption.
And yet, despite everything, using a fresh pair of eyes, it is possible to imagine Eskom, or rather the South African electricity supply sector as a worthy long-term investment. Some of its assets, especially the transmission grid, the pumped storage facilities, and even some of its generators are worthwhile. It has a valuable customer base, most of whom don’t really want to get into investing in self-provisioned electricity infrastructure themselves.
Eskom’s debt is unserviceable and will probably not be able to be refinanced, which prevents the critical restructuring that needs to happen if South Africa is to move forward and see meaningful economic growth again. Economic growth means the performance of the PIC’s other investments are not just dependent on endless accommodative monetary policy that harms savers and holds real dangers for runaway inflation and therefore stability.