These weren’t the first power outages, but they were the worst yet. Intermittent supply cuts over the past 14 years had already sapped business confidence and limited private investment in South Africa. In 2017, when he was leading Goldman Sachs Group Inc.’s business in sub-Saharan Africa, Colin Coleman described the struggles of state power company Eskom Holdings SOC Ltd as the biggest threat to the South African economy.
In the early ’80s the company ran into financial trouble after committing to build plants that weren’t needed. The government appointed a commission to reorganize Eskom’s management. After the country’s apartheid regime fell in 1994, the company rapidly rolled out electrical connections to millions of Black South Africans. In 2001 the Financial Times named Eskom the world’s best power company.
But the company’s financial situation has deteriorated dramatically. Today those bonds have a risk premium of about 4 percentage points above government bonds. In a separate agreement with South African investigative authorities, ABB Ltd agreed to return R1.56 billion it was paid for control and instrumentation work on the plants. ABB’s contracts were among a number Eskom reached with international and local companies, the terms of which were repeatedly modified. In some cases the new terms cost Eskom a multiple of the original amount. Neither Hitachi nor ABB admitted wrongdoing.
Local companies “got access, and in the process they were treated differently by Eskom under political pressure,” Mondi says. “You got the beginning of Eskom’s balance sheet being eroded.”In 2015, Eskom and then-Mineral Resources Minister Mosebenzi Zwane allegedly pressured Glencore to sell mines supplying the utility to a company owned by the Gupta family, who were friends with former President Jacob Zuma. Zuma’s son Duduzane had a stake in the company.
Pravin Gordhan, who oversees Eskom as minister of public enterprises, blames the crisis on corruption and management instability. Eskom, whose CEOs are appointed by the utility’s board in consultation with the government, has had 14 leaders since 2007.“South Africa’s original industrial model was founded on cheap labor and cheap electricity,” says Peter Worthington, a senior economist at Absa Bank Ltd. “We’re no longer a very cheap electricity country.
The Public Investment Corp, which manages pensions for South African government workers, proposed converting its Eskom bonds, worth about R90 billion, into an equity stake in the company.
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