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Following President Cyril Ramaphosa telling delegates at the World Economic Forum in Davos that a turnaround strategy for Eskom would soon be unveiled, many industry and finance experts are proposing solutions ranging from unbundling the utility’s assets to business rescue. However, government has stated that Eskom must be saved, at all costs.

Eskom too big to fail

“We are currently developing a response to the financial and operational crisis at the country’s electricity utility, Eskom. In the next few weeks, we will be announcing a set of measures to stabilise and improve the company’s financial position and to ensure uninterrupted energy supply,” Ramaphosa said at Davos, following it up with a statement that Eskom is just too big to fail on a recent visit to India.

The restructuring of Eskom was a priority discussion at the recent ANC lekgotla, where a substantial debt bailout and separation of the utility into three parts was proposed. Bloomberg reports that asset management firm Anchor Capital has called for Eskom to enter a “negotiated” business rescue process and for a partial listing of its business to ensure its financial sustainability.

Nolan Wapenaar, the chief investment officer at Anchor Capital, told Bloomberg that a controlled default of Eskom on its debts was the most appropriate tool for restructuring the business. “An Eskom default does not mean the lights go out and that it ceases to exist. Instead, it is put under curatorship with a view towards restructuring its operations, payroll and balance sheet structures,” Wapenaar said.

“Under such a business rescue scenario it would be essential to ensure that suppliers continue to be paid on time, while the business is being fixed. This is a remarkably similar exercise to that which was undertaken for African Bank, just on a far grander scale. We are advocating that Eskom undergoes a negotiated business rescue.”

Whatever government decides to do, it is clear that two challenges will remain: Municipalities who are indebted to Eskom to the tune of R13-billion, and union demands. In addition, the cash-strapped utility is facing a mounting repair bill at two new coal-fired power stations that are still under construction, compounding its already dire financial situation.

With no firm plans announced yet, the National Union of Metalworkers of South Africa (Numsa) has accused the ANC of pursuing what it calls “nefarious” plans to privatise Eskom. In a column, Numsa general secretary Irvin Jim said senior management at Eskom and the government had identified privatisation as a way of covering up “for their ineptitude and corruption” at the utility.

“History has shown us that privatisation is not beneficial because it always leads to massive job cuts and because profit is the motive, it translates to higher costs for the consumer. More than two decades after the end of apartheid and the majority of people continue to be denied access to electricity because it is too costly,” Jim wrote.

Image credit: https://www.flickr.com/photos/governmentza/46902170641/

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