The Social Compact on Eskom, finalised by stakeholders in the National Economic and Development and Labour Council (NEDLAC) has detailed a set of measures aimed at improving the sustainability of of the company. The debt level referred to is pegged at R488bn.
The true financial position of the utility is however well over the reported R488bn. Karl Miller, a global energy adviser estimates Eskom’s “real” debt at $45bn (more than R760bn at this week’s exchange rate), including off-balance sheet debt and deferred plant maintenance.
Against this background, the compact outlines intervention in three main areas: a strategy to reduce debt levels, to maximise revenue and collect all outstanding debt, and to change and reduce cost structures for all goods and services.
With regard to debt, the compact aims to commit all social partners to mobilise adequate financial resources for Eskom. This is simply a veiled reference to the ongoing attempt to mobilise private savings to bail out the utility. While it says that the investments made must comply with the mandates of financial institutions, their fiduciary duties and the principle of risk adjusted returns, Eskom is embarking on an attempt at financial wizardry to inflate the Eskom Holdings balance sheet using the surplus of around ZAR35bn built up in the (defined benefit) Eskom Pensions and Provident Fund (EPPF) and then cut contributions from Holdings to EPPF for future years. The EPPF and Holdings auditors are reportedly and understandably unhappy.
Even if the R30bn owed by municipalities is settled immediately and stringent measures taken to curtail illegal connections, the debt remains at an economically crippling level. This, while revenue continues to fall in a pre and post-Covid shrinking economy.
For procurement cost structures to be reduced, it would be useful and necessary – given the history of inflated prices – to be transparent about past and future contracts. In the absence of this the tax payer is blindsided while tentacles reach out to pension funds to ameliorate debt.