Cyril Ramaphosa has insisted that South Africa’s teetering state electricity monopoly would not be allowed to fail, promising he would take measures within days to stabilise its debt-laden finances.
The president told Cape Town’s Mining Indaba, or conference, on Tuesday that Eskom was “too big and too important to fail”, amid speculation that he was about to order its break-up.
Eskom supplies nearly all the power for Africa’s most industrialised economy, but years of mismanagement and corruption have left the utility with debts of more than $30bn and ageing, blackout-prone coal-fired plants.
The return of recurrent outages last year throttled industry and heightened the crisis at the utility, which is trapped in a cycle of borrowing to repay its debts. It faces losses of R20bn ($1.5bn) this financial year.
“Eskom’s contribution to the health of our economy is too great for it to be allowed to fail . . . Restoring energy security for the country is an absolute imperative,” Mr Ramaphosa said.
The government would soon unveil a “package of measures to stabilise and improve Eskom’s financial, operational and structural position”, he added. Mr Ramaphosa is expected to announce the turnround plan in the annual state of the nation address on Thursday.
Analysts said the measures could include breaking Eskom up into separate power-generation, transmission and distribution units to make it more manageable. An advisory panel recently called for the utility’s separation.
Phakamani Hadebe, the monopoly’s chief executive, confirmed this week that Eskom had been in discussions with the government over an unbundling. But analysts warned that a break-up would do little to resolve the utility’s immediate cash crisis.
Eskom’s executives have also floated a government cash injection or takeover of part of the utility’s debt by the state. But South Africa’s public finances are badly stretched by a stagnant economy and the legacy of institutional decay under Jacob Zuma, Mr Ramaphosa’s predecessor.
As they are mostly state-guaranteed, Eskom’s debts threaten South Africa’s last remaining investment-grade credit rating, bestowed by Moody’s.
South Africa’s Treasury has previously turned down a proposal by Eskom to transfer R100bn ($7.5bn) of its debt to the government’s balance sheet.
Industrial buyers of Eskom’s electricity are also resisting its demand to increase tariffs by 15 per cent a year over the next three years to finance a turnround.
“If the proposals are accepted, it will destroy not only the mining industry but large parts of the manufacturing business . . . it is completely unacceptable,” Neal Froneman, chief executive of Sibanye-Stillwater, the country’s largest gold producer, said.
Mr Ramaphosa, whose ruling African National Congress faces an election this year, pledged an overhaul of Eskom after winning a battle to succeed Mr Zuma a year ago.
The utility was central to claims that Mr Zuma orchestrated the “capture” of state institutions for looting by the Guptas, a business family with ties to him. Both Mr Zuma and the Guptas have denied the claims.