Interview: Is there light at the end of Eskom’s tunnel?

November 29th, 2018, Published in Articles: EE Publishers, Articles: Energize

Bruce Whitfield, the host on Talk Radio 702’s Money Show, interviewed Chris Yelland, an energy commentator and the managing director at EE Publishers, following Eskom’s media briefing on 28 November 2018, where it released its interim financial results for the 6-month period to 30 September 2018. Whitfield asked Yelland about Eskom’s position and the difficult path to sustainability that lies ahead.

Listen to the interview here:

Or read the transcript below:

Bruce Whitfield: It’s quite depressing when one considers the condition state-owned enterprises are in. Eskom is broken, it’s in huge trouble. Profits are down 89% to R671-million, and it is costing the utility R15-billion, up from nearly R12-billion, just to pay its debts. That’s a disastrous position to be in, and even Jabu Mabuza, the chairman, is describing this debt burden of Eskom as impossibly high. Is there any light at the end of the tunnel, Chris Yelland?

Chris Yelland

Chris Yelland: Well, I think what we saw today was a very, very frank, open and clear picture presented by the new chief financial officer. He had been acting CFO for a while but was appointed today, and there were really no holds barred. He told it like it is, I think, and we were spared the spin and stuff we had been fed for a long time during the days of Brian Molefe and Mr Koko and Sean Maritz. But today we saw a very frank and open disclosure of the dire financial position that Eskom finds itself in.

Bruce Whitfield: Is there any way the power utility can pull itself back from the brink without bankrupting the rest of us in the process?

Chris Yelland: Eskom has a number of issues to face. On the operational level, with the necessary effort and money ring-fenced for maintenance, and a step-by-step implementation of its nine-point plan, Eskom could get its operational performance back to where it should be. It’s going to take time, but I think there is a determination to do it.

On the financial side, if Eskom had a free hand just to raise prices as it felt necessary, and did not have to worry about the price-elasticity of demand and the impact on the economy, it might be able to trade its way out of financial difficulties if it could increase the price along the lines it would like to do in terms of its annual price increase following the MYPD 4 process, as well as the regulatory clearing account process.

But the reality is that the politics of South Africa, the regulatory environment and the impact of the economy will not allow Eskom just to do what it wants with its prices, and really this means it cannot trade its way out of this problem, and it has to look for deeper structural changes. That’s what Eskom’s longer term strategic plan that has been presented to the board and to the minister and to the president is all about.

Bruce Whitfield: So it’s got a plan, and the plan can work. In the meantime, however, Eskom has got to keep various wolves at bay. Has it got the wherewithal do it without depending on the fiscus?

Chris Yelland: Well it seems like there’s two silos within Eskom. On the one hand there are the operational financial people who are just following the normal business-as-usual approach of submitting MYPD 4 and RCA applications for price increases. They have just got to carry on doing what they always do.

But then in the other silo we see the CEO and the board and the chairman looking at these deeper strategic and structural issues, and it seems to me that it is not just business-as-usual – it is simply unsustainable to carry on the way it has been carrying on the for the last years. The regulatory process is not fit for purpose. They have to look at the structural issues, and it looks to me that Eskom is preparing for a possible unbundling, which is a decision that will have to be taken by the shareholder itself – that is the government and the Department of Public Enterprises.

Bruce Whitfield: This is effectively the thing that was facing the Thabo Mbeki administration, and they never got around to it, or dodged it, or could not face it, or didn’t want to deal with it, because it is ideologically difficult for the ANC to do, isn’t it?

Chris Yelland: Exactly. Politically there is going to be some hard choices made by the president. If I were to try and be positive and look at it optimistically, I’m hoping that in fact this plan is coming together. I’m hoping that it will start coming together by the time of the state-of-the-nation address, by the time of the budget, and finally the election.

And the man with the plan, and the only man with a plan, I think, will be Cyril Ramaphosa, and this will put him in a strong position if he can win significant support as a man with a plan to implement this plan with a stronger political base after the election.

Click here to listen to the interview

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